MA 3 medio aperte

Variable costing only includes variable costs in product costs, while absorption costing includes both variable and fixed costs in product costs.

In variable costing, fixed manufacturing overhead is not considered a product cost, while in absorption costing, fixed manufacturing overhead is included as a product cost.

Unit product cost under absorption costing includes fixed manufacturing overhead, while under variable costing, it only includes variable costs.

<p>Income statements using variable and absorption costing are prepared to compute net operating income, considering sales and production units.</p> Signup and view all the answers

<p>Reconciling variable and absorption costing net operating incomes involves adding fixed manufacturing overhead deferred in inventory to variable costing net operating income.</p> Signup and view all the answers

<p>The relationship between production and sales affects net operating income differently in variable and absorption costing.</p> Signup and view all the answers

<p>Underapplied overhead occurs when less overhead is applied to production than actually incurred, leading to an understatement of cost of goods sold and an overstatement of net operating income. Overapplied overhead occurs when more overhead is applied to production than actually incurred, leading to an overstatement of cost of goods sold and an understatement of net operating income.</p> Signup and view all the answers

<p>Job-order costing is used in service industries like law firms, accounting firms, and medical treatment to track the costs of providing specific services to clients. Tracing costs for a job involves directly traceable costs like labor and material, and indirectly traceable manufacturing overhead.</p> Signup and view all the answers

<p>The predetermined overhead rate is computed at the beginning of each period and is used to apply overhead to jobs based on the predetermined allocation rate multiplied by the allocation base (actual). It accounts for the lack of synchronization between accruing manufacturing overhead and job production.</p> Signup and view all the answers

<p>At the end of the period, applied overhead and actual overhead are compared, and any differences can overstate or understate the cost of the product, impacting the accuracy of the cost of goods sold and net operating income.</p> Signup and view all the answers

<p>Variable costing uses only variable costs to compute the cost of the product, while absorption costing includes both fixed and variable components in product costing.</p> Signup and view all the answers

<p>The chapter uses actual costing rather than the normal costing approach, assumes the actual number of units produced as the allocation base, and assumes constant variable manufacturing costs per unit and total fixed manufacturing overhead cost per period.</p> Signup and view all the answers

<p>Activity-based costing (ABC) is a cost allocation method that assigns overhead costs to products based on the activities they require. Unlike traditional cost systems that rely on direct labor hours and machine hours, ABC uses different activity measures such as transaction drivers and duration drivers to allocate costs to cost pools. ABC recognizes that the consumption of overhead resources is driven by various activities, and it aims to provide a more accurate understanding of product costs by considering the complexity and diversity of products produced.</p> Signup and view all the answers

<p>A successful ABC implementation requires strong top management support, linking the evaluation and rewards system to ABC, and the creation of cross-functional teams. Top management support is crucial to motivate managers to embrace the change. Evaluation and rewards should be based on ABC data to emphasize its importance. Cross-functional teams, possessing in-depth knowledge of operations, are essential for designing an effective ABC system.</p> Signup and view all the answers

<p>The five steps for implementing ABC are: (1) defining activities, activity cost pools, and activity measures; (2) assigning costs to cost pools using a first-stage allocation; (3) calculating activity rates; (4) assigning costs to cost objects using the activity rates; and (5) preparing management reports.</p> Signup and view all the answers

<p>Activity measures, also known as cost drivers, are allocation bases used in activity-based costing systems. They represent the events that cause the consumption of overhead resources. Two common types of activity measures are transaction drivers, which count the number of times an activity occurs, and duration drivers, which measure the time needed for an activity.</p> Signup and view all the answers

<p>Relying exclusively on direct labor hours and/or machine hours may not accurately allocate overhead costs, especially with changes in the economy and the increasing variety of products. Direct labor and overhead costs may move in opposite directions on an economy-wide basis, making the traditional allocation bases less effective in reflecting the actual consumption of resources.</p> Signup and view all the answers

<p>Activity cost pools are like 'cost buckets' where costs related to a single activity measure are accumulated. Each activity has its own activity cost pool, allowing for a more precise allocation of costs based on the specific activities that drive the consumption of overhead resources.</p> Signup and view all the answers

<p>Absorption costing includes fixed manufacturing overhead in the cost of a product, which can distort the break-even and cost-volume-profit analysis. Variable costing accurately identifies additional variable costs per unit and emphasizes the impact of total fixed costs on profits.</p> Signup and view all the answers

<p>Decentralization involves segmenting the overall activity into smaller segments, and managerial accounting provides information by unit and segment. Segment reporting uses the contribution format to separate fixed from variable costs and calculate segment margin.</p> Signup and view all the answers

<p>Traceable fixed costs arise due to the existence of a particular segment and would disappear if the segment itself disappeared, while common fixed costs arise from the overall operation of the company and would not disappear if any particular segment were eliminated. Segment margin, computed by subtracting traceable fixed costs from contribution margin, is a key gauge of the long-run profitability of a segment.</p> Signup and view all the answers

<p>Common costs should not be allocated to segments, as it distorts decision-making. This is because common costs arise from the overall operation of the company and would not disappear if any particular segment were eliminated.</p> Signup and view all the answers

<p>Activity-Based Costing (ABC) provides managers with cost information for strategic decisions affecting capacity and variable costs. It assigns nonmanufacturing and manufacturing costs to products on a cause-and-effect basis and can exclude certain costs from product costs. ABC differs from traditional cost accounting by using numerous overhead cost pools and a more complex allocation scheme.</p> Signup and view all the answers

<p>ABC addresses the complexity and product differentiation in addition to volume, unlike traditional cost systems. This method is designed to provide managers with cost information for strategic decisions affecting capacity and variable costs.</p> Signup and view all the answers

<p>The selling price of Job 407 assuming a 75% markup can be calculated using the formula: Selling Price = Cost + (Cost * Markup Percentage). In this case, the selling price would be Cost + (Cost * 0.75)</p> Signup and view all the answers

<p>The appeal of using predetermined departmental overhead rates is that they presumably provide a more accurate accounting of the costs caused by jobs, which in turn, should enhance management planning and decision making.</p> Signup and view all the answers

<p>Activity-based costing is an alternative approach to developing multiple predetermined overhead rates. Managers use activity-based costing systems to more accurately measure the demands that jobs, products, customers, and other cost objects make on overhead resources.</p> Signup and view all the answers

<p>Job cost sheets are used to create a balance sheet and income statement for external parties. All of a company’s job cost sheets collectively form a subsidiary ledger.</p> Signup and view all the answers

<p>The purpose of using job cost sheets to calculate ending inventories and cost of goods sold is to accurately track and report the costs associated with production and sales of specific jobs or products.</p> Signup and view all the answers

<p>Using a departmental approach to overhead application results in a different selling price for Job 407 than would have been derived using a Plantwide overhead rate based on either direct labor-hours or machine-hours. This approach provides a more accurate reflection of the costs caused by the job.</p> Signup and view all the answers