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Questions and Answers

What is the selling price of Job 407 assuming a 75% markup?

The selling price of Job 407 assuming a 75% markup can be calculated using the formula: Selling Price = Cost + (Cost * Markup Percentage).

What is the appeal of using predetermined departmental overhead rates?

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.

What is activity-based costing?

Activity-based costing is an alternative approach to developing multiple predetermined overhead rates. It involves creating overhead rates based on the activities that a company performs, in order to more accurately measure the demands that jobs, products, customers, and other cost objects make on overhead resources.

How are job cost sheets used in job-order costing systems?

Job cost sheets are often 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. Signup and view all the answers

What is the purpose of using job cost sheets?

The purpose of using job cost sheets is to calculate ending inventories and cost of goods sold, as part of the job-order costing system. Signup and view all the answers

What is the significance of using an activity-based costing system?

The significance of using an activity-based costing system is that it allows managers to more accurately measure the demands that jobs, products, customers, and other cost objects make on overhead resources, leading to improved cost allocation and decision making. Signup and view all the answers

Explain the concept of underapplied and overapplied overhead.

Underapplied overhead occurs when less overhead is applied to production than actually incurred, while overapplied overhead occurs when more is applied. Signup and view all the answers

What is the purpose of job cost sheets in job-order costing?

Job cost sheets provide financial records explaining specific jobs in Work-in-Process, Finished Goods, and Cost of Goods Sold on financial statements. Signup and view all the answers

How does variable costing differ from absorption costing?

Variable costing differs from absorption costing by using only variable costs to compute the cost of the product, while absorption costing includes both fixed and variable components. Signup and view all the answers

What is the predetermined overhead rate used for in job-order costing?

The predetermined overhead rate, computed at the beginning of each period, accounts for the lack of synchronization between accruing manufacturing overhead and job production. Signup and view all the answers

What are some examples of service industries that use job-order costing?

Job-order costing is also used in service industries like law firms, accounting firms, and medical treatment. Signup and view all the answers

How are costs for a job traced in job-order costing?

Tracing costs for a job involves directly traceable costs like labor and material, and indirectly traceable manufacturing overhead. Signup and view all the answers

In variable costing, what costs are considered product costs?

Direct and indirect variable costs. Signup and view all the answers

What is the difference between variable and absorption costing?

The difference lies in the treatment of fixed manufacturing overhead, impacting the cost of goods sold and inventory valuation. Signup and view all the answers

Under which costing method does the unit product cost include fixed manufacturing overhead?

Under absorption costing. Signup and view all the answers

How are income statements prepared using variable and absorption costing?

They are prepared to compute net operating income, considering sales and production units. Signup and view all the answers

What does reconciling variable and absorption costing net operating incomes involve?

Adding fixed manufacturing overhead deferred in inventory to variable costing net operating income. Signup and view all the answers

How does the relationship between production and sales affect net operating income differently in variable and absorption costing?

The relationship affects net operating income differently because changes in production units also impact net operating income in absorption costing. Signup and view all the answers

Explain the difference between absorption costing and variable costing.

Absorption costing includes fixed manufacturing overhead in the cost of the product, while variable costing treats fixed manufacturing overhead as a period expense and only includes variable manufacturing costs in the cost of the product. Signup and view all the answers

What is the purpose of segmenting the overall activity in managerial accounting?

Decentralization involves segmenting the overall activity into smaller segments, and managerial accounting provides information by unit and segment to better understand and manage the different parts of the organization. Signup and view all the answers

How is the segment margin calculated in segmented income statements?

The segment margin is calculated by subtracting traceable fixed costs from contribution margin, providing a measure of the long-run profitability of a segment. Signup and view all the answers

Why should common costs not be allocated to segments in managerial accounting?

Common costs should not be allocated to segments, as it distorts decision-making and does not reflect the true impact of each segment on overall profitability. Signup and view all the answers

What is the purpose of Activity-Based Costing (ABC)?

ABC is a method designed to provide managers with cost information for strategic decisions affecting capacity and variable costs, and it assigns nonmanufacturing and manufacturing costs to products on a cause-and-effect basis. Signup and view all the answers

How does ABC differ from traditional cost accounting?

ABC differs from traditional cost accounting by using numerous overhead cost pools and a more complex allocation scheme, addressing the complexity and product differentiation in addition to volume. Signup and view all the answers

Explain the difference between traditional cost systems and activity-based costing (ABC) systems.

Traditional cost systems rely on direct labor hours and/or machine hours to allocate all overhead costs to products, while ABC systems use unique measures of activity for each cost pool to allocate overhead costs to products. Signup and view all the answers

What are the key definitions and concepts in the context of activity-based costing (ABC)?

Key definitions and concepts in ABC include activity (an event that causes the consumption of overhead resources), activity cost pool (a 'cost bucket' for accumulating costs related to a single activity measure), and activity measure (an allocation base in an activity-based costing system). Signup and view all the answers

What are the characteristics of a successful ABC implementation?

Characteristics of a successful ABC implementation include strong top management support, linking ABC to how people are evaluated and rewarded, and creating cross-functional teams with intimate knowledge of operations. Signup and view all the answers

What are the five steps for implementing ABC?

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) assigning costs to individual units of product, service, or customer using a second-stage allocation, (4) preparing management reports, and (5) taking action to improve activities and reduce costs. Signup and view all the answers

What are the different types of activity measures in ABC?

The two common types of activity measures in ABC are transaction drivers (simple count of the number of times an activity occurs) and duration drivers (a measure of the amount of time needed for an activity). Signup and view all the answers

What costs are assigned to the 'Other' activity cost pool in ABC?

The 'Other' activity cost pool in ABC is assigned all organization-sustaining costs and unused capacity costs. Signup and view all the answers

Study Notes

Managerial Accounting and Decision Making

Absorption costing distorts the fixed manufacturing overhead, making it difficult to perform 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.
Decentralization involves segmenting the overall activity into smaller segments, and managerial accounting provides information by unit and segment.
Segmented income statements use a contribution format to separate fixed from variable costs and calculate segment margin.
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.
The segment margin, computed by subtracting traceable fixed costs from contribution margin, is a key gauge of the long-run profitability of a segment.
Common costs should not be allocated to segments, as it distorts decision-making.
Segment reporting at Webber, Inc. uses the contribution format, listing fixed and variable costs separately, and does not allocate common costs to divisions.
Activity-Based Costing (ABC) is a method designed to provide managers with cost information for strategic decisions affecting capacity and variable costs.
ABC 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.
ABC addresses the complexity and product differentiation in addition to volume, unlike traditional cost systems.

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Description

Test your knowledge of managerial accounting and decision-making with this quiz. Explore concepts such as absorption costing, variable costing, decentralization, segmented income statements, traceable and common fixed costs, segment margin, segment reporting, and Activity-Based Costing (ABC). Sharpen your understanding of how these principles impact strategic decision-making and profitability analysis.