Podcast
Questions and Answers
What approach is employed when a company creates overhead rates based on the activities it performs?
What does using predetermined departmental overhead rates aim to provide?
In job-order costing systems, what do all of a company's job cost sheets collectively form?
What is the selling price of Job 407 assuming a 75% markup?
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What is the appeal of using predetermined departmental overhead rates?
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What do managers use activity-based costing systems to more accurately measure?
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In activity-based costing, what is an activity measure?
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Why has relying exclusively on direct labor hours and/or machine hours to assign overhead costs to products come under increased scrutiny?
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What is a characteristic of a successful ABC implementation?
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What is the purpose of defining activities, activity cost pools, and activity measures in ABC?
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What does the company assign all costs of resources consumed by customer requested design changes to, in ABC?
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What is the basis for allocating all organization-sustaining costs and unused capacity costs in ABC?
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What is the impact of underapplied or overapplied overhead on financial statements?
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What is the difference between variable costing and absorption costing?
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What is the allocation base used for applying overhead to jobs?
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When does underapplied overhead occur?
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What is the purpose of the predetermined overhead rate in job-order costing?
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In which industries is job-order costing commonly used?
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In absorption costing, what does it distort, making it difficult to perform break-even and cost-volume-profit analysis?
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What does variable costing accurately identify and emphasize the impact of on profits?
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What does decentralized accounting involve segmenting the overall activity into?
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What is the key gauge of the long-run profitability of a segment?
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What method is designed to provide managers with cost information for strategic decisions affecting capacity and variable costs?
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How does ABC differ from traditional cost accounting?
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Which costing method includes only variable costs in product costs?
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What is included in unit product cost under absorption costing but not under variable costing?
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How are income statements prepared in variable and absorption costing used?
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What does reconciling variable and absorption costing net operating incomes involve?
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Which costing method expensed all fixed manufacturing overhead?
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How does the relationship between production and sales affect net operating income in absorption costing?
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Study Notes
Variable and Absorption Costing in Managerial Accounting
- Variable costing only includes variable costs in product costs, while absorption costing includes both variable and fixed costs in product costs.
- In variable costing, direct and indirect variable costs are product costs, while in absorption costing, fixed manufacturing overhead is also considered a product cost.
- The difference between variable and absorption costing lies in the treatment of fixed manufacturing overhead, impacting the cost of goods sold and inventory valuation.
- Unit product cost under absorption costing includes fixed manufacturing overhead, while under variable costing, it only includes variable costs.
- Income statements using variable and absorption costing are prepared to compute net operating income, considering sales and production units.
- Reconciling variable and absorption costing net operating incomes involves adding fixed manufacturing overhead deferred in inventory to variable costing net operating income.
- The comparison of income data for Harvey Company's second year shows unchanged unit cost computations due to constant variable costs, fixed costs, and production units.
- Under variable costing, all fixed manufacturing overhead is expensed, while under absorption costing, fixed manufacturing overhead released from inventory impacts net operating income.
- The relationship between production and sales affects net operating income differently in variable and absorption costing.
- Variable costing simplifies cost-volume-profit (CVP) analysis by categorizing costs as variable and fixed and highlighting the contribution margin.
- Absorption costing can lead to positive operating income when the number of units sold is less than the breakeven point due to fixed manufacturing overhead residing in inventory.
- Changes in net operating income are directly influenced by changes in unit sales in variable costing, while absorption costing is also affected by changes in production units, increasing net operating income even if unsold units are produced.
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Description
Test your knowledge of variable and absorption costing in managerial accounting with this quiz. Explore the differences in product cost calculations, income statements, and the impact on net operating income. Gain insights into cost-volume-profit analysis and the effects of production and sales on operating income under each costing method.
