MA 3 difficile aperto

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Questions and Answers

Explain the impact of underapplied or overapplied overhead on financial statements.

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.

What is the predetermined overhead rate and how is it used in job-order costing?

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.

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.

In what industries is job-order costing used, and how is it applied in those industries?

Job-order costing is used in manufacturing as well as service industries like law firms, accounting firms, and medical treatment. It is applied by tracing costs for a job, involving directly traceable costs like labor and material, and indirectly traceable manufacturing overhead. Signup and view all the answers

What approach does the chapter use for costing and what are the assumptions involved?

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

How are overhead costs applied to jobs in job-order costing, and what impact can differences between applied and actual overhead costs have?

Overhead is applied to jobs based on the predetermined allocation rate multiplied by the allocation base (actual). Differences between applied and actual overhead costs can overstate or understate the cost of the product. Signup and view all the answers

Explain the difference between absorption costing and variable costing and how each method impacts break-even and cost-volume-profit analysis?

Absorption costing includes fixed manufacturing overhead in the cost of inventory, while variable costing treats fixed manufacturing overhead as a period cost and only includes variable manufacturing costs in the cost of inventory. This difference makes it difficult to perform break-even and cost-volume-profit analysis using absorption costing, as it distorts the behavior of fixed costs. Signup and view all the answers

What is the purpose of segment margin in segmented income statements, and how is it calculated?

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

Explain the concept of traceable fixed costs and common fixed costs in the context of segment reporting.

Traceable fixed costs arise due to the existence of a particular segment and would disappear if the segment itself disappeared. Common fixed costs arise from the overall operation of the company and would not disappear if any particular segment were eliminated. Signup and view all the answers

Why should common costs not be allocated to segments, and how does it impact decision-making?

Allocating common costs to segments distorts decision-making because it may lead to incorrect evaluations of segment profitability and may not reflect the actual costs incurred by each segment. Signup and view all the answers

What is the purpose of segment reporting at Webber, Inc., and how does it differ from traditional cost allocation methods?

The purpose of segment reporting at Webber, Inc. is to use the contribution format, listing fixed and variable costs separately, and not allocate common costs to divisions. This differs from traditional cost allocation methods, as it provides a more accurate representation of segment profitability. Signup and view all the answers

How does Activity-Based Costing (ABC) differ from traditional cost accounting, and what types of costs does it assign to products?

ABC differs from traditional cost accounting by using numerous overhead cost pools and a more complex allocation scheme. It assigns nonmanufacturing and manufacturing costs to products on a cause-and-effect basis and can exclude certain costs from product costs. Signup and view all the answers

Explain the concept of activity-based costing (ABC) and how it differs from traditional cost systems.

Activity-based costing (ABC) is a costing method that assigns overhead costs to products based on the activities they require. It differs from traditional cost systems, which often rely on direct labor hours and machine hours to allocate overhead costs. ABC uses different activity cost pools, each with its unique measure of activity, to more accurately allocate costs to products based on the specific activities they require. Signup and view all the answers

What are the characteristics of a successful ABC implementation?

A successful ABC implementation requires strong top management support, linking ABC to how people are evaluated and rewarded, and creating cross-functional teams. Without leadership from top management, employees may not be motivated to embrace the changes. If employees continue to be evaluated and rewarded using traditional cost data, they may abandon ABC. Cross-functional teams are essential for designing an effective ABC system. Signup and view all the answers

What are the five steps for implementing ABC?

The five steps for implementing ABC are: (1) Define activities, activity cost pools, and activity measures; (2) Assign costs to cost pools using a first-stage allocation; (3) Calculate activity rates; (4) Assign costs to cost objects using the activity rates; (5) Prepare management reports. Signup and view all the answers

Provide examples of different activity measures used in an activity-based costing system.

Two common types of activity measures used in an activity-based costing system 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

How does ABC allocate costs to products compared to traditional cost systems?

ABC allocates costs to products based on the specific activities they require, using different activity cost pools and measures. Traditional cost systems often rely on direct labor hours and machine hours to allocate overhead costs, which may not accurately reflect the activities required by different products. Signup and view all the answers

What are the cost pools and activity measures assigned in the given example of an automobile battery company?

In the given example of an automobile battery company, the cost pools and activity measures assigned are: Customer Orders - assigned all costs of resources that are consumed by taking and processing customer orders; Design Changes - assigned all costs of resources consumed by customer requested design changes; Order Size - assigned all costs of resources consumed as a consequence of the number of units produced; Customer Relations - assigned all costs associated with maintaining relations with customers; Other - assigned all organization-sustaining costs and unused capacity costs. Signup and view all the 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). If the cost of Job 407 is $x, then the selling price would be $x + (x * 75%). Signup and view all the answers

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. Signup and view all the answers

What is activity-based costing and how is it employed in creating overhead rates?

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. This approach is employed to more accurately measure the demands that jobs, products, customers, and other cost objects make on overhead resources. Signup and view all the answers

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

Job cost sheets are used to create a balance sheet and income statement for external parties in job-order costing systems. All of a company’s job cost sheets collectively form a subsidiary ledger. Signup and view all the answers

How does using a departmental approach to overhead application affect the selling price of Job 407?

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. Signup and view all the answers

What is the learning objective related to job cost sheets?

The learning objective related to job cost sheets is to use them to calculate ending inventories and cost of goods sold. Signup and view all the answers

Explain the difference between variable costing 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. Signup and view all the answers

What is the impact of the treatment of fixed manufacturing overhead on cost of goods sold and inventory valuation in variable and absorption costing?

The treatment of fixed manufacturing overhead impacts the cost of goods sold and inventory valuation by including fixed manufacturing overhead in unit product cost under absorption costing, but not under variable costing. Signup and view all the answers

How are income statements prepared using variable and absorption costing, and what is the key consideration in computing net operating income?

Income statements using variable and absorption costing are prepared to compute net operating income, considering sales and production units. The key consideration is the treatment of fixed manufacturing overhead in the cost of goods sold and inventory valuation. Signup and view all the answers

What is the impact of production and sales on net operating income in variable and absorption costing?

The relationship between production and sales affects net operating income differently in variable and absorption costing. Variable costing is directly influenced by changes in unit sales, while absorption costing is also affected by changes in production units, increasing net operating income even if unsold units are produced. Signup and view all the answers

How does variable costing simplify cost-volume-profit (CVP) analysis, and what does it highlight?

Variable costing simplifies cost-volume-profit (CVP) analysis by categorizing costs as variable and fixed and highlighting the contribution margin. Signup and view all the answers

Under what circumstances can absorption costing lead to positive operating income when the number of units sold is less than the breakeven point?

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, impacting net operating income. Signup and view all the answers

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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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