Fixed, Variable, and Mixed Costs (LO 3-1)
According to economics, in the long run all costs are __________ and in the short run at least one cost is __________.
What is variable and fixed?
This can easily be performed in Excel to determine the best-fitting line of data.
What is the method of least squares?
The predetermined overhead rate formula.
What Overhead rate = Budgeted annual overhead/Budgeted annual driver level?
This term means that products consume overhead activities in different proportions and can cause product cost distortion when using plantwide or departmental overhead rates to assign overhead to products.
What is product diversity?
The design steps for an ABC system
What are identify, define, and classify activities and key attributes; assign the cost of resources to activities; assign the cost of secondary activities to primary activities; identify cost objects and specify the amount of each activity consumed by specific cost objects; calculate primary activity rates; assign activity costs to cost objects?
These explain changes in cost as units produced change.
What are unit-level drivers?
This method is perhaps the easiest one to use when separating mixed costs into their fixed and variable components.
What is the high-low method?
A company uses a plantwide rate to apply overhead costs using direct labor hours.
If the estimated overhead is $350,000 and the estimated direct labor hours is 50,000, then the plantwide overhead rate is this.
What is $7.00 per direct labor hour?
Two major factors that impair the ability of of plantwide and departmental overhead rates to assign overhead costs accurately.
What is the proportion of non-unit-related overhead costs to total overhead costs is large and the degree of product diversity is great?
This is an activity that is consumed by a final cost object.
What is a primary activity?
These costs are total in constant and decrease per unit as more units are produced.
What are fixed costs?
Amazon has identified the following high and low points of data on materials handling cost and the number of moves:
High: Materials handling cost - $7,500; Number of moves - 500
Low: Materials handling cost - $2,000; Number of moves - 100
The variable rate and fixed cost is this.
What is variable rate of $13.75 per move and fixed cost of $625?
A company has 2 departments: Molding and Assembly, and the company uses departmental overhead costing to apply overhead costs to products.
Machine hours are used to apply overhead to the Molding Department and direct labor hours are used to apply overhead to the Assembly Department.
If Molding estimates overhead at $250,000 and machine hours at 20,000 and Assembly estimates overhead at $100,000 with 40,000 direct labor hours, the overhead rates for each department are this.
What is $12.50 per machine hour for the Molding Department and $2.50 per direct labor hour for the Assembly Department?
This is the proportion of each activity consumed by a product.
What is the consumption ratio?
Activities can be classified into these four categories.
What are unit-level, batch-level, product-level, and facility-level activities?
These costs have both a fixed and variable component.
What are mixed costs?
Amazon has identified the following high and low points of data on materials handling cost and the number of moves:
High: Materials handling cost - $7,500; Number of moves - 500
Low: Materials handling cost - $2,000; Number of moves - 100
The cost formula using the high-low method for materials handling is this.
What total materials handling cost = $625 + ($13.75 x Moves)?
This term is used when actual overhead is greater than applied overhead.
What is underapplied overhead?
This method of assigning overhead costs is considered more accurate but also more expense to implement than plantwide or departmental overhead rates.
What is activity based costing?
The underlying assumption for this costing system is that activities consumer resources, and products and other cost objects consume activities
What is activity-based costing (ABC)?
These costs increase in total in proportion to changes in the activity driver, but remain fixed per unit.
What are variable costs?
This method uses a scattergraph and judgment to determine the best-fitting line.
What is the scatterplot method?
This term is used when applied overhead is greater than actual overhead incurred.
What is overapplied overhead?
A company has decided to implement activity-based costing and has identified the activities, cost, and activity drivers:
Machining: $150,000; Machine hours: 30,000
Setting up: $80,000; 100 setups
Moving materials: $70,000; 350 moves
Inspecting products: $50,000; 4,000 inspection hours
The activity rate for each activity is this.
What is Machining - $5.00 per machine hour, Setting up - $800 per setup, Moving materials - $200 per move, and Inspecting products - $12.50 per inspection hour?
These are factors that measure the consumption of resources by activities.
What are resource drivers?