Job Order &
Process Costing
Process Costing
Which costing system would best fit the needs of a company that makes basketballs?
A cost that changes in total in proportion to changes in volume of activity is a(n):
What is a variable cost?
A method that management uses to focus attention on the most significant differences between actual costs and standard costs is called:
What is management by exception?
A cost that cannot be avoided or changed because it arises from a past decision, and is irrelevant to current and future decisions, is called a(n):
What is a sunk cost?
The time value of money concept:
What is "a dollar tomorrow is worth less than a dollar today"?
The rate established before the start of a period that uses estimated overhead costs and an estimated activity base such as estimated direct labor, and that is used to apply estimated overhead to jobs, is the:
What is the predetermined overhead rate?
A cost with a flat cost line within a relevant range that shifts to another level when volume significantly changes is a(n):
What is a step-wise cost?
Managers use sales variances for:
What are planning and control purposes?
A cost that requires a future outlay of cash and is relevant for decision making, is a(n):
What is an out-of-pocket cost?
A company's required rate of return is called the:
What is the hurdle rate?
A key idea in process costing that refers to the number of whole units that could have been started and completed given the costs incurred in a period is known as:
What is equivalent units of production?
A jeans maker is designing a new line of jeans. These jeans will sell for $410 per unit and cost $328 per unit in variable costs to make. Fixed costs total $120,000. Contribution margin per unit is:
What is $82?
Contribution margin per unit = $410 − $328 = $82
A budget that is based on one predicted amount of sales or other activity measure is a:
What is a fixed budget?
Tanner Company currently pays $14 per unit to buy a part for a product it manufactures. Instead, Tanner could make the part for per unit costs of $6 for direct materials, $4 for direct labor, and $2 for incremental overhead. Tanner normally applies overhead costs using a predetermined rate of 200% of direct labor cost. Should Tanner make or buy the part?
What is make the part as the cost to make it is $2 less than the cost to buy it?
Make or Buy Analysis:
Make = Direct materials $ 6 + Direct labor $4 + Overhead (incremental) $2 = $12
Cost to buy - $ 14
Decision: Cost savings to make $ 2
If management is not concerned with the time value of money, from which two capital budgeting methods should they choose?
What are ARR or Payback?
Accounting Rate of Return and Payback methods do not take into account time value of money.
An ice cream manufacturer makes ice cream in two processes, Mixing and Packaging. During April, its first month of business, the Packaging department transferred 200,000 units and $700,000 of production costs to finished goods. What is the cost to produce one unit of ice cream during April?
What is $3.50?
Cost per completed unit = Cost transferred to finished goods / Units transferred to finished goods
Cost per completed units = $700,000 / 200,000 units = $3.50
A company has fixed costs of $90,000. Its contribution margin ratio is 30% and the product sells for $75 per unit. What is the company's break-even point in dollar sales?
What is $300,000?
Break-even point in dollar sales = $90,000/0.30 = $300,000
A company's flexible budget for 12,000 units of production showed sales, $48,000; variable costs, $18,000; and fixed costs, $16,000. The sales expected if the company produces and sells 16,000 units is:
What is $64,000?
Selling price per unit = $48,000/12,000 units = $4.00 per unit
Expected sales for 16,000 units = $4.00 per unit × 16,000 units = $64,000.
Kobe Company has manufactured 200 partially finished cabinets at a cost of $100,000. These can be sold as is for $120,000. Instead, the cabinets can be stained and fitted with hardware to make finished cabinets. Further processing costs would be $24,000, and the finished cabinets could be sold for $160,000. If Kobe Company processes the cabinets further, incremental income is:
What is $16,000?
Sell or Process Analysis:
Sell As Is: Revenue = $120,000 - $0 Costs = Income $120,000
Process Further: Revenue = $160,000 - Less Costs $24,000 = Income $136,000
Decision: Incremental income to process further $ 16,000
A project requires a $1,400,000 initial investment for new machinery. The project is expected to yield income of $100,000 per year and net cash flows of $350,000 per year for the next five years. The project's payback period is:
What is 4 years?
Payback period = $1,400,000/$350,000 = 4.0 years
The Work in Process Inventory account of a manufacturing company has a $4,400 debit balance. The company applies overhead using direct labor cost. The cost sheet of the only job still in process shows direct material cost of $2,000 and direct labor cost of $800. Therefore, the company's predetermined overhead rate is:
What is 200% of direct labor cost?
WIP = DM + DL + OH
$4,400 = $2,000 + $800 + OH
OH = $1,600; OH rate = $1,600/$800 = 200%
During a recent fiscal year, Creek Company reported income of $125,000, a contribution margin ratio of 25% and total contribution margin of $400,000. Total variable costs must have been:
What is $1,200,000?
$400,000 of Contribution Margin/.25 CM Ratio = Sales
$1,600,000 = Sales
Sales − Variable Costs = Contribution Margin
$1,600,000 − VC = $400,000
$1,200,000 = VC
The standard materials cost to produce 1 unit of Product R is 6 pounds of material at a standard price of $50 per pound. In manufacturing 8,000 units, 47,000 pounds of material were used at a cost of $51 per pound. What is the direct materials quantity variance?
What is $50,000 Favorable?
AQ×SP 47,000 lbs × $50/lbs = $2,350,000
SQ×SP 8,000 units × 6 lbs/unit × $50/lb = 2,400,000
Direct materials quantity variance $ 50,000
A company has the choice of either selling 600 apples or processing them into applesauce. The company could sell the apples as is for $1,200. Alternatively, the apples could be made into applesauce with incremental costs that consist of $360 of direct materials, $600 of direct labor, and $480 of overhead. The applesauce can be sold for $3,000. What is the amount of incremental cost from processing the apples into applesauce?
What is $1,440?
Incremental cost to make applesauce:
Materials $360 + Labor $600 + Overhead $480 = Total incremental cost to make applesauce $ 1,440
A project requires a $2,800,000 initial investment for new machinery with a five-year life and a salvage value of $300,000. The project is expected to yield annual income of $199,950 per year and net cash flows of $700,000 per year for the next five years. The project's accounting rate of return is:
What is 12.9%?
ARR = Annual Income / Average Investment = $199,950/[($2,800,000 + $300,000)/2] = 12.9%