ACCTG 102 Lecture Notes - Lecture 16: Fixed Cost, Variable Cost, Cost Driver
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1.If there is a change in the level of the number of unitsproduced:
a.fixed costs per unit will be the same and variable costs per unitwill change.
b.fixed and variable costs per unit will change.
c.fixed and variable costs per unit will remain the same.
d.fixed costs per unit will change and variable costs per unit willbe the same.
2.Which of the following will decrease a companyâs breakevenpoint?
A) Decreasing the contribution margin per unit.
B) Increasing the variable cost per unit.
C) Increasing the total fixed costs.
D) Increasing the selling price per unit.
3.In generating cost information fordetermining whether or not to delete a product line, the mostimportant distinction to identify is: | ||
A) | direct versus indirect costs | |
B) | fixed versus variable costs | |
C) | manufacturing versus non-manufacturing costs | |
D) | avoidable versus unavoidable costs | |
4.Which of the following is the proper sequence in anactivity-based costing system?
A) Identification of cost drivers, identification ofcost pools, calculation of cost application rates, assignment ofcost to products.
B) Identification of cost pools, identification of costdrivers, calculation of cost application rates, assignment of costto products.
C) Assignment of cost to products, identification ofcost pools, identification of cost drivers, calculation of costapplication rates,.
D) Calculation of cost application rates,identification of cost drivers, identification of cost pools,assignment of cost to products.
5.Which of the following statements is true?
A) A traditional volume-based system based on directlabor generally undercosts high volume product lines.
B) In a traditional volume-based costing system basedon direct labor, low volume products generally subsidize highvolume products.
C) An activity-based costing system generallyundercosts low-volume, complex product lines.
D) A traditional volume-based costing system based ondirect labor generally undercosts low-volume, complex productlines.
6.Hamilton Company applies overhead based on direct labor hours.At the beginning of 2005, the company estimated that manufacturingoverhead would be $700,000, and direct labor hours would be 10,000.Actual overhead by the conclusion of 2005 amounted to $800,000 andactual direct labor hours were 14,000. On the basis of thisinformation, Horton's 2005 predetermined overhead rate is:
A) $50.00
B) $70.00
C) $80.00
D) $57.14
The questions are to be answered based on the information ofdata below an dplease help to answer the question in detail.
The questions to concentrate on are as follows:
There are various costing methods available for companies toimplement. As a company grows, it may become beneficial to consideran alternate costing method.
A. Identify an alternative costing method that could benefitthis company, and describe the main characteristics of thatmethod.
B. What should a company look for when trying to determinewhether they should adopt such a system?
C. Should the company adopt this alternative costing method?Defend your response.
This is scenario :
The Hampshire Company manufactures umbrellas that sell for$12.50 each. In 2014, the company made and sold 60,000 umbrellas.The company had fixed manufacturing costs of $216,000. It also hadfixed costs for administration of $79,525. The per-unit costs ofeach umbrella are as follows:
Direct Materials:$3.00
Direct Labor: $1.50
Variable Manufacturing Overhead:$0.40
Variable Selling Expenses: $1.10
The data that is supposed to be usedto answer the questions mentioned on top is right below. Pleasehave a look at the calculations.
| Cost InformationFrom Instructions | ||||
| Stick | Collapsible | |||
| Units Sold | 60,000 | 3,000 | ||
| Selling Price | $12.50 | $14.00 | ||
| Direct Material Cost Per Unit | $3.00 | $3.10 | ||
| Direct Labor Cost Per Hour | $7.50 | $8.00 | ||
| Variable MO | $0.40 | $0.40 | ||
| Variable Selling Costs | $1.10 | $1.10 | ||
| Labor Hours Per Unit | 0.2 | 0.2 | ||
| Sales Orders | 120 | 1 | ||
| Purchase Orders | 50 | 3 | ||
| Production Runs | 45 | 6 | ||
| Material Moves | 86 | 10 | ||
| Machine Setups | 130 | 6 | ||
| Machine Hours | 525 | 32 | ||
| Inspections | 200 | 10 | ||
| Shipments | 60 | 3 | ||
| Activity Information fromInstructions | ||||
| Activity | Activity Cost | Activity Cost Driver | ||
| Order Processing | $35,000 | Number of Sales Orders | ||
| Purchasing | $36,000 | Number of Purchase Orders | ||
| Material Handing | $28,000 | Material Moves | ||
| Machine Setup | $14,000 | Machine Setups | ||
| Production | $99,000 | Production Runs | ||
| Assembly | $80,000 | Machine Hours | ||
| Inspecting | $11,000 | Number of Inspections | ||
| Shipping | $7,500 | Number of Shipments | ||
| Requirement 1 | ||||
| Activity | Total Costs | Quantity of Cost Allocation Base | Overhead Allocation Rate | |
| Order Processing | $35,000 | 121 | $289 | |
| Purchasing | $36,000 | 53 | $679 | |
| Material Handing | $28,000 | 96 | $292 | |
| Machine Setup | $14,000 | 136 | $103 | |
| Production | $99,000 | 51 | $1,941 | |
| Assembly | $80,000 | 557 | $144 | |
| Inspecting | $11,000 | 210 | $52 | |
| Shipping | $7,500 | 63 | $119 | |
| Requirement 2 | ||||
| Traditional Costing | ||||
| Stick Umbrella | Collapsible Umbrella | Total | ||
| Revenues | $750,000 | $42,000 | $792,000 | |
| Direct Materials | $180,000 | $9,300 | $189,300 | |
| Direct Labor | $90,000 | $4,800 | $94,800 | |
| Variable Overhead | $24,000 | $1,200 | $25,200 | |
| Variable Selling Costs | $66,000 | $3,300 | $69,300 | |
| Allocated Fixed Overhead | $295,714 | $14,786 | $310,500 | |
| Total Costs | $655,714 | $3,386 | $689,100 | |
| Operating Income | $94,286 | $8,614 | $102,900 | |
| Operating Income % | 13% | 21% | $13 | |
| Per Unit Operating Income | $1.57 | $2.87 | ||
| Requirement 3 | ||||
| Activity-Based Costing | ||||
| Stick Umbrella | Collapsible Umbrella | Total | ||
| Revenues | $750,000 | $42,000 | $792,000 | |
| Direct Materials | $180,000 | $9,300 | $189,300 | |
| Direct Labor | $90,000 | $4,800 | $94,800 | |
| Variable Overhead | $24,000 | $1,200 | $25,200 | |
| Variable Selling Costs | $66,000 | $3,300 | $69,300 | |
| Order Processing Costs | $34,711 | $289 | $35,000 | |
| Purchasing Costs | $33,963 | $2,038 | $36,000 | |
| Material Handing Costs | $25,084 | $2,917 | $28,000 | |
| Machine Setup Costs | $13,382 | $618 | $14,000 | |
| Production Costs | $87,353 | $11,647 | $99,000 | |
| Assembly Costs | $75,405 | $4,595 | $80,000 | |
| Inspecting Costs | $10,476 | $524 | $11,000 | |
| Shipping Costs | $7,143 | $357 | $7,500 | |
| Total Costs | $647,516 | $41,584 | $689,100 | |
| Operating Income | $102,484 | $416 | $102,900 | |
| Operating Income % | 14% | 1% | 12.99 | |
| Per Unit Operating Income | $1.71 | $0.14 | ||
| Requirement 4 | ||||
| Costs per Unit | Stick Umbrella | Collapsible Umbrella | ||
| Traditional | $10.93 | $11.13 | ||
| ABC | $10.79 | $13.86 | ||
| Difference | $0.14 | $($2.73) | ||
| Requirement 5 | ||||
| Calculation ofLabour Hours (note): 1) Labor hour per unit of stick umbrella is0.2 and it is the same for the collapsible umbrella. While theunits sold for the stick umbrella are 60,000 and for thecollapsible umbrella are 3,000. Then multiply the labor hour perunit with the units sold, then the total amount for the stickumbrella is $12,000 and for the collapsible umbrella is $600.Adding these both amounts will total $12,600 | ||||
McKnight Industries is in the process of analyzing itsmanufacturing overhead cost. The compnay is not sure if the numberof units produced or number of direct labor (DL) hours is the bestcost driver to use for predicting manfactoring overhead (MOH)costs.
The following information is available:
| Month | Manufactoring Overhead Costs | Direct Labor Hours | Units Produced | MOH Cost Per DL hours | MOH Cost per Unit Produced |
| July | $ 485,000 | 25,000 | 3,800 | $19.40 | $127.63 |
| August | $ 540,000 | 26,700 | 4,360 | $20.22 | $123.85 |
| September | $ 420,000 | 20,000 | 4,210 | $21.00 | $99.76 |
| October | $ 462, 000 | 21,900 | 3,450 | $21.10 | $133.91 |
| November | $579,000 | 32,000 | 5,600 | $18.09 | $103.39 |
| December | $455,000 | 20,400 | 3,270 | $22.30 | $139.14 |
Requirement 1. Determine if the manufactoringoverhead costs are fixed, variable, or mixed?
McKnight's manufactoring overhead appers to be a _______(fixed,mixed variable) cost. If it were a _______(fixed, mixed, variable)cost, it would remain constant in toal each month. If it were a______(fixed, mixed, variable) cost, it would remain constant on aper unit (of activity) basis. Both McKnight's MOH per DL hour andMOH per unit ______ (are fixed, vary) with volume.
Requirements 2. Graph the company'smanufacturing overhead cost agianst DL hours. Plot the points onthe graph for the manufacturing overhead costs agianst DLhours.
Requirement 3. Graph the company'smanufacturing overhead costs against units produced. Plot thepoints on the graph for the manufacturing overhead costs againstunits produced.
Requirement 4. Do the data appear to be soundor do you see any potential data problems? Explain.
There ________(does apper to be an, does not appear) outlier inthe graph depicting MOH costs vs. DL hours. In the graph of MOHcosts vs. units, there ________(does apper, does not appear to beany) outlier. _______( No, july,august, setp, oct. nov. dec) datapoint appears out of line with the other data points. If any of thedata points are out of line, management ______(should, should not)check into this data before continuing with the analysis.
Requirement 5. Use the high- low method todetermine the company's manufactoring overhead cost equation usingDL hours as the cost driver. Assume that management believes alldata to be accurate and wants to include all of it in the analysis.(Round the variable costto the nearest cent)
y= $__x + $ _____
Requirement 6. Estimate manufactoring overheadcosts if the company incures 26,000 DL hours in January. January'sestimated manufacturing overhead costs are $_________
