AFM481 Chapter Notes - Chapter 5: Cost Driver

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OC2146671

27 Jun 2020

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM481

Professor

Grant Russell

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Document Summary

Peanut-butter costing: costing approach that uses broad averages for assigning the cost of resources uniformly to cost. Product undercosting: a product that consumes a high level of resources but is reported to have a low cost per unit: underpriced and lead to sales that result in losses. Product overcosting: a product that consumes a low level of resources but is reported to have a high cost per unit. Leads to overpricing, products will lose market share to competitors: overcosting and undercosting causes managers to focus on the wrong products. Product-cost cross-subsidization: if a company undercosts one of its products, it will overcost at least one of its other products. If a company overcosts one of its products, it will undercost at least one of its other products: common in situations where a cost is uniformly spread. Guidelines for refining a costing system: direct cost tracing.

Related Questions

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

pearpig306

1- Which of the following costs is the most likely to be allocated to a product in a traditional job costing environment?

A. Direct materials

B. Direct labor

C. Manufacturing overhead

D. Selling and administrative

2. An allocation base that causes overhead costs to be incurred is called a:

A. revenue drives.

B. predetermined driver.

C. cost driver.

D. applied driver.

3. Which of the following statements is true regarding cross-subsidies

A. they occur when factory workers are trained to work on many different machines,

B. they occur when high-volume products are assigned more than their fair share of overhead costs,

C. they occur when high-volume products have more direct material and direct labor costs than overhead costs.

D. They occur when more than one cost driver cat he determined for a particular overhead cost item.

4. Which of the following is true regarding activity-based costing (ABC)?

A. The benefits of using ABC always outweigh its limitations.

B. the lower the proportion of Overhead costs as compared to direct materials and direct labor costs, the more likely a company, will benefit by using ABC.

C. Companies with a high-proportion of non-unit -level costs should rarely use ABC.

D. High measurement costs associated with ABC may deter some companies from its use.

coffeebear826

1.Diamond Brands manufactures rice, wheat, and oat cereals.Sanders Company has approached Diamond Brands with a proposal tosell the company the rice cereals at a price of $22,000 for 20,000pounds. The following costs are associated with production of20,000 pounds of rice cereal: Direct material $13,000 Direct labor5,000 Manufacturing overhead 7,000 Total $25,000 The manufacturingoverhead consists of $2,000 of variable costs with the balancebeing allocated fixed costs. Should Diamond Brands make or buy therice cereal?

Select one: a. Buy them to save $4,000. b. Continue to make thembecause the incremental cost of buying is $2,000. c. Buy them tosave $2,000. d. Continue to make them because the incremental costof buying is $22,000

2. Which one of the following does economic theory suggest?

Select one:

a. Set a price that allows profit maximization

b. Set a price that allows the minimum number of units to besold at the highest unit price

c. Set a price that will maximize revenues

d. Set a price that will maximize market share

3.The target costing process for a new product

Select one:

a. starts with the features that customers want and the pricecustomers are willing to pay.

b. is applied after the product has been designed.

c. focuses on creating products that include all possibleproduct features to broaden the companyâs market share.

d. adds a markup percentage for profit once the price of theproduct has been determined.

4. What is the basic premise of target costing?

Select one:

a. Products should be designed to meet customer needs at a pricecustomers are willing to pay that allows the company to make areasonable profit.

b. Products should be designed at the least cost possible toenable the lowest price in the market.

c. Products should be designed based on features thatcompetitorsâ products include to enhance the companyâs ability tocompete more effectively.

d. The price with the highest profit should always beselected.

5 A company believes it can sell 2,000,000 units of its proposednew bottle stopper at a price of $16.00 each. If the companydesires to make a profit of $3,000,000 on the bottle stopper, whatis the target cost for each bottle stopper?

Select one:

a. $14.50

b. $16.00

c. $17.50

d. $9.67

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AFM481 Chapter Notes - Chapter 5: Cost Driver

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