BEC 4 - Decision Making

Question 1

Cost Accounting

Answer 1

calculation of the cost of manufactured inventory

Question 2

Prime Costs

Answer 2

DM + DL

Question 3

Conversion Costs

Answer 3

DL + OH

Question 4

Raw Material vs Direct Materials

Answer 4

Direct Materials are the materials physically included in the FINAL manufactured product

Question 5

Normal Cost Systems

Answer 5

1. DM & DL are based on actual

2. Manufacturing OH is based on standard

Question 6

Applied Overhead Formula

Answer 6

(Estimated OH Costs / Estimated Direct Labor Costs or Hours) * Actual Production

Question 7

Predetermined OH Rate

Answer 7

Estimated OH Costs / Estimated Direct Labor Costs or Hours

Question 8

Applied OH Journal Entry

Answer 8

Dr. WIP Control

Cr. Factory OH Applied

Question 9

Actual OH Journal Entry

Answer 9

Dr. Factory OH Control

Cr. Cash

Question 10

Under-applied OH Journal Entry

Answer 10

Dr. Factory OH Applied
Dr. Expense – COGS
Cr. Factory OH Control

Question 11

How do Variable & Absorption costing methods of accounting differ for fixed mfg overhead differ?

Answer 11

Variable: Fixed MFG OH is expensed in the period incurred

Absorption: Fixed MFG OH is treated as a product cost (inventoried) and expensed when sold

Question 12

Operating Income under Absorption Costing

Answer 12

Sales
- Cost of Sales
= GROSS PROFIT

• SG&A
  =OPERATING INCOME

Question 13

Operating Income under Direct Costing (Variable Costing)

Answer 13

Sales
- Variable Costs
= CONTRIBUTION MARGIN

• Fixed Costs
  = OPERATING INCOME (only used internally)

Question 14

PSA Mnemonic

Answer 14

Production>Sales —- Absorption

If ending inventory is greater than beginning inventory, then Absorption Operating Income is greater than Variable Operating Income

Question 15

Variable vs Absorption

Difference in Operating Income Calculation

Answer 15

Fixed MFG OH per unit * Change in # of Units in Inventory

Question 16

Cost-Volume-Profit

Answer 16

• aka breakeven analysis
• provides management with profitability estimates at all levels of production in the relevant range
• used in making decisions about offering new products or services

Question 17

Breakeven in Units Formula

Answer 17

[Total Fixed Costs – Profit (loss)] / (SP per unit – VC per unit)

*SP-VC=CM per unit

Question 18

Breakeven in Sales Dollars

Answer 18

[Total Fixed Costs – Profit (loss)] / (CM per unit / Sales Price per unit)

*CM/SP = CM Ratio = (SP-VC)/(SP)

Question 19

What is the operating profit at breakeven point?

Answer 19

Operating Profit = $0

Question 20

Desired Profit (Cost Volume Profit)

Answer 20

Add DESIRED PROFIT to Total Fixed Costs Numerator

(Total Fixed Costs + Desired Profit) / CM Per Unit

Question 21

Desired Return on Sales (Cost Volume Profit)

Answer 21

(Total Fixed Costs + Desired Profit x Return on Sales%) / CM RATIO = Sales

• use algebra to solve for Desired Profit

Question 22

Explain Margin of Safety

Answer 22

• the excess of budgeted (or Actual) sales over the break-even volume of sales
• states the amount by which sales can drop before losses begin to be incurred in an organization

Question 23

Margin of Safety in Dollars

Answer 23

Total Sales – Breakeven Sales

Question 24

Margin of Safety Ratio

Answer 24

Margin of Sales in Dollars / Total Sales