Managerial Accounting

Business

Quiz 2 :

Job-Order Costing: Calculating Unit Production Costs

Quiz 2 :

Job-Order Costing: Calculating Unit Production Costs

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Distinguish between discretionary fixed costs and committed fixed costs
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Decisions regarding discretionary fixed costs are made for a short time frame. These include recurring costs such as advertising. Whereas, committed fixed cost decisions are usually made for longer periods, and involve costs that involve investments in facilities and equipment. They are called committed costs because once decisions are made; those funds are committed and cannot be used for other projects.

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Differential, Opportunity, and Sunk Costs The Sorrento Hotel is a four-star hotel located in downtown Seattle. The hotel's operations vice president would like to replace the hater s antiquated computer terminals at the registration desk with attractive state-of-the-art flat-panel displays. The new displays would take less space, would consume less power than the old computer terminals, and would provide additional security since they can only be viewed from a restrictive angle. The new computer displays would not require any new wiring. The haters chef believes the funds would be better spent on a new bulk freezer for the kitchen. Re quired: For each of the items below, indicate by placing an X in the appropriate column whether it should be considered a differential cost. an opportunity cost, or a sunk cost in the decision to replace the old computer terminals with new flat-panel display s. If none of the categories apply for a particular item. leave all columns blank. img
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Distinguish between ( a ) a variable cost, (b) a fixed cost. and ( c) a mixed cost.
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a)Contrary to its name, a variable cost remains constant per unit. It only changes in direct proportion to changes in volume.
b)Fixed costs remain constant, but only within a relevant range. Be sure to note that the average fixed cost per unit will change inversely in relation to volume.
c)A mixed cost is made up of both a fixed cost and a variable cost component.

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Fixed and Variable Cost Behavior Koffee Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $1,100 and the variable cost per cup of coffee served is $0.26. Require d : I. Fill in the following table with your estimates of total costs and average cost per cup of coffee at the indicated levels of activity for a coffee stand. Round off the cost of a cup of coffee to the nearest tenth of a cent. img 2. Does the average cost per cup of coffee served increase. decrease. or remain the same as the number of cups of coffee served in a week increases Explain.
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Classifying Manufacturing Costs Your Boat, Inc.. assembles custom sailboats from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a Gig Harbor. Washington, boathouse. Below are listed some of the costs that are incurred at the company. Req uired: For each cost, indicate whether it would most likely be classified as direct labor. direct materials. manufacturing overhead. selling. or an administrative cost. I. The wages of employees who build the sailboats. 2. The cost of advertising in the local newspapers. 3. The cost of an aluminum mast installed in a sailboat. 4. The wages of the assembly shop's supervisor. 5. Rent on the boathouse. 6. The wages of the company's bookkeeper. 7. Sales commissions paid to the company's salespeople. 8. Depreciation on power tools.
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Classification of Costs as Period or Product Costs Suppose that you have been given a summer job at Fairwings Avionics, a company that manufactures sophisticated radar sets for commercial aircraft. The company,which is privately owned, has approached a bank for a loan to help finance its tremendous growth. The bank requires financial statements before approving such a loan. R equired : Classify each cost listed below as either a product cost or a period cost for purposes of preparing the financial statements for the bank. 1. The cost of the memory chips used in a radar set. 2. Factory heating costs. 3. Factory equipment maintenance costs. 4. Training costs for new administrative employees. 5. The cost of the solder that is used in assembling the radar sets. 6. The travel costs of the company's salespersons. 7. Wages and salaries of factory security personnel. 8. The cost of air-conditioning executive offices. 9. Wages and salaries in the department that handles billing customers. 10. Depreciation on the equipment in the fitness room used by factory workers. 11. Telephone expenses incurred by factory management. 12. The costs of shipping completed radar sets to customers. 13. The wages of the workers who assemble the radar sets. l4. The president's salary. 15. Health insurance premiums for factory personnel.
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Cost Classification Several years ago Medex Company purchased a small building adjacent to its manufacturing plant in order to have room for expansion when needed. Since the company had no immediate need for the extra space. the building was rented out to another company for rental revenue of $40,000 per year. The renter's lease will expire next month, and rather than renewing the lease, Medex Company has decided to use the building itself to manufacture a new product Direct materials cost for the new product will total $40 per unit. It will be necessary to hire a supervisor to oversee production. Her salary will be $2,500 per month. Workers will be hired to manufacture the new product, with direct labor cost amounting to $18per unit. Manufacturing operations will occupy all of the building space, so it will be necessary to rent space in a warehouse nearby in order to store finished units of product.The rental cost will be $1,000 per month. In addition, the company will need to rent equipment for use in producing the new product: the rental cost will be $3,000 per month. The company will continue to depreciate the building on a straight-line basis, as in past years. Depreciation on the building is $10,000 per year. Advertising costs for the new product will total $50,000 per year. Costs of shipping the new product to customers will be $10 per unit. Electrical costs of operating machines will be $2 per unit. To have funds to purchase materials, meet payrolls, and so forth, the company will have to liquidate some temporary investments.These investments are presently yielding a return of $6,000 per year. Req uir ed: Prepare an answer sheet with the following column headings: img List the different costs associated with the new product decision down the extreme left column (under Name of the Cost), Then place an X under each heading that helps to describe the type of cost involved. There may be X's under several column headings for a single cost. (For example. a cost may be a fixed cost. a period cost. and a sunk cost; you would place an X under each of these column headings opposite the cost.)
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High-Low Method The Edelweiss Hotel in Vail. Colorado, has accumulated records of the total electrical costs of the hotel and the number of occupancy-days over the last year.An occupancy-day represents a room rented out for one day.The hotel's business is highly seasonal, with peaks occurring during the ski season and in the summer. img Required : 1. Using the high-low method. estimate the fixed cost of electricity per month and the variable cost of electricity per occupancy-day. Round off the fixed cost to the nearest whole dollar and the variable cost to the nearest whole cent. 2. What other factors other than occupancy-days are likely to affect the variation in electrical costs from month to month
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High-Low Method; Scattergraph Analysis. Zerbel Company, a wholesaler of large, custom-built air conditioning units for commercial buildings, has noticed considerable fluctuation in its shipping expense from month to month. as shown below: img R equired: 1. Prepare a scattergraph using the data given above. Plot cost on the vertical axis and activity on the horizontal axis.Is there an approximately linear relationship between shipping expense and the number of units shipped 2. Using the high-low method. estimate the cost formula for shipping expense. Draw a straight line through the high and low data points shown in the scattergraph that you prepared in requirement I. Make sure your line intersects the Y axis 3. Comment on the accuracy of your high-low estimates assuming a least-squares regression analysis estimated the total fixed costs to be $1.010.71 per month and the variable cost to be $317.86 per unit. How would the straight line that you drew in requirement 2 differ from a straight line that minimizes the sum of the squared errors 4. What factors other than the number of units shipped. are likely to affect the company's shipping expense Explain
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Does the concept of the relevant range apply to fixed costs Explain
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What are the three major elements of product costs in a manufacturing company
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Managers often assume a strictly linear relationship between cost and volume. How can this practice be defended in light of the fact that many costs are curvilinear
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What is meant by an activity base when dealing with variable costs Give several examples of activity bases.
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Define the following: (a) direct materials, (b) indirect materials, (c) direct labor, (d) indirect labor, and (e) manufacturing overhead.
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Explain the difference between a product cost and a period cost.
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Traditional and Contribution Format Income Statements. Redhawk, Inc., is a merchandiser that provided the following information: img R equired: I. Prepare a traditional income statement. 2. Prepare a contribution format income statement
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Identifying Direct and Indirect Costs The Empire Hotel is a four-star hotel located in downtown Seattle. Re quired: For each of the following costs incurred at the Empire Hotel, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object by placing an X in the appropriate column. img
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Define the following terms: ( a ) cost behavior and (b) relevant range.
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Cost Behavior; Contribution Format Income Statement Parker Company manufactures and sells a single product. A partially completed schedule of the company's tot al and per unit costs over a relevant range of 60,000 to 100,000 units produced and sold each year is given below: img Requ ired: 1. Complete the schedule of the company's total and unit costs. 2. Assume that the company produces and sells 90,000 units during the year at the selling price of $7.50 per unit. Prepare a contribution format income statement for the year.
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What effect does an increase in volume have on - a. Unit fixed costs b. Unit variable costs c. Total fixed costs d. Total variable costs
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