Managerial Accounting Chapters 4-6

Even in today’s automated environment, direct labor is sometimes the appropriate basis for assigning overhead cost to products.

In the first stage of activity-based costing, overhead is assigned to products using costdrivers.

The first step in activity-based costing is to identify and classify the major activitiesinvolved in the manufacture of specific products, and allocate manufacturing overhead tothe appropriate cost pools.

Before costs are allocated to the cost pools, the cost drivers for each cost pool must beidentified.

Under ABC, overhead costs are shifted from the high-volume product to the low-volumeproduct.

Activity-based costing does not change the amount of overhead costs, but it doesallocate those costs in a more accurate manner.

Overhead costs are not allocated by means of arbitrary volume-based cost drivers underABC.

Value-added activities increase the worth of a product or service to customers andinvolve resource usage that customers are willing to pay for.

Product-level activities in ABC are required to support or sustain an entire productionprocess.

Just-in-time processing strives to eliminate inventories by using a “pull approach” inmanufacturing.

The last step in activity-based costing is to

Machine hours would be an accurate cost driver for

All of the following are benefits of ABC except it leads to

The level of ABC activities performed in support of an entire product line are classified as

Just-in-time processing strives to eliminate inventories by using a

The range over which a company is expected to operate is called the relevant range ofthe activity index.

A mixed cost contains both selling and administrative cost elements.

Variable costs are costs that remain the same per unit at every level of activity.

If a salesperson incurs $2,000 of expenses in servicing two customers and $4,000 ofexpenses in servicing four customers, the fixed costs are $1,000.

If revenue = $80 and variable cost = 40% of revenue, then contribution margin = $48.

The contribution margin is the amount of revenue remaining after deducting fixed costs.

Sales mix is the percentage that each product represents of total sales.

If the unit contribution margin is $300 and fixed costs are $240,000 then the break-evenpoint in units would be 800 units.

In a CVP income statement, contribution margin is reported in the body of the statement.

Margin of safety is the difference between actual sales and contribution margin.

Which of the following is a false statement regarding assumptions of CVP analysis?

Mixed costs may be separated into fixed costs and variable costs by using

If the unit selling price is $500, the unit variable cost is $300, and the total monthly fixedcosts are $300,000, then the contribution margin ratio is

If activity level increases 25% and a specific cost increases from $40,000 to $50,000, thiscost would be classified as a

If total fixed costs are $900,000 and variable costs as a percentage of unit selling priceare 40%, then the break-even point in dollars is

The CVP income statement classifies costs as variable or fixed and computes a contribution margin.

The margin of safety indicates how much sales must increase before a company will be operating at a profit.

Sales mix is the relative percentage in which each product is sold when a company sells more than one product.

When multiple products exist, the break-even point in dollars is computed by dividing fixed costs by the weighted-average contribution margin.

When a company has limited resources, management must decide which product to make and sell in order to maximize contribution margin ratio.

Contribution margin per unit of limited resource is obtained by dividing the contribution margin per unit of each product by the number of units of the limited resource required for each product.

Operating leverage refers to the extent to which a company’s net income reacts to a given change in production.

Companies that have higher fixed costs relative to variable costs have higher operating leverage.

Under variable costing, all variable costs are considered product costs. 

Fixed manufacturing costs are a product cost under absorption costing but are a period cost under variable costing.