ACC 406 Lecture Notes - Lecture 2: Cost Driver, Management Accounting, Fixed Cost

25 views11 pages

emeraldhedgehog234

1 Mar 2016

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Cost behaviour is the general term to describe whether a cost changes when the level of activity changes. A fixed cost is a cost that does not change in total as activity changes. A variable cost increases in total with an increase in activity and decreases in total with a decrease in activity. A cost driver is a key determinant of cost behaviour. A cost driver is a casual measurement that causes costs to change. A cost is fixed or variable with respect to some output measure or cost driver. First we determine the underlying business activity and ask ourselves, what causes the cost of this particular activity to go up or down? . Suppose that bluedenim company wants to classify its product costs as either variable or fixed with respect to the number of jeans produced. Clearly, the use of raw materials (denim, thread, zippers, and buttons) varies with the number of jeans produced.

Related Questions

Why is it important to identify the most appropriate costdrivers for a particular product?

A) so managers can identify the activities necessary tomanufacture a product

B) so managers can control product costs better

C) so managers can predict product costs better and make betterdecisions

D) B and C

Answer:

Cost drivers are ________.

A) the different functions in the value chain

B) different types of functional areas in the firm

C) measures of activities that require the use of resources andthereby cause costs

D) different types of cost calculations

Answer:

Within the relevant range, the total amount of ________ costchanges in direct proportion to changes in the cost driver. Withinthe relevant range, the total amount of ________ cost does notchange in direct proportion to changes in the cost driver.

A) fixed; variable

B) variable; fixed

C) step; mixed

D) mixed; step

Answer:

What happens when the cost-driver level increases within therelevant range?

A) Total fixed costs remain unchanged.

B) Fixed costs per unit of cost driver increase.

C) Total variable costs decrease.

D) Variable costs per unit of cost driver increase.

Answer:

Which of the following costs is a fixed cost?

A) cost of dairy ingredients used to produce ice cream

B) depreciation expense on factory building

C) fuel used by delivery trucks

D) labor wages of workers who mix dairy ingredients to make icecream

goldalligator726

Question : Cost behaviour; committed and discretionary costs; highâlow method: mining company

Outback Mining Ltd (OML), which mines ore in Australia's north-west, uses a calendar year for financial reporting purposes. The following selected costs were incurred in December, the low point of activity, when 1400 tonnes of ore were extracted.

Straight-line depreciation $30 000

Charitable contributions* 12 000

Mining labour (including oncosts) 315 000

Royalties 140 000

Trucking and hauling 280 000

Peak activity of 2700 tonnes occurred in June, resulting in mining labour costs (including oncosts) of $607 500, royalties of $224 500, and trucking and haulage costs of $360 000. The trucking and hauling costs exhibit the following behaviour:

Less than 1 500 tonnes $240 000

From 1 500â1 899 tonnes 280 000

From 1 900â2 299 tonnes 320 000

From 2 300â2 699 tonnes 360 000

OML uses the highâlow method for analysing cost behaviour.

Required:

1 Assuming that royalties are a semi variable cost, classify each of the other four costs listed above in terms of their behavior as variable, step-variable, committed fixed, discretionary fixed, step-fixed, or semi-variable. Show calculations to support your answers for mining labour costs.

2 Calculate the total cost for next February when 1650 tonnes of ore are expected to be extracted.

3 Comment on the cost effectiveness of hauling 1500 tonnes with respect to OML's trucking/hauling cost. Can the company's cost effectiveness be improved? How?

4 Distinguish between committed and discretionary fixed costs. If OML were to experience severe

limeskunk177

________ is the excess of sales over the cost of goods sold.

A) Gross margin

B) Contribution-margin ratio

C) Variable-cost ratio

D) Contribution margin

Answer:

Which statement is FALSE?

A) Each different sales-mix of products has a differentbreak-even point.

B) Changes in the sales-mix of products sold affects a company'snet operating profit.

C) Changes in the sales-mix of products sold affects a company'scontribution margin.

D) If the sales-mix of products sold changes, the break-evenpoint does not change.

Answer:

With mixed costs, the ________ element is unchanged over therelevant range and the ________ element varies proportionately withcost-driver activity.

A) variable cost; fixed cost

B) fixed cost; variable cost

C) fixed cost; step cost

D) step cost; variable cost

Answer:

The sales price is $30 per unit, the contribution margin is $8per unit and total fixed costs are $32,000. What is the break-evenpoint in units?

A) 857

B) 1,200

C) 2,000

D) 4,000

Answer:

If the selling price per unit increases, what is the effect onthe break-even point? (Assume no other changes.)

A) The break-even point increases.

B) The break-even point decreases.

C) The break-even point remains the same.

D) The break-even point is zero.

plumcod490

ACC 406 Lecture Notes - Lecture 2: Cost Driver, Management Accounting, Fixed Cost

Document Summary

Get access

Related Documents

ACC 406 Lecture Notes - Lecture 2: Cost Driver, Fixed Cost, Management Accounting

ACC 406 Lecture 3: Chapter Three

ACC 406 Lecture Notes - Lecture 3: Cost Driver, Fixed Cost, Variable Cost

Related Questions