ACCT 2101 Lecture Notes - Lecture 12: Direct Labor Cost, Management Accounting, Fixed Cost

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22 Apr 2016

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Managerial accounting provides useful information for management to make decisions. Ethics the standards of conduct for judging right from wrong. Sarbanes-oxley act of 2002 top management must certify that the company maintains an adequate system of internal control, accurate financial reports or else there are severe penalties for misconduct. Indirect cost costs that cannot be easily traced or are not worth tracing. Variable cost those that change in total, in direct proportion to changes in activity levels. However per unit or average variable remains the same (is set) for every unit. Fixed cost those that stay the same in total, regardless of activity level, but per unit, they vary inversely with the units of activity. Mixed cost semi-variable costs, they change in total but not proportionately with changes in activity levels. Manufacturing cost represent all of the costs associated with producing a physical product.

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Match each of the six following terms with the phrase that mostclosely describes it. Each answer may be used only once. _____ 1.Direct costs _____ 2. Fixed costs _____ 3. Incremental costs _____4. Enterprise resource planning system _____ 5. Noncontrollablecosts _____ 6. Opportunity costs (A) Costs that increase ordecrease in total in response to increases or decreases in thelevel of business activity (B) Costs that are directly traceable toa product, activity, or department (C) Costs that a manager caninfluence (D) The difference in costs between decision alternatives(E) Costs incurred in the past that are not relevant to presentdecisions (F) Costs that cannot be influenced by a manager (G)Financial plans prepared by management accountants (H) Value of thebenefits foregone when one decision alternative is selected overanother (I) Costs that cannot be directly traced to a product,activity, or department or are not worth tracing (J) Costs that donot change in total with changes in the level of business activity(K) Systems that prepare a master production system and all of thesupport across the company

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1. Which one of the following refers to a cost that remains the same as the volume of activity decreases within the relevant range?

A. Average cost per unit.

B. Variable cost per unit.

C. Unit fixed cost.

D. Total variable cost.

2. The relevant range refers to the activity levels over which

A. Cost relationships hold constant.

B. Costs fluctuate.

C. Production varies.

D. Relevant costs are incurred.

3. When identifying fixed and variable costs, which one of the following is a typical assumption concerning cost behavior?

A. General and administrative costs are assumed to be variable costs.

B. Cost behavior is assumed to be realistic for all levels of activity from zero to maximum capacity.

C. Total costs are assumed to be linear when plotted on a graph.

D. The relevant time period is assumed to be 5 years.

4. A management accountant is about to prepare graphs of total variable cost and per-unit variable cost for use in a short-term planning model. Dollars will be depicted on the vertical axis; activity will be shown on the horizontal axis. How will these graphs appear under completion?

Total Variable Cost; Per-Unit Variable Cost

A. Straight line, sloping upward to the right; Straight line, parallel to the horizontal axis

B. Curvilinear, sloping upward to the right; A line that basically parallels the horizontal axis, first decreasing and then increasing

C. Straight line, sloping upward to the right; Straight line, sloping upward to the right

D. Straight line, parallel to the horizontal axis; Straight line, sloping upward to the right

5. A company has found that its total electricity cost has both a fixed component and a variable component within the relevant range. The variable component seems to vary directly with the number of units produced. Which one of the following statements concerning electricity cost is incorrect?

A. The total electricity cost will increase as production volume increases.

B. The total electricity cost per unit of production will increase as production volume increases.

C. The variable electricity cost per unit of production will remain constant as production volume increases.

D. The fixed electricity cost per unit of production will decline as production volume increases.

silversnake284

If variable costs per unit increased because of an increase in hourly wage rates, the break-even point would:

a. increase.

b. remain the same.

c. decrease.

d. increase or decrease, depending upon the percentage increase in wage rates.

Zeke Company sells 25,000 units at $21 per unit. Variable costs are $10 per unit, and fixed costs are $75,000. The contribution margin ratio and the unit contribution margin are:

a. 53% and $7 per unit.

b. 47% and $11 per unit.

c. 52% and $11 per unit.

d. 47% and $8 per unit.

If sales are $500,000, variable costs are 75% of sales, and operating income is $40,000, what is the operating leverage?

a. 0

b. 1.3

c. 3.1

d. 1.25

Which of the following describes the behavior of the fixed cost per unit?

a. Increases with increasing production

b. Remains constant with changes in production

c. Decreases with increasing production

d. Decreases with decreasing production

If variable costs per unit decreased because of a decrease in utility rates, the break-even point would:

a. increase.

b. increase or decrease, depending upon the percentage increase in utility rates.

c. decrease.

d. remain the same.

Costs that vary in total in direct proportion to changes in an activity level are called:

a. differential costs.

b. fixed costs.

c. variable costs.

d. sunk costs

Which of the following conditions would cause the break-even point to increase?

a. Total fixed costs decrease

b. Unit variable cost decreases

c. Unit variable cost increases

d. Unit selling price increases

In cost-volume-profit analysis, all costs are classified into the following two categories:

a. discretionary costs and sunk costs

b. variable costs and fixed costs

c. mixed costs and variable costs

d. sunk costs and fixed costs

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ACCT 2101 Lecture Notes - Lecture 12: Direct Labor Cost, Management Accounting, Fixed Cost

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