AFM102 Lecture Notes - Lecture 3: Longrun, Income Statement, Variable Cost

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tealskunk19

27 Mar 2018

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM102

Professor

Bable

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Document Summary

Cost behavior-refers to how a cost will react or change as changes take place in the level of business activity. Cost structure= relative proportion of fixed, variable or mixed costs found in an organization. Total dollar amount varies in direct proportion to changes in the activity level. Remains constant if expressed on a per unit basis. Activity level increases then the total amount of the variable costs increase by the same amount. True variable: direct materials is a true variable cost because the amount used during a period varies in direct proportion to the level of production activity, any amounts not used can be carried to the next period. Discretionary fixed costs: called managed fixed costs, costs that arise from annual decisions by management to spend in certain fixed cost areas, examples are advertising, research and development, and management training programs. Width of the steps relates to the volume or level of activity.

Related Questions

Which of the following statements describes variable costs?

Costs that vary on a per unit basis as the level of activitychanges

Costs that vary in total in direct proportion to changes in thelevel of activity

Costs that remain the same in total dollar amount as the levelof activity changes

Costs that vary on a per unit basis but remain the same in totalas the level of activity changes

A variant of fiscal-year budgeting whereby a twelve-monthprojection into the future is maintained at all times iscalled:

A. Flexible budgeting

B. Continuous budgeting

C. Zero-based budgeting

D. Master budgeting

erinelk174

This question has five parents:

1. Variable costs in total increase or decrease in proportionwith changes in the level of business activity:

a. true b. false

2. Variable cost per unit remains constant when the number ofunits produced changes:

a. true b. false

3. Fixed cost per unit remains the same even though there is achange in the number of units produced:

a. true b. false

4. Managerial accounting stresses accounting concepts andprocedures that are relevant to preparing reports for:

a. investors and banks

b. internal users of accounting information

c. shareholders and creditors

d. the Security and Exchange Commission (SEC)

5. Kilwinâs Candies produced and sold 600 boxes of chocolatecovered popcorn last month and had total variable costs of $2,100that reflected the cost of chocolate and popcorn (ingredients).Each box of popcorn for $12.00. If production and sales areexpected to increase by 10% next month, which of the followingstatements are true?

a. Total variable costs are expected to be $1,785.

b. Variable cost per unit is expected to be $3.50.

c. Unit variable costs are expected to be $2.10.

d. Total fixed costs will be $150,000.

magentalocust842

Q1:

The standard costs and actual costs for factory overhead for themanufacture of 2,700 units of actual production are as follows:

Standard Costs
Fixed overhead (based on 10,000 hours)	3 hours per unit @ $0.73 per hour
Variable overhead	3 hours per unit @ $2.03 per hour
Actual Costs
Total variable cost, $18,000
Total fixed cost, $8,100

The amount of the fixed factory overhead volume variance is

$1,110 unfavorable

$1,387 unfavorable

$1,110 favorable

Q2:

The standard costs and actual costs for factory overhead for themanufacture of 2,600 units of actual production are as follows:

Standard Costs
Fixed overhead (based on 10,000 hours)	3 hours per unit @ $0.76 per hour
Variable overhead	3 hours per unit @ $1.96 per hour
Actual Costs
Total variable cost, $17,900
Total fixed cost, $8,200

The amount of the variable factory overhead controllablevariance is

$2,090 favorable

$2,612 favorable

$2,612 unfavorable

Q3:

ABC Corporation has three service departments with the followingcosts and activity base:

Service Department	Cost	Activity Base forAllocation
Graphics Production	$200,000	number of copies
Accounting	500,000	number of invoices processed
Personnel Department	400,000	number of employees

ABC has three operating divisions, Micro, Macro and Super. Theirrevenue, cost and activity information are as follows:

	Micro	Macro	Super
Direct revenues	$700,000	$850,000	$650,000
Direct operating expenses	50,000	70,000	100,000
Number of copies made	20,000	30,000	50,000
Number of invoices processed	700	800	500
Number of employees	130	145	125

What is the service department charge rate for the AccountingDepartment?

a.$250

b.$0.004

c.$625

d.$714

Q4:

ABC Corporation has three service departments with the followingcosts and activity base:

Service Department	Cost	Activity Base forAllocation
Graphics Production	$200,000	number of copies
Accounting	500,000	number of invoices processed
Personnel Department	400,000	number of employees

ABC has three operating divisions, Micro, Macro and Super. Theirrevenue, cost and activity information are as follows:

	Micro	Macro	Super
Direct revenues	$700,000	$850,000	$650,000
Direct operating expenses	50,000	70,000	100,000
Number of copies made	20,000	30,000	50,000
Number of invoices processed	700	800	500
Number of employees	130	145	125

How much service department cost will be allocated to the MicroDivision?

a.$145,000

b.$200,000

c.$345,000

d.$60,000

AFM102 Lecture Notes - Lecture 3: Longrun, Income Statement, Variable Cost

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