Cost Accounting & Management Flashcards

A company uses activity-based costing. Which cost driver would be most appropriate for a machine setup activity?

Answer: Number of production runs

Setup costs vary with the number of production runs (batches), not individual units or machine hours.

Under absorption costing, when production exceeds sales, operating income will be:

Answer: Higher than variable costing income

Under absorption costing, fixed overhead is deferred in ending inventory, making income higher than variable costing when production > sales.

Which of the following is a characteristic of a process costing system?

Answer: Products are homogeneous and mass-produced

Process costing suits homogeneous, mass-produced goods where costs are averaged over all units in a period.

A company's contribution margin ratio is 40% and fixed costs are $200,000. What sales level is needed to achieve a target profit of $60,000?

Answer: $650,000

Required sales = (Fixed costs + Target profit) / CM ratio = ($200,000 + $60,000) / 0.40 = $650,000.

The joint cost allocation method that assigns costs based on each product's ability to absorb costs is the:

Answer: Net realizable value method

The net realizable value method allocates joint costs in proportion to each product's NRV, reflecting its relative market value.

Standard costing variance analysis shows a favorable material quantity variance. This means:

Answer: Actual quantity used was less than standard quantity allowed

A favorable material quantity variance occurs when actual quantity used is less than the standard quantity allowed for actual output.

Which cost is always irrelevant to a make-or-buy decision?

Answer: Sunk costs already incurred

Sunk costs are past costs that cannot be recovered and are irrelevant to any future decision including make-or-buy.