Cost Accounting & Management Flashcards

What does the term 'throughput contribution' mean in the Theory of Constraints?

Answer: Sales revenue minus direct material costs only

In the Theory of Constraints, throughput contribution equals sales revenue minus direct material costs — only truly variable costs are deducted.

A relevant cost in a special order decision is:

Answer: Variable manufacturing cost per unit

Variable manufacturing costs change with each additional unit produced and are therefore relevant to a special order decision.

Equivalent units of production are used in process costing primarily to:

Answer: Express partially complete units in terms of fully complete units

Equivalent units convert work-in-process inventory into a measure of fully completed units for cost-per-unit calculations.

If a company has a margin of safety of 25%, a 10% decline in sales would result in profit declining by approximately:

Answer: 40%

Operating leverage = 1 / margin of safety ratio = 1 / 0.25 = 4; profit change = 10% × 4 = 40%.

Which overhead variance measures the difference between budgeted fixed overhead and the fixed overhead absorbed by production?

Answer: Fixed overhead volume variance

The fixed overhead volume variance measures whether actual output absorbed more or less fixed overhead than the original budget.

Under a just-in-time (JIT) system, which of the following would you expect to decrease significantly?

Answer: Raw material and WIP inventory levels

JIT aims to minimize inventory by synchronizing production with demand, dramatically reducing raw material and WIP holdings.

A by-product generated during joint production is most commonly accounted for by:

Answer: Recording proceeds at the time of sale and crediting production costs

The most common by-product method credits production costs (or recognizes revenue) only when the by-product is sold, avoiding complex cost allocation.