Manufacturing Cost Analysis Flashcards

What is the primary purpose of a cost-volume-profit (CVP) analysis?

Answer: To understand how changes in costs and volume affect profitability

CVP analysis examines the relationship between costs, sales volume, and profit to support pricing, production, and planning decisions.

Under absorption costing, fixed manufacturing overhead is treated as:

Answer: A product cost included in inventory until sold

Absorption costing treats fixed manufacturing overhead as a product cost, meaning it is inventoried and only expensed when goods are sold.

A machine costs $200,000, has a salvage value of $20,000, and a useful life of 9 years. What is the annual straight-line depreciation?

Answer: $20,000

Straight-line depreciation = (Cost − Salvage) / Life = ($200,000 − $20,000) / 9 = $20,000 per year.

Which cost classification separates costs into their fixed and variable components to aid in flexible budgeting?

Answer: Semi-variable (mixed) cost analysis

Semi-variable (mixed) costs have both fixed and variable components and must be separated using methods like the high-low method for flexible budget preparation.

When evaluating a make-or-buy decision, which costs are most relevant?

Answer: Avoidable costs that would be eliminated by outsourcing

Relevant costs in make-or-buy decisions are avoidable costs—those that can be eliminated by choosing to buy externally rather than make in-house.

A favorable material price variance indicates that:

Answer: Material was purchased at a lower cost than the standard price

A favorable material price variance occurs when actual purchase price is less than the standard price, reducing material costs below budget.

In lean manufacturing, 'cost of poor quality' (COPQ) includes all EXCEPT:

Answer: Standard direct material costs for good units

Standard direct material costs for good units are normal production costs, not quality-failure costs; COPQ covers prevention, appraisal, and internal/external failure costs.