Costing and Profitability Analysis Flashcards

A company uses activity-based costing (ABC). Which of the following is the BEST cost driver for a machine setup activity?

Answer: Number of setups

Number of setups directly drives setup costs in ABC, making it the most accurate driver for that cost pool.

Which costing method treats fixed manufacturing overhead as a period cost rather than a product cost?

Answer: Variable costing

Variable (direct) costing expenses fixed manufacturing overhead in the period incurred, while absorption costing includes it in product cost.

A firm's operating profit margin is 12% and its total asset turnover is 2.5. What is its return on assets (ROA)?

Answer: 30%

ROA = Operating Profit Margin × Asset Turnover = 12% × 2.5 = 30%.

When calculating the cost-to-serve for a customer segment, which of the following costs should be INCLUDED?

Answer: Order processing and delivery costs specific to the segment

Cost-to-serve includes only the incremental costs directly attributable to serving a specific customer or segment.

A product has a selling price of $80, variable cost of $50, and allocated fixed overhead of $20. At what minimum price should the company accept a special one-time order if capacity is available?

Answer: Any price above $50

With available capacity, only variable costs are relevant for a special order; any price above $50 contributes positively to profit.

Which metric measures the profit generated per unit of a scarce resource (constraint)?

Answer: Contribution margin per unit of constrained resource

Theory of Constraints uses contribution margin per unit of constrained resource to prioritize product mix decisions.

A customer generates $500,000 in revenue with a 35% gross margin but requires $200,000 in selling and service costs. What is the customer's net profitability?

Answer: -$25,000 loss

Gross profit = $500,000 × 35% = $175,000; Net profitability = $175,000 − $200,000 = −$25,000.