Managerial and Cost Accounting Quiz

Answer: Mixed cost

If the cost can never be zero, it has a fixed component. However, since it changes with the number of units produced, it also has a variable component. This is a mixed cost. Product and period costs refer to cost classifications rather than cost behaviors.

Answer: Product cost

While the behavior of manufacturing overhead is probably a mixture of fixed and variable costs, it is allocated to the product produced rather than the accounting period, making it a product cost.

Answer: Variable cost

Variable costs start at zero when no units are produced and change with the number of units produced.

Answer: Fixed cost

A cost that remains the same (or, in practice, very nearly the same) across a range of units of product produced (the relevant range) is said to be a fixed cost. This is often the case for insurance premiums, executive compensation, and similar costs.

Answer: $130,500

Adding the Raw Materials Purchases to the Beginning Raw Materials Inventory, then subtracting the Ending Raw Materials Inventory, gives the Raw Materials Put Into Production. Add that, the Direct Labor Costs, and the Manufacturing Overhead Costs to the Beginning Work in Process Inventory, then subtract the Ending Work in Process Inventory, and that gives the Cost of Goods Manufactured. Add Cost of Goods Manufactured to the Beginning Finished Goods Inventory, subtract the Ending Finished Goods Inventory, and you have the Cost of Goods Sold.

Answer: Process costing system

Most costing systems today are activity based in that they attempt to assign costs to activities more precisely, rather than simply allocating them across product lines. However, when the system attempts to track costs to a specific department or work group and then assign it to their products, it is a process costing system.

Answer: Job order costing system

A job order costing system tracks costs for each lot of the product by using "job order" production tickets where all direct inputs are measured for that lot. Indirect costs, unfortunately, still have to be allocated by whatever means makes the most sense to management.

Answer: Backflush costing system

Proponents of backflush costing claim that it leaves a more accurate Cost of Goods Sold for the income statement, but it always seemed to me that it was just a good way to be lazy at the first of the month and then work like mad at the end of the month.

However, backflush costing can be very handy where ongoing inventory tracking is particularly difficult, such as with liquids, or where the same materials might go into several products that are made to order, such as certain oilfield chemicals.

Answer: Facility-level cost

In ABC, a unit-level cost can be traced to a specific unit of the product. Batch-level costs can be traced to a lot of the product, and product-level costs can be traced to an individual product (ketchup or barbecue sauce, for example). Costs that apply to the plant, such as insurance and administration, can't be traced to any one product and so must be allocated to all products in some fashion.

These are the facility-level costs.

Answer: $6.60

To meet profitability goals, management must set a price that can be reasonably expected to cover all fixed costs, all variable costs, and the desired profit. To get that price, add up all the fixed costs and the desired profit, divide by the number of units to be produced and sold, and then add the variable costs per unit.

This is a variation on break-even calculations, adding only the desired profit element, which is treated as a fixed cost.