MA quiz 2

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MA quiz 2
2013-11-05 00:33:26
MA quiz

MA quiz 2
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  1. Fixed cost per unit in full absorption

    (Current fixed MOH+ fixed MOH allocated to previous ivt)/units produced in current period

  2. If production>sales, difference in NI is

    Fixed cost per unit in full absorption*difference in units sold and produced

  3. If production>sales, compare the full absorption costing and variable costing and explain

    • Ending ivt increase, Variable costing over-count the costs that remains at ending iv t
    • gives more cost and lower profit

  4. If sales>production, compare the full absorption costing and variable costing and explain

    • Ending ivt decrease, Variable costing neglects the costs that is taken from end ivt
    • gives lower cost and higher profit

  5. If sales>production, difference in NI is

    fixed MOH allocated to previous ivt

  6. negative consequences of special order

    • customers demanding the same reduced price that was given to the “special” order
    • If the company has limited production capacity, filling the special-order may create opportunity costs including lost revenue from regular sales, back-orders

  7. Difference between excess capacity and full capacity

    • If a company has excess capacity, increasing production will only increase the costs that vary with production.
    • If a company is at capacity, production cannot be increased without incurring additional fixed costs.

  8. What is avoidable cost

    • An avoidable cost is one that can be avoided by selecting a particular decision alternative.
    • It is a relevant cost because it will differ between decision alternatives

  9. Potential problems and solutions involved with outsourcing
  10. Opportunity costs of keeping
    revenue given up if the product is dropped

    revenue from another product that could be produced if the item were dropped
  11. Given a bottleneck, why should be focus on CM per constrained resource when prioritizing

    fixed costs do not change in the short-run

  12. using CVP graph, what will lower breakeven point

    • increasing price-steeper revenue line
    • lowering variable cost-flatter cost line
    • lower fixed cost-shift up cost line

  13. why is a company with a high proportion of fixed costs more vulnerable

    • fixed costs are committed and don’t change when activity decreases.
    • Variable costs can be matched up much more closely with changes in demand.
    • When demand decreases, the company can reduce variable costs by reducing the purchase of raw materials, scaling back on direct labor, reducing utility consumption

  14. To what firms is margin of safety important?

    • Startups
    • businesses with heavy competition or demand fluctuations.

  15. Why is a company with a high degree of operating leverage more risky

    experience larger swings in profit as a result of changes in sales revenue

  16. A sales mix shift to a product with lower contribution margin per unit will cause

    • weighted-average contribution margin to decrease
    • thus a higher breakeven

  17. negative consequence of dropping a product line

    • employee morale
    • customer loyalty
    • adversely affect complementary goods of the dropped product

  18. a firm’s relevant range equals its


  19. whether earning a certain level of profit is possible depends on

    • relevant range
    • demand

  20. degree of operating leverage increases if

    rely more on fixed cost

  21. degree of operating leverage: in very large production and at breakeven

    • approach 1
    • approach infinity

  22. Step costs are

    fixed across a range of activity, then increase in a step-like fashion when a capacity constraint is reached.

  23. When activity level decreases, per units cost(F, V, M) behaves as follows

    • Fixed cost per unit increase.
    • Variable cost per unit remains the same.
    • Mixed cost per unit increases.

  24. Use of scattergraph

    • if the linear assumption is valid
    • any unusual patterns in the data, such as outliers.
    • information about the appropriateness of the relevant range that has been set

  25. difference between Full absorption costing and Variable costing

    • Full absorption: requires that all manufacturing costs be treated as product cost, which means that fixed manufacturing overhead cost will be included in either cost of goods sold or inventory, depending on whether the product has been sold.
    • Variable costing: expense all cost as incurred

  26. Implication on cost structure for seasonal business
    Fixed cost constitutes large proportion of total cost during low seasons