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L15.2030 - Cost Accounting (2025/2026)

L15.2030 - Cost Accounting (2025/2026)

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What are two possible ways of reducing the negative aspects associated with using absorption costing to evaluate the performance of a plant manager?

a) Reduce the time period used to evaluate performance. By evaluating performance over a shorter time period, the incentive to maximize quarterly or annual income at the potential expense of long-run income in lessened; AND b) Adopt an inventory holding charge for managers who tie up funds in inventory.

❌

a) Include nonfinancial as well as financial variables in the measures used to evaluate performance; AND b) Extend the time period used to evaluate performance. By evaluating performance over a longer time period (say, 3 to 5 years), the incentive to take short-run actions that reduce long-term income is lessened.

✅

a) Adopt variable costing, which reduces the incentives of managers to produce for inventory; AND b) Focus the bonus plan for management based on absorption costing operating income.

❌

a) Focus on careful budgeting and inventory planning to reduce management's freedom to build up excess inventory; AND b) Increase incentives for managers who increase operating income over a specific period of time.

❌

None of the other options is correct

❌

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Cost allocation is ________.

the process of tracking both direct and indirect costs associated with a cost object

❌

the assignment of indirect costs to the chosen cost object

✅

made based on material acquisition document

❌

None of the other options is correct

❌

the process of determining the opportunity cost of a cost object chosen

❌

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Company X produces and sells a single product and delivers a positive contribution margin.

If the selling price and the variable cost per unit both increase 5% and fixed costs do not change, what is the effect on the contribution margin per unit ($/unit) and the contribution margin as a percentage (%) of sales?

Contribution margin $/unit: increases; contribution margin %: increases

❌

Contribution margin $/unit: increases; contribution margin %: unchanged

✅

None of the other options is correct

❌

Contribution margin $/unit: increases; contribution margin %: decreases

❌

Contribution margin $/unit: unchanged; contribution margin %: unchanged

❌

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Company X presents the following information:

Beginning inventory of Finished goods: $112000
Ending inventory of Finished goods: $56000
Beginning inventory of Work in progress: $140000
Ending inventory of Work in progress: $84000
Direct materials used in production: $28000
Direct Labor and overhead costs: $168000

Based on the information above, determine the cost of goods sold (COGS) for the period.

None of the other options is correct

Company X produced 3000 units and presents the following information:

Manufacturing costs

Variable cost: $150 /unit
Fixed cost: $145 /unit

Inventory data

Beginning inventory: 1200 units
Ending inventory: 2200 units

If Company X uses an absorption costing system, what is the amount of fixed manufacturing costs expensed in the Income statement assuming no variances?

None of the other options is correct

Company X manufactures a single product. For each unit, $3131 of direct material is used and there is $2000 of direct manufacturing labor at $20 per hour. Manufacturing overhead is applied at $29 per direct manufacturing labor hour.

Calculate the profit earned on 50 units if each unit sells for $9000.

None of the other option is correct.

The following information is available for Company

Revenue
= $400000

Selling
price = $40/unit

Fixed costs = $200000

Operating
income before taxes = $100000

How much is the net income after taxes if the

company sells 20000 units, assuming an income tax rate of 10% ?

$540000

None of the other options is correct

Indicate whether the following sentences are TRUE or FALSE:

In comparing the absorption and variable cost methods, when inventory increases over the period, variable net income will exceed absorption net income

In comparing the absorption and variable cost methods, only the absorption costing method may be used for external financial reporting

In comparing the absorption and variable cost methods, variable costing charges fixed manufacturing costs to the period they are incurred

In comparing the absorption and variable cost methods, the Admin fixed expenses are not included in inventory in either method

In comparing the absorption and variable cost methods, when actual production is larger than the budgeted level of production, absorption net income will exceed variable net income

In comparing the absorption and variable cost methods, the Marketing variable expenses are included in inventory in either method

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Comment on the following article, extracted from the textbook (Horngren, 16th edition, page 368).

While this is an open-book exam, direct copying of content from the textbook or class notes will not earn points. Answers should demonstrate your understanding and application of the concepts.

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