Exam 7: A Closer Look at Overhead Costs

The estimation of the quantity of a cost driver is called the denominator volume.

Gallison Company's net profit under absorption costing was $15 000 higher than under variable costing. During the year, the company produced 20 000 units for total variable production costs of $80 000. If fixed manufacturing overhead was $40 000, how many units were sold?

It is not necessary to take into account seasonal, cyclical and trend factors when estimating the normal level of capacity.

Discuss the three main reasons for allocating indirect costs to responsibility centres.

The Browning Company manufactures a single product; the standard costs per unit being variable manufacturing $8, fixed manufacturing $6. Selling and administrative costs are $2 per unit sold. The selling price is $20 per unit. Actual and budgeted fixed overhead is $900 000 for the year. Information about Browning's production activity for the year is: Assuming all information is provided above, the difference in profit between absorption and variable costing would be expected to be:

Variable costing is more useful than absorption costing for: i. special order decisions ii. short-term pricing of products iii. long-term pricing of products

The 'direct method' ignores the fact that:

The total contribution margin is the difference between:

The Browning Company manufactures a single product; the standard costs per unit being variable manufacturing $8, fixed manufacturing $6. Selling and administrative costs are $2 per unit sold. The selling price is $20 per unit. Actual and budgeted fixed overhead is $900,000 for the year. Information about Browning's production activity for the year is: What is the profit under variable costing?

The following information about Monfort Manufacturing is available: Using the direct method, the cost allocated from both of the support departments to Machining Department is:

Prior to allocating overheads to a product, it is necessary to allocate the costs of all support departments to the production departments.

The production section of a firm is serviced by personnel and computing as follows: Personnel costs are allocated on the number of employees and computing costs on service hours. Overhead rates are based on labour hours. If the direct method is used to allocate support department costs, what is the overhead rate for the Assembly Department?

When a company is choosing between different types of volume based cost drivers, which of the following factors suggest the use of outputs as a cost driver? i. The company has only one product. ii. The company is labour intensive. iii. The company uses large quantities of direct materials.

The income of a company for a year on a variable costing basis is $85 000 and on an absorption costing basis is $73 000. Fixed costs per unit were the same in both the prior and current year ($1.20 per unit). What was the change in inventory over the year?

Normal costing is when:

The following information relates to the Moonie Park Manufacturing Company for the year 2012. What would be the amount of underapplied or overapplied overhead at the end of the month if overhead rates were calculated based on practical capacity, normal capacity and budgeted capacity respectively.

Consider the following statements regarding cost allocation. i. Allocation of budgeted costs is preferred to actual cost as this minimises the possibility that the actions of one user department will affect the costs allocated to another user department. ii. Allocation of standard budgeted rates is preferred, so the user department does not have to bear the inefficiencies of support departments. iii. Knowing the standard rates in advance allows the user departments to plan their activities with greater certainty. Which statement/s is/are true?

When estimating the costs of a cost object, direct costs are allocated and indirect costs are traced to the object.

Appleford Ltd is a furniture manufacturer. It has a small range of products. Its manufacturing processes are characterised by a high level of automation. Appleford Ltd decides to choose a volume-based cost driver for its indirect manufacturing costs. Which of the following cost drivers is most appropriate?

The support department cost allocation method that completely ignores reciprocal services between support departments is called the: