Explain the relationship between margin of safety percentage and degree of operating leverage.
> When units are transferred from one department to another, how are normal spoilage costs recorded?
> In processes involving pipeline operations or assembly line operations, if the pipeline or assembly line is always full, then beginning and ending WIP inventories are always 50 per cent complete with regard to conversion costs. Explain.
> Describe the differences between mass production and custom production of goods and services. Explain how these differences influence the costing method.
> Exquisite Furniture designs and manufactures custom furniture from exotic materials. Explain why spoilage is sometimes recorded as a cost for a specific job and other times as overhead for this entity.
> Mercy Hospital uses a costing system for all patients who have surgery. The hospital uses a budgeted overhead rate for allocating overhead to patient stays. In March, the operating room had a budgeted allocation base of 1000 operating hours. The budgeted
> Part of a contract between a union and a company guarantees that all manufacturing employees earn five hours of overtime each week. In the company’s job costing system, should overtime be treated as a direct or indirect cost?
> Within the area where you live, work, or attend school, name three businesses that would likely use job costing.
> Will underapplied and overapplied overhead arise under both actual and normal costing? Explain your answer.
> Compare actual and normal cost systems. Discuss the ways in which they are similar and the ways they differ.
> List several different sources of information used in job costing, and explain why this information is required.
> List three examples of job cost records you would receive if you were building a new home.
> Describe an inventoriable product cost.
> To what extent do the costs used to value inventories for external financial reporting support internal management decisions on issues such as whether to accept a special, one-off order or whether to outsource part or all of the production process?
> List the most common allocation bases used in job costing and explain under what circumstances each base would be most appropriate.
> Explain how manufacturing overhead cost pools and cost allocation are related.
> Devon Ltd allocates support department costs using the direct method and estimated costs. The support department costs are budgeted at $88Â 000 for department A, $63Â 000 for department B, and $40Â 000 for department C. T
> Describe the procedures used in job costing.
> What are some of the challenges that organisations face when allocating budget authority and responsibility?
> What adjustments should be made to static budgets before they are used for management performance evaluation?
> What methods do organisations use to minimise budgetary slack?
> What are the objectives of participative budgeting?
> How can budgeting assist an entity to efficiently use its human resources?
> Explain how the following budgets relate to each other: the revenue budget, the production budget, and the direct materials budget.
> How are the master budget and flexible budget related?
> Describe the types of information that managers use to develop budgets.
> Whilst preparing the cash budget for next year, the accountant at Mines Ltd. identified a $20 million shortfall. This shortfall was due to a capital expenditure item of the same value. The CEO has identified that the purchase must be made to ensure compe
> A local hospital is required to account for the total cost of patient care, including support costs. Patients are assigned all direct costs. Support costs are $240 000 per month plus $90 per patient day. This 120-bed hospital averages 80 per cent occupan
> Blowervacs produces and sells leaf blowers. Production levels are high in the summer and beginning of autumn and then taper off through the winter. Sales are high in autumn and early winter and then taper off in the spring. Explain why preparing a cash b
> How are budgets related to organisational strategies?
> Outline the key components of Beyond Budgeting.
> Explain why the budgeting process might not necessarily be successfully implemented in an organisation.
> Briefly describe the attributes of activity-based and kaizen budgeting.
> Explain the key concepts of zero-based budgeting.
> Explain the key concepts of program budgeting.
> Distinguish between a discretionary cost centre and an engineered cost centre.
> In the planning or strategic budgeting process, explain how a sales revenue budget can be determined.
> Explain why it is important that an organisation’s budget be linked to strategy.
> DataShow’s IT support department budgets its costs at $40 000 per month plus $12 per hour. For November the following were the estimated and actual hours provided by the IT support department to three operating departments.
> Explain how zero-based budgeting assists with planning in discretionary cost centres.
> Explain how program budgeting assists with planning in discretionary cost centres.
> Classify the following cost centres as more likely to be engineered cost centres or discretionary cost centres: • R&D department • HR department • Manufacturing plant
> Discuss the similarities and differences between annual budgets and rolling budgets.
> What distinguishes zero-based budgeting from other types of budgeting?
> Why do proponents of the Beyond Budgeting movement recommend abandoning traditional budgets?
> Outline the meaning of the profit planning or strategic budgeting process.
> How are CVP analysis and breakeven analysis related?
> Explain the term ‘sales mix’ in your own words. How does sales mix affect the contribution margin?
> How do volume discounts from suppliers affect our assumption that the cost function is linear? Explain how we incorporate this type of cost into a CVP analysis.
> Wright Medical Centre has identified the following activities and cost drivers for the coming financial year. / Required Calculate the activity cost rate for each activity.
> To estimate revenues, costs and profits across a range of activity, we usually assume that the cost and revenue functions are linear. What are the specific underlying assumptions for linear cost and revenue functions, and how reasonable are these assumpt
> What is the effect on an entity’s breakeven point of a lower income tax rate?
> An organisation experiences a 20 per cent increase in pre-tax profits when revenues increase 20 per cent. Assuming linearity, what do you know about the organisation’s cost function?
> Explain how to calculate a weighted average contribution margin per unit.
> Identify an industry that would have a high level of operating leverage. Briefly comment on your selection.
> Give an example of how a business can reduce variable costs by increasing fixed costs.
> How do different cost structures affect the breakeven point and operating leverage?
> Under what circumstances will managers want sensitivity analysis results relating to a CVP analysis?
> Explain how CVP analysis can be used to make decisions about increases in advertising costs.
> Venture Buses operates throughout the south-eastern suburbs of Melbourne, with its depot located in Cheltenham. Every day, fuel is delivered and stored in tanks located in the depot. This fuel is used by all the buses and administration vehicles. The acc
> Describe three uses for CVP analysis.
> Can the margin of safety ever be negative? Explain your answer.
> If an entity has a mixed cost function, a 10 per cent increase in sales volume should increase income by more than 10 per cent. Explain why.
> Explain how cost data is sourced in a costing framework.
> What should determine the choice of cost allocation method (direct, step-down and reciprocal) discussed in this chapter?
> Explain the similarities and differences between support department costs and manufacturing overhead costs.
> Explain the differences and similarities among the direct, step-down and reciprocal methods.
> Discuss the importance of selecting an appropriate cost driver for cost allocation.
> Explain the difference between a direct cost and an indirect cost.
> How do organisations identify the costs of a cost object?
> Express Lunch operates a small food van that sells a variety of sandwiches and beverages. Total fixed costs are $20 000 per month. Last month total variable costs were $8000 when total sales were $32 000. Required (a) Write out the algebraic expression
> Why do managers need to measure, monitor and motivate performance?
> What is a cost object? Give three examples.
> During a recent management meeting at Sunset Consulting Services, a team member questioned why the costing system had multiple indirect cost pools given it would be easier just to have one. Provide a brief response to explain why the business has adopted
> Refer to the Partridge Insurance example (comprehensive example 1) in the chapter. Explain how the support departments can be classified as both cost objects and cost pools in the costing system.
> List at least three possible allocation bases that could be used to allocate accounting department costs to other departments. Give one advantage and one disadvantage of using each allocation base.
> What are the advantages and disadvantages of using estimated support cost allocation rates?
> Explain the difference between operating departments and support departments.
> A product is started in department 1 and completed in department 2. Is department 1 a support department or an operating department? Explain.
> What factors should be considered when choosing allocation bases?
> Outline the key steps in a costing framework.
> For what purposes do organisations need cost information?
> (a) Total fixed costs are $10 000 per week and the variable cost per unit is $8. Write the algebraic expression for the cost function and graph it. What are the assumptions of the cost function? (b) Total fixed costs are $25 000 per week up to 2000 units
> Why might some have trouble classifying costs as fixed or variable?
> List two examples of non-linear cost functions and describe a method of developing a cost function for each one.
> Explain the analysis at the account level approach to developing a cost function.
> Explain how information from a scatter plot helps in categorising a cost as fixed, variable or mixed.
> You are about to start a coffee shop business. What do you understand by ‘cost behaviour’? Explain how your accountants could help you in building an understanding of cost behaviour. Identify the likely key costs and classify each as fixed or variable.
> At two levels of activity within the relevant range, average costs are $192 and $188 respectively. Assuming the cost function is linear, what can be said about the existence of fixed and variable costs?
> You have been asked to provide the managing director with an approximate cost function for the entity’s activities, and it must be done by this afternoon. Some members of the board of directors want to understand why performance varies so much across sto
> A motor vehicle assembly plant closes every August to retool for the next year’s model. How should August’s cost data be used in estimating the overhead cost function?
> ‘As volume increases, total cost increases and per-unit cost decreases.’ What type of linear cost function does this describe? Draw a simple graph of this type of cost function.
> The trend line developed using regression analysis provides a more accurate representation of a mixed cost function than the two-point or high-low methods. Explain why.
> Bridges and Roads is an entity engaged in road construction. Some selected items from its chart of accounts are listed below. Required For each account, indicate whether the account represents a fixed, variable or mixed cost for the operation of road co
> Community Children’s Hospital can invest in one of two different projects. The first project is to purchase and operate a hotel that is located two blocks from the hospital. The CEO of the hospital has no experience in operating a hotel, but the hospital
> Suppose you are responsible for ordering a replacement for your office photocopy machine. Part of your job is to decide whether to buy or lease the machine. Required (a) Describe something that could be considered relevant information in this decision a
> (a) With reference to Merino Designs in self-study problem 2, demonstrate the meaning of the structural cost drivers’ scope, technology and experience. (b) Classify Merino Designs’ likely strategy as low cost or produc
> With reference to Merino Designs in self-study problem 2, differentiate between an industry value chain and an organisational value chain.
> Initially the Techtra entities bid for any type of electronic assembly work that became available (mostly subcontract work from other firms experiencing temporary capacity problems). But over the years the firm narrowed its focus. It now produces essenti
> Tiffany Campbell is the cost accountant in a small manufacturing company, Calculator Components (CC). CC produces components for one of the large calculator manufacturers. Its strategy is to provide highly reliable components at the lowest possible price
> Rausher Industries began a new product line this year. Management wants a cost report for the current year and a budget for next year. The product requires processing in two departments. Materials are added at the beginning of the process in department 1
