MANAGERIAL ACCOUNTING EXAM 2
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Unit level activities - (correct Answer) - Providing power to run equipment, because power is consumed
in proportion to the number of units produced
Performed each time a unit is produced. Costs of unit level activities should be proportional to the
number of units provided
Product Level Activities - (correct Answer) - Designing a product, advertising a product, maintaining
product manager
Relate to specific products and typically must be carried out regardless of how many batches are run or
units of product are produced or sold
Organizational Sustaining Activities - (correct Answer) - Heating factory, cleaning executive offices,
providing a computer network, arranging for loans, preparing annual reports to shareholders
Carried out regardless of what customers are served, which products produced, how many batches are
run, or how many units made.
Customer Level Activity - (correct Answer) - Sales calls, catalog mailing, general technical support that
are not tied to any specific product.
Relate to specific customers
Batch Level Activities - (correct Answer) - Placing purchase orders, setting up equipment, arranging for
shipments to customers, clerical tasks, processing
Performed each time a batch is handled or processed regardless of how many units are in the batch.
Costs depend on the number of batches rather than units
Profit = - (correct Answer) - Sales - Total variable cost - total fixed cost
, Break Even Point (in total sales dollars) = - (correct Answer) - Total fixed cost / CM ratio
Break Even Point (in units sold) = - (correct Answer) - total fixed cost / CM per unit
CVP sales = - (correct Answer) - (fixed expense + target profit) / unit contribution margin
Sales dollars to attain TARGET PROFIT= - (correct Answer) - (Fixed cost + target profit) / CM ratio
Margin of Safety = - (correct Answer) - budgeted (actual) sales - break even sales
excess of budgeted sales over the break even volume of sales (the amount by which sales can drop
before losses begin to be incurred)
Operating leverage= - (correct Answer) - contribution margin / Net operating income
a measure of how sensitive net operating income is to percent changes in sales.
With a high leverage, a small percent increase in sales can produce a much larger percent increase in NOI
ABC - (correct Answer) - Focus is on allocating overhead, managing complexity, and diversity. Traditional
costing system for external reporting. ABC used for internal decision making. Used to provide cost
information to managers. Useful for managing overhead cost and for strategic decisions. Many (infinite)
variations, we study the "best practices." Allows manufacturing and non manufacturing costs to be
assigned to products. Some manf. costs can be excluded from product costs. ABC gives better
understanding of cost of products and services, identifies areas that benefit from process improvements.
ABC is costly and doesn't conform to GAAP; therefore need two costing systems, potential for managers
to misinterpret numbers, desire to fully allocate costs, resistance (people don't like change)
Steps to implement ABC - (correct Answer) - 1. identify activity cost pools
2. trace direct costs to activities and cost objects
3. assign costs to activity cost pools (STAGE ONE)
4. Calculate activity rates
5. Assign costs to cost objects (STAGE TWO)
6. Prepare management reports
Activity Rate = - (correct Answer) - total {cost in activity cost pool} / total activity
Don't allocate... - (correct Answer) - things that can be directly traced to the product such as DL, DM, and
shipping costs
Budget - (correct Answer) - "Future looking"
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Unit level activities - (correct Answer) - Providing power to run equipment, because power is consumed
in proportion to the number of units produced
Performed each time a unit is produced. Costs of unit level activities should be proportional to the
number of units provided
Product Level Activities - (correct Answer) - Designing a product, advertising a product, maintaining
product manager
Relate to specific products and typically must be carried out regardless of how many batches are run or
units of product are produced or sold
Organizational Sustaining Activities - (correct Answer) - Heating factory, cleaning executive offices,
providing a computer network, arranging for loans, preparing annual reports to shareholders
Carried out regardless of what customers are served, which products produced, how many batches are
run, or how many units made.
Customer Level Activity - (correct Answer) - Sales calls, catalog mailing, general technical support that
are not tied to any specific product.
Relate to specific customers
Batch Level Activities - (correct Answer) - Placing purchase orders, setting up equipment, arranging for
shipments to customers, clerical tasks, processing
Performed each time a batch is handled or processed regardless of how many units are in the batch.
Costs depend on the number of batches rather than units
Profit = - (correct Answer) - Sales - Total variable cost - total fixed cost
, Break Even Point (in total sales dollars) = - (correct Answer) - Total fixed cost / CM ratio
Break Even Point (in units sold) = - (correct Answer) - total fixed cost / CM per unit
CVP sales = - (correct Answer) - (fixed expense + target profit) / unit contribution margin
Sales dollars to attain TARGET PROFIT= - (correct Answer) - (Fixed cost + target profit) / CM ratio
Margin of Safety = - (correct Answer) - budgeted (actual) sales - break even sales
excess of budgeted sales over the break even volume of sales (the amount by which sales can drop
before losses begin to be incurred)
Operating leverage= - (correct Answer) - contribution margin / Net operating income
a measure of how sensitive net operating income is to percent changes in sales.
With a high leverage, a small percent increase in sales can produce a much larger percent increase in NOI
ABC - (correct Answer) - Focus is on allocating overhead, managing complexity, and diversity. Traditional
costing system for external reporting. ABC used for internal decision making. Used to provide cost
information to managers. Useful for managing overhead cost and for strategic decisions. Many (infinite)
variations, we study the "best practices." Allows manufacturing and non manufacturing costs to be
assigned to products. Some manf. costs can be excluded from product costs. ABC gives better
understanding of cost of products and services, identifies areas that benefit from process improvements.
ABC is costly and doesn't conform to GAAP; therefore need two costing systems, potential for managers
to misinterpret numbers, desire to fully allocate costs, resistance (people don't like change)
Steps to implement ABC - (correct Answer) - 1. identify activity cost pools
2. trace direct costs to activities and cost objects
3. assign costs to activity cost pools (STAGE ONE)
4. Calculate activity rates
5. Assign costs to cost objects (STAGE TWO)
6. Prepare management reports
Activity Rate = - (correct Answer) - total {cost in activity cost pool} / total activity
Don't allocate... - (correct Answer) - things that can be directly traced to the product such as DL, DM, and
shipping costs
Budget - (correct Answer) - "Future looking"
