Questions and Answers of Cost And Management Accounting An Introduction

What is the price-recovery component? LO4
What is activity productivity analysis, and what are its limitations? LO4
What is process productivity analysis? LO4
Can productivity improvements be achieved without improving quality? Explain. LO4
Why is it important for managers to be concerned with both productivity and quality? LO4
Discuss the role accounting has in productivity measurement. LO4
What are the differences between quality and pro¬ ductivity? The similarities? LO4
Distinguish between relevant and irrelevant costs and revenues. LO1
Explain the importance of qualitative factors. LO2
Distinguish between the relevant and irrelevant costs and revenues for the five decision-making problems described. LO3
Describe the key concept that should be applied for presenting information for product mix decisions when capacity constraints apply. LO4
Explain why the book value of equipment is irrelevant when making equipment replacement decisions. LO5
Describe the opportunity cost concept. LO6
What is a relevant cost? (p. 284)
Why is it important to recognize qualitative factors when presenting information for decision-making? Provide examples of qualitative factors. (p. 285)
What underlying principle should be followed in determining relevant costs for decision-making? (p. 285)
Explain what is meant by special pricing decisions. (pp. 285-286)
Describe the important factors that must be taken into account when making special pricing decisions. (op. 287-288)
Define limiting factors. (p. 297)
How should a company determine its optimal product mix when a limiting factor exists? (0p. 291-293)
Why is the written down value and depreciation of an asset being considered for replacement irrelevant when making replacement decisions? (op. 293-294)
Explain the importance of opportunity costs for decision-making. (0. 288)
Explain the circumstances when the original purchase price of materials are irrelevant for decision-making. (p. 307)
Why does the relevant cost of labour differ depending upon the circumstances?(p. 301)
All of acompany’s skilled labour, which is paid £8 per hour, is fully employed manufacturing a product to which the following data refer:The company is evaluating a contract which requires 90
A company requires 600kg of raw material Z for a contract it is evaluating. It has 400kg of material Z in stock which were purchased last month. Since then the purchase price of material Z has risen
Equipment owned by a company has a net book value of £1800 and has been idle for some months. It could not be used on a six months contract which is being considered.If not used on this contract,
A company is considering the costs for a special order. The order would require 1250kg of material D. This material is readily available and regularly used by the company. There are 265kg of material
X plc intends to use relevant costs as the basis of the selling price for a special order: the printing of a brochure. The brochure requires a particular type of paper that is not regularly used by X
A company which manufactures four components (A, B, C and D), using the same skilled labour, aims to maximize its profits. The following information is available:As it has insufficient skilled labour
A company has the following production planned for the next four weeks. The figures reflect the full capacity level of operations. Planned output is equal to the maximum demand per product.The direct
A company has three shops (R, S and T) to which the following budgeted information relates:Sixty per cent of the total fixed costs are general company overheads. These are apportioned to the shops on
The following information relates to questions (i) and (ii):In the following price, revenue and cost functions, which have been established by an organization for one of its products, Q represents
Relevant cost for minimum price for a contract The Telephone Co. (T Co) is a company specializing in the provision of telephone systems for commercial clients. There are two parts to the business:—
Limiting factor and make or buy decision Merry! Ltd manufactures four components (E, F, G and H) which are incorporated into different products made by the company. All the components are
Acceptance of a special order The production manager of your organization has approached you for some costing advice on project X, a one-off order from overseas that he intends to tender for. The
Decision on which of two mutually exclusive contracts to accept A company in the civil engineering industry with headquarters located 22 miles from London undertakes contracts anywhere in the United
Deletion of a product Blackarm Ltd makes three products and is reviewing the profitability of its product line. You are given the following budgeted data about the firm for the coming year.The
Calculation of the optimum selling price using calculus Ella Ltd recently started to manufacture and sell product DG. The variable cost of product DG is £4 per unit and the total weekly fixed costs
Describe the dangers involved in focusing excessively on a short-run decisionmaking time horizon. (pp. 287-288)
Explain why a cost accumulation system is required for generating relevant cost information for decision-making. LO1
Describe the differences between activity-based and traditional costing systems. LO2
Explain why traditional costing systems can provide misleading information for decision-making. LO3
Compute product costs using an ABC system. LO4
Identify and explain each of the four stages involved in designing ABC systems. LO5
Describe the ABC cost hierarchy. LO6
Explain why a cost accumulation system is required for generating relevant cost
What are the fundamental differences between a traditional and an ABC system? (p. 323)
Define activities and cost drivers. (p. 323)
Distinguish between volume-based and non-volume-based cost drivers.(pp. 324-325)
Describe the circumstances when traditional costing systems are likely to report distorted costs. (0p. 325-326)
Explain how low volume products can be undercosted and high volume products overcosted when traditional costing systems are used. (pp. 324-326)
What is meant by ‘product diversity’ and why is it important for product costing?(p. 325)
Describe each of the four stages involved in designing ABC systems. (pp. 335-337)
Distinguish between resource cost drivers and activity cost drivers. (p. 336)
Distinguish between transaction and duration cost drivers. (0. 337)
Describe the ABC manufacturing cost hierarchy. (ep. 337-338)
Explain the circumstances when ABC is likely to be preferred to traditional costing systems. (op. 338-339)
Provide examples of how ABC can be used in service organizations. (p. 338)
EF manufactures and sells; three products X,Y and Z. The following production overhead costs are budgeted for next year:Budgeted details for each of the products tor next year are as
Calculation of gross profit using ABC MS manufactures three types of skincare product for sale to retailers. MS currently operates a standard absorption costing system. Budgeted information for next
Calculation of ABC product cost and discussion as to whether ABC should be implemented Beckley Hill (BH) is a private hospital carrying out two types of procedures on patients. Each type of procedure
ABC profitability analysis GH produces three models of speedboat for sale to the retail market. GH currently operates a standard absorption costing system. Budgeting information for next year is
ABC profitability analysis A company sells and services photocopying machines. Its sales department sells the machines and consumables, including ink and paper, and its service department provides an
Calculation of traditional and ABC product costs The Gadget Co produces three products, A, B and C, all made from the same material. Until now, it has used traditional absorption costing to allocate
explain how budgeting fits into the overall planning and control framework. LO1
identify and describe the six different purposes of budgeting.LO2
identify and describe the various stages in the budget process.LO3
prepare functional and master budgets.LO4
describe the use of computer-based financial models for budgeting.LO5
describe the criticisms relating to traditional budgeting.LO6
What is the difference between quality of design and quality of conformance? LO3
Why are quality costs the costs of doing things wrong? LO3
What is the difference between the zero-defects phi¬ losophy and the robust quality philosophy? LO3
Describe the Taguchi quality loss function and relate it to robust quality LO3
Identify and discuss the four kinds of quality costs. LO3
Explain why external failure costs can be more dev¬ astating to a firm than internal failure costs. LO3
What is the difference between an AQL standard and a zero-defects standard? LO3
Explain why activity-based management supports a zero-defects standard over an AQL standard. LO3
Many quality experts maintain that quality is free. Do you agree? Why or why not? LO3
What is the purpose of interim quality standards? LO3
Describe the three types of quality performance re¬ porting. How can managers use each report to help evaluate their quality improvement programs? LO3
Discuss the different kinds of incentives that can be used to motivate employees to become involved in quality improvement programs. LO3
Explain why it is important for a manager to assess the relative distribution of quality costs among the four categories. LO3
Discuss the benefits of quality cost reports that sim¬ ply list the quality costs for each category. LO3
Explain why the accounting department should be responsible for producing quality cost reports. LO3
What is ISO 9000? Why do so many companies want this certification? LO3
Explain what is meant by the term ‘cost function’. (po. 263)
Under what circumstances can the engineering method be used to estimate costs? (p. 264)
Describe the high-low method. (pp. 267-268)
What is the major limitation of the high-low method? (p. 268)
Describe how the scattergraph method is used to analyze costs into their fixed and variable elements. (op. 265-266)
Describe the least squares method. Why is this method better than the high-low and scattergraph methods? (op. 268-270)
Describe the steps that should be followed in estimating cost functions. (op. 272-273)
Why is a scattergraph a useful first step in estimating cost functions? (p. 273)
Explain the meaning of ‘coefficient of determination’. (0. 271)
The table below shows the output, total costs and the cost inflation index for a business in two periods. Cost behaviour patterns were the same in both periods.The variable cost per unit at an
The following data relate to a company’s overhead cost.Using the high-low technique, what is the variable cost per unit (to the nearest $0.01) expressed in current year prices?(a) $3.22 (b) $4.13
The following shows the total overhead costs for given levels of a company’s total output.A step up in fixed costs of $500 occurs at an output level of 3500 units.What would be the variable
A company is estimating its costs based on past information. The total costs incurred by the company at different levels of output were as follows:The company uses the high-low method to separate

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