D. The step method allocates all cost unit costs to cost units and revenue generating units. It recognizes that cost units can benefit from other cost units. See Allocating Costs

C. Manufacturing overhead costs are always product costs that occur at the manufacturing plant. The term indirect means that it is difficult to determine how much it costs to make one unit of product. Indirect labor is often a very significant cost which includes plant managers, supervisors, quality inspectors, manufacturing accountants and other labor that supports the process of making the product. See Product & Period Costs.

D. Ending work in process inventory is always the same under both methods. The only difference in the two methods is how beginning inventory is treated. Beginning inventory equivalent units are always 100% of units for weighted average and only work completed in the current period using FIFO. Work on beginning inventory last period is not included in beginning inventory equivalent units under FIFO. Statements in a., b., & c. are always correct. See Process Costing.

C. Spoilage is detected at a regular inspection point in a discrete process. See Process Costing – Spoilage

A. The high low formula directly calculates the variable cost per activity. This variable cost per activity is then used to compute the total fixed costs. The fixed cost per unit and total variable costs are different for different levels of activity. See Mixed Costs.

C. Manufacturing overhead by definition is all costs except direct material and direct labor that must be incurred to make the product. These costs are generally related to the facility and the management required to operate the facility. All manufacturing overhead costs are indirect (a). Warehouse and inventory storage costs are period costs that are expensed as incurred. Costs to ship the product are selling costs that are period costs. See Product & Period Costs.

C. Indirect materials are part of manufacturing overhead. All manufacturing overhead expenses incurred are originally recorded as an increase (debit) in manufacturing overhead and then transferred to work in process when manufacturing overhead is applied. See Job Costing.

A. Direct costs are recorded as WIP when used in production. For (b.), work in process is decreased, credited. (c.) does not impact work in process. Indirect materials are recorded as an increase in manufacturing overhead since they are not directly traceable to the product. (d.) See Job Costing.

C. The calculated cost of goods manufactured is equal to the cost of completed finished goods for the period. Cost of goods manufactured uses actual costs for the period and is reported as part of cost of goods sold (a.). (b.) does not include all product costs. All indirect costs includes period costs which are not part of inventory (d.). Ending WIP is not yet finished, so it is not part of the cost of finished goods. See Cost of Goods Manufactured.

A. Unfavorable variances means that actual costs were higher than standard. If the costs are not adjusted higher to actual, inventory accounts will be lower (d.) and cost of goods sold will be lower (b.). A lower cost of goods sold gives a higher income (c.) See Recording Variances

D. Variance accounts are included in cost of goods sold when they total an immaterial amount. When the amount is material, the amount is allocated to all inventory accounts and a part is included in each. Variances are not ever reported separately; the cost is added to the affected accounts. See Recording Variances

B. Beginning inventory units are the first units to be completed and transferred to finished goods. The cost of beginning inventory includes effort to finish the units this period and costs that Began with the units this period. Other units started and completed are finished also. The total cost of all these are included in the cost of finished goods for the period. The cost of all effort is not correct because some costs are still in work in process (d.). Cost per equivalent unit is always multiplied by equivalent units, not units. (c.) Answer (a.) leaves out beginning of the period costs and beginning equivalent units. See Process Costing

A. Joint costs are allocated to individual products to determine the cost of making one unit of product. Inventory is valued based on the cost of manufacturing one unit. The total cost of manufacturing can be determined without allocating joint costs (b.). Added processing costs occur separately from joint costs (c.). Allocating joint costs is an estimate and will not give an exact cost (d.) See Joint Products

D. Standard quantity allowed is another way to say, “what should you have used for the actual units you did produce”. It is calculated by multiplying actual units produced x the quantity one unit was expected to use. The answer must include actual units produced and a., b., and c., all use an estimated quantity of units. See Variable Cost Variances.

C. Fixed production costs are reported as a period cost for variable costing and a product cost for absorption costing. This is the only difference in income. All other costs listed are reported at the same amount on both statements. The format used does not cause the income to be different. See Variable and Absorption Costing Income Statements.

D. The relevant range is the range where fixed cost will not change as long as volume remains within this range. It is the range where expected cost assumptions will hold true. Production volumes will vary within this range (c.) Variable costs are always relevant costs. (a.)
See Cost Behavior – Fixed & Variable

C. A variable cost must be incurred every time you make or sell a product. Variable costs in total change as volume changes. The cost per unit for a variable cost does not change. Fixed costs do not change in total with changes in volume (d.). Product and period costs are both variable and fixed. See Cost Behavior – Fixed & Variable

B. All product costs are included in the cost of inventory. Product costs are direct materials direct labor, and manufacturing overhead. Rent at the manufacturing facility is part of manufacturing overhead. Costs to ship to the customer is a selling (period) cost and corporate administrative costs are general and administrative (period) costs. The cost of warehousing inventory is also a period cost. See Cost of Goods Manufactured.

B. The variable cost statement sorts by fixed and variable which is related to cost volume relationships. The matching concept is not followed under a variable costing statement because the product cost fixed manufacturing overhead is expensed as incurred, not when the product is sold. As volume changes, fixed costs do not change in total and variable cost per unit does not change. See Variable and Absorption Costing Income Statements.

D. This method directly decreases joint processing costs for the value of scrap or by product sales. See Joint Products – By Products

B. All fixed costs, including fixed manufacturing overhead costs, are reported separately below contribution margin on a variable cost statement. Gross profit is not reported on a variable costing statement. All variable costs are reported above contribution margin, which also includes variable period costs. The variable costing income statement separates costs by fixed and variable, cost behavior. See Variable and Absorption Costing Income Statements.

A. The budget variance compares the budgeted dollars to actua l dollars spent. When the variance is 0, there is no difference between the two. Variance related to activity or units made are related to the volume variance (c. & d.). (b.) is incorrect because applied overhead does not impact the budget variance. See Fixed Manufacturing Overhead Variances.

D. By definition, a fixed cost will not change as volume changes within a relevant range. The term “fixed” does not mean that it will never change or that actual will be what was originally budgeted. (a.) Fixed costs are fixed within a range of production. (b.) Direct labor is a variable cost (c.) See Cost Behavior – Fixed & Variable

A. By definition, contribution margin is the amount that is available to cover fixed costs. Sales – VC = CM – FC = Profit Variable costs are both product and period costs (c.) See Cost Volume Profit Analysis

B. In a discrete process, normal spoilage will have equivalent units. The equivalent units must be assigned costs and this cost is added to finished goods. A continuous process does not assign costs to spoiled units because equivalent units are 0; the cost is averaged in to good  units. See Process Costing – Spoilage