Answer (C) is correct. Waste is the amount of raw materials left over from a production process or production cycle for which there is no further use. Waste is usually not salable at any price and must be discarded.
"Jacob Corp. wishes to determine the fixed portion of its maintenance expense (a semivariable expense), as measured against direct labor hours, for the first 3 months of the year. The inspection costs are fixed; the adjustments necessitated by errors found during inspection account for the variable portion of the maintenance costs. Information for the first quarter is as follows:" | ||
---|---|---|
Direct Labor Hours | Maintenance Expense | |
January | 34,000 | $610 |
February | 31,000 | $585 |
March | 34,000 | $610 |
Answer (B) is correct. The high-low method can be used to determine the fixed and variable cost components of a mixed cost. The variable cost is found by dividing the change in total cost (TC) by the change in activity, e.g., DLH. The fixed cost is found by substituting the variable cost into either of the activity/cost functions. Alternatively, the fixed cost is the cost given a zero level of activity. Variable portion = Change in TC ÷ Change in DLH = $25 ÷ 3,000 = $.00833 Fixed portion = Total cost – Variable portion Fixed portion = $585 – (31,000 × $.00833) = $327 Fixed portion = $610 – (34,000 × $.00833) = $327
Answer (C) is correct. Spoiled goods are defective items that cannot be feasibly reworked. Traditional cost accounting systems distinguish between normal and abnormal spoilage because, in some operations, a degree of spoilage is operating conditions. It is spoilage that is uncontrollable in the short run and therefore should be expressed as a function of good output (treated as a product cost). Accordingly, normal spoilage is assigned to all good units in process costing systems, that is, all units that have passed the inspection point at which the spoilage was detected. If normal spoilage is attributable to a specific job, only the disposal value of the normally spoiled goods is removed from work-in-process, thereby assigning the cost of normal spoilage to the good units remaining in the specific job. Abnormal spoilage is not expected to occur under normal, efficient operating conditions. The cost of abnormal spoilage should be separately identified and reported. Abnormal spoilage is typically treated as a period cost (a loss) because it is unusual.
Answer (C) is correct. Practical capacity is the maximum level at which output is produced efficiently, with an allowance for unavoidable interruptions, for example, for holidays and scheduled maintenance. Because this level will be higher than expected capacity, its use will ordinarily result in underapplied fixed factory overhead.
Answer (B) is correct. Practical capacity is the maximum level at which output is produced efficiently. It includes consideration of idle time caused by human and equipment inefficiencies but not by inadequate sales demand. Practical capacity exceeds the other commonly used denominator levels included in the calculation of the fixed factory overhead rate. Because practical capacity will almost always exceed the actual use of capacity, it will result in an unfavorable production volume variance. Moreover, this variance (the difference between budgeted fixed overhead and the fixed overhead applied based on standard input allowed for the actual output) will be greatest given a practical capacity measure. The unfavorable production volume variance is charged to income summary, so the effect of using a larger denominator volume is the more rapid write-off of fixed overhead (practical capacity may be used for federal income tax purposes).
Answer (C) is correct. Controllable expenses are directly regulated by a manager of a responsibility center at a given level of production within a given time span.
Answer (A) is correct. A cost that bears an observable and known relationship to a quantifiable activity base is known as an engineered cost. Engineered costs have a clear relationship to output. Direct materials would be an example of an engineered cost.
Answer (D) is correct. Abnormal spoilage is usually charged to a special loss account because it is not expected to occur under normal, efficient operating conditions. Because it is unusual, it should be separately reported as a period cost.
Answer (C) is correct. An imputed cost does not entail any dollar outlay but is relevant to the decision-making process.
Answer (D) is correct. Committed costs result when a going concern holds fixed assets such as property, plant, and equipment. The related committed costs include depreciation, long-term lease payments, and insurance. Such costs establish the present level of operating capacity and cannot be altered in the short run.
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