Section Ch 02 with Answers - UGBA102B 2020 Summer.pdf - UGBA 102B Section 2(Chapter 2 Handout GSI Young Yoon [email protected] Section Tuesdays and

Section Ch 02 with Answers - UGBA102B 2020 Summer.pdf -...

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1 UGBA 102B Section 2 (Chapter 2) Handout GSI: Young Yoon Section: Tuesdays and Thursdays 1:00 – 3:30 PM ( Registration Link ) GSI Office Hours: Tuesdays 12:00 – 1:00 PM ( Link ) Question 4 from Tuesday Question 4 : ABC Corporation has experienced a steady increase in its cost per unit even though total costs have remained stable. This cost per unit increase may be due to ________ costs if the level of activity at ABC is ________. A) fixed, decreasing B) fixed, increasing C) variable, decreasing D) variable, increasing Cost per unit = (Fixed Costs + Variable Costs) / Activity Total costs remained stable => Numerator is constant Cost per unit increased => Denominator is decreasing As the level of activity decreases, Fixed cost per unit increases => A is the answer Variable cost per unit stays constant => C cannot be the answer
2 1. Absorption costing and Job-order costing Absorption costing: All manufacturing costs, both fixed and variable, are assigned to units of product—units are said to fully absorb manufacturing costs. e.g. Apple produced 100 iPhones, which cost them \$50,000. Then each iPhone absorbs \$500 (=\$50,000 / 100 iPhones) in manufacturing costs. GAAP requires absorption costing for external financial reports All nonmanufacturing costs are treated as period costs and they are not assigned to units of product Job-order costing: Used when many different products are produced each period e.g. An Apple factory (Foxconn) makes different types of smartphones. Each order of a specific product is called a job e.g. An order of 10,000 iPhone 11 is called a job. Costs are traced and allocated to jobs e.g. Direct material \$2MN, direct labor \$2MN, overhead \$1MN Total cost allocated to the job: \$5MN Costs of the job are divided by the number of units to get average cost per unit e.g. The total allocated cost \$5MN / 10,000 units = \$500 cost per unit Job-order costing is useful for planning sales / production and making pricing decisions e.g. Apple may want to set the selling price based on a predefined markup percentage, say 80%, to establish a markup of \$400 and a selling price of \$900. With \$400 gross profit, Apple will earn enough to cover all the nonmanufacturing costs and generate some residual profit.
3 2. Computing predetermined overhead rates Assigning manufacturing overhead to a specific job is complicated since manufacturing overhead is an indirect cost.