Understanding Production Volume Variance and Costing Methods

The Production Volume Variance

Represents the difference between budgeted (incurred) and actual (allocated) fixed manufacturing costs.

When a greater proportion of costs are fixed costs, then

when demand is low the risk of loss is high

FALSE?

Gross Margin will always be greater than contribution margin.

Given a constant contribution margin per unit and constant fixed costs, the period-to-period change in operating income under variable costing is driven solely by:

changes in the quantity of units actually sold

In CVP analysis, the amount of units to be sold for the company to break even:

Increases when the contribution margin per unit decreases, all other things being equal

FALSE?

Nonmanufacturing costs are expensed in the future under variable costing.

Which of the following factors should NOT be considered when pricing a special order?:

stable pricing to earn the desired long-run return

FALSE?

Companies that operate in non-competitive environments offering products or services that differ from each other use a market-based approach when making their long-run pricing decisions.

Fixed costs depend on the:

amount of resources acquired

In a company with low operation leverage:

less risk is assumed than in a highly leveraged firm

If there was no beginning work in process and no ending work in process under the weighted-average process costing method, s, would be:

equal to the units started or transferred in y equal to the units completed.

ABC

reveal activities that can be eliminated, help control nonfinancial items such as number of setup hours, help identify new designs to reduce costs

FALSE

Simply because activity-based costing systems employ more activity-cost drivers, they provide more accurate product costs than traditional systems

FALSE:

The weighted average method assigns added costs to units completed and beginning inventory costs to units in ending work-in-process inventory.

Which of the following factors should NOT be considered when pricing a special order?:

stable pricing to earn the desired long-run return.

FALSE

Companies that operate in non-competitive environments offering products or services that differ from each other use a market-based approach when making their long-run pricing decisions

Compared to ABC, traditional cost systems (peanut-butter costing) distort product costs because:

They apply average support costs to each unit of product

Which of the following statements about normal costing is true?:

Direct costs are traced using an actual rate, and indirect costs are allocated using a budgeted rate

FALSE

The actual operating income of 2015 is higher than that of the static budget, because the actual variable cost per unit is lower

Relevant costs for pricing a one-time special order include:

Additional setup costs for the special order.