Question

Which of the following are not typical problems of traditional costing approaches (as compared to Activity-Based Costing)?

Under-costing of low-volume, high-complexity products

Over-costing of high-volume, low-complexity products

Over-producing unprofitable products

Under-producing profitable products

None of the above

Under variable costing, Gross Profit is equal to:

Sales - Variable Costs

Sales - Fixed Costs

Sales - Variable Costs - Fixed Costs

Contribution Margin - Fixed Costs

Variable costing does not calculate Gross Profit

Which of the following is not a factor to consider when deciding whether to accept a special order?

Whether this order will hurt the brand name of the company

Whether other potential orders would be more profitable

Whether additional fixed costs would need to be incurred

Whether the offered price is sufficient to cover prime costs and fixed overhead allocated

All of the above

If a company has sufficient excess capacity, which of the following costs are relevant to the decision to make or buy a new product?

Direct materials

Variable overhead

Fixed overhead

Costs of buying from the outside vendor

A, B, and D only

Answer 1

answer : 1

Option E is correct.

"None of the above" is correct.

Below are the problems of traditional costing approvahed as compared to Activity based costing:

1. Under-costing of low-volume, high-complexity products

2. Over-costing of high-volume, low-complexity products

3. Over-producing unprofitable products

4. Under-producing profitable products

answer : 2

Option E is correct.

Variable Costing does not calculate Gross Profit

Explanations:

Under variable costing income statement varies from a normal income statement in the following cases respects:
(i) All fixed production costs are aggregated lower in the statement, after the contribution margin

ii) All variable selling and administrative expenses are grouped with variable production costs, so that they are a part& the calculation of the contribution margin, and

(iii) Gross Profit is replaced by the contribution margin.

answer : 3

Option E is correct.

A. Whether this order will hurt the brand name of the company

B. Whether other potential orders would be more profitable

C. Whether additional fixed costs would need to be incurred

D. Whether the offered price is sufficient to cover prime costs and fixed overhead allocated

E. All of the above

answer : 4

Option C is correct.

All of the above except fixed overhead is relevant to the decision to make or buy a new product