Exam 10: Understanding Insurance

The Lake Corp. takes a single ingredient and makes it into three different products. The joint costs of buying the ingredient and dividing it into these three products are $10,000 per metric ton of the ingredient. From every metric ton of ingredients, the company produces 400 kilograms of Product A, 400 kilograms of Product B, and 200 kilograms of Product C. Product A can be sold at the split-off point for $10 per kilogram, B can be sold for $15 per kilogram, and C can be sold for $20 per kilogr

When a production process involves 10 steps, there is often a different maximum amount that it can be processed through each of these steps in a day. The theory of constraints focuses managers' attention on

When a company allocates joint costs using the relative net realizable values method, it will usually compute equal gross margin percentages for each of the joint products.

The Collet Company makes many colors of paint in its factory. The paint is sold in one-gallon containers. It typically makes 10,000 gallons of a color at a time, then switches to making paint of another color. The cost of heating the factory would be considered a

The methods of allocating costs of by-products are exactly the same as the methods of allocating costs among joint products.

In a manufacturing company, allocating overhead costs based on direct labor hours, machine hours, or units produced will always lead to the same amounts allocated per unit produced.

The accounting profession has agreed upon a single best and most appropriate approach for organizations to measure and report costs for managerial decisions.

A major benefit of resource consumption accounting is that it focuses attention on underutilization of production capacity.

In general, if we compare the traditional full absorption method with ABC, the traditional full absorption method will tend to assign more costs to simple, high-volume products, and less costs to complicated, low-volume products.

In the cost hierarchy, examples of product level costs might include product design and development costs.

37 Assume that a car manufacturing company has two different suppliers, Rose and Garfield, for an ignition switch that it uses in its cars. Problems with the suppliers can cause two types of problems: warranty claims for defective products, and delay costs due to late shipments of parts from the suppliers. Some data related to the company is provided below:

A major benefit of activity-based costing is that it focuses attention on underutilization of production capacity.

Over the last century, direct labor costs have become relatively larger, and overhead costs have become relatively smaller, as a fraction of total production costs.

The "split-off point" is the time in the production process after which joint products start incurring different costs.

The cost of car engines is an example of the overhead costs involved in making cars.

The Carminio Company makes many colors of paint in its factory. Each new type of paint the company comes up with has to be tested to ensure the chemical formula works and that it meets standards for durability. The paint is sold in one-gallon containers. It typically makes 10,000 gallons of a color at a time. The cost of testing a new formula would be considered a

Fixed overhead costs do not vary, in the short term, with levels of production.

40 The Lamb Corp. takes a single ingredient and makes it into three different products. The joint costs of buying the ingredient and dividing it into these three products are $10,000 per metric ton of the ingredient. From every metric ton of ingredients, the company produces 400 kilograms of Product A, 400 kilograms of Product B, and 200 kilograms of Product C. Product A can be sold at the split-off point for $10 per kilogram, B can be sold for $15 per kilogram, and C can be sold for $20 per kilogr

Explain why transfer prices between subsidiaries are, or are not, a problem from the perspective of:

One advantage of using market prices as transfer prices between subsidiaries of a large company is that the people involved will usually see these prices as fair and objective.