Exam 10: Understanding Insurance

The Laino 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 kilog

One advantage of traditional full absorption costing is that it allocates fixed costs to products, which leads to basing short-term decisions on more relevant information.

At the end of business, on December 31, the Ford Motor Company has some cars that are only partly completed. For example, some of these cars do not yet have the motors installed. What types of costs would Ford likely have allocated to these cars in its work in process inventory?

With regard to joint costs, economists generally believe that:

Economists believe that allocation of joint costs to individual products is necessary to make rational internal economic decisions about the products, such as their selling prices.

Under GAAP, the cost of manufacturing an item is an expense as soon as the cost is incurred.

The amount of allocation effort needed to properly assign costs is highest for the facility level costs, and lowest for the unit level costs.

The Bronikowski Company makes many colors of paint in its factory. The paint is sold in one-gallon containers. It typically makes 5,000 gallons of a color at a time. Then, it needs to clean the equipment before making paint of another color. The cost of cleaning the equipment would be considered a

FASB rules require companies to use direct costing methods, and do not allow the use of full absorption costing methods, for financial reporting purposes.

A factory supervisor's salary is an example of the direct labor costs of making a product.

A "process cost system" is typically used in a business that produces a large number of identical items on a continuous basis.

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

Explain what is meant by the terms. Give an example.

By-products are items that are not produced as the main purpose of the manufacturing process, but may have some minor sales value.

Ontario Corp. has budgeted to spend $130,000 on manufacturing overhead in 2016. Compute the predetermined overhead rates per hour that it would use if the computation is based on budgeted direct labor hours of 65,000.______

"Work in process" inventory consists of items that a company has finished manufacturing, but has not yet sold.

The amount of allocation effort needed to properly assign costs is lowest for the facility level costs, and greatest for the unit level costs.

According to the IMA, some costing systems provide suboptimal information to managers, which can lead to poor decisions.

"Full absorption costing" methods assign direct labor and materials costs (but not overhead) to the units produced.

"Direct costing" methods assign direct labor and materials costs (but not overhead) to the units produced.