Question 2.2.

(TCO

2) What is manufacturing overhead? What is an example of

manufacturing overhead? (Points : 15)
Question 3.3. (TCO

costing?

3) What is the difference between job order and process

(Points : 15)

Question 4.4. (TCO

4) What is a variable cost? What is an example of a variable

cost? (Points : 15)

1. (TCO

5) What is the difference between absorption costing and variable

costing? (Points : 15)
Question 2.2. (TCO

6) What is the second step in the cost allocation process? Give an

example of this step. (Points : 15)
Question 3.3. (TCO
15)

7) What is an incremental cost? What is an example of one? (Points :

Question 4.4. (TCO

15)

8) What is activity-based pricing? How is the price determined? (Points :

1. (TCO

6) Identify 3 problems with cost allocation. Describe each problem in detail.

Which problem do you think it the most severe and why? (Points : 30)
Question 2.2. (TCO

7) Products Gamma and Delta are joint products. The joint production
cost of the products is $800. Gamma has a market value of $500 at the split-off point. If
Gamma is further processed at an additional cost of $600, its market value is $1,400.
Product Delta has a market value of $1,100 at the split-off point. If Product Delta is
further processed at an additional cost of $300, its market value is $1,400. Using the
relative sales value method, calculate the joint product cost that would be allocated to Gamma
and Delta. How do you know if one of the products should be further.

Question 3.3. (TCO

8) A company must incur annual fixed costs of $1,000,000 and

variable costs of $200 per unit and estimates that it can sell 10,000 pumps annually and
marks up cost by 30 percent. Using cost-plus pricing, what is the cost per unit and the
price? What are advantages and disadvantages of cost-plus pricing? (Points : 30)
1. (TCO

9) A project will require an initial investment of $400,000 and will return

$100,000 each year for six years. If taxes are ignored and the required rate of return is
9%, what is the project's net present value? Based on this analysis, should the company
proceed with the project? (Points : 30)

Question 2.2. (TCO

2) What is manufacturing overhead? What is an example of manufacturing

overhead? (Points : 15)

Question 3.3. (TCO

3) What is the difference between job order and process costing?

Question 4.4. (TCO

4) What is a variable cost? What is an example of a variable cost? (Points : 15)

(Points : 15)

Answer:
A variable cost is a cost that varies in relation to either production volume or services provided. If there is no production or no services are
provided, then there should be no variable costs.
To calculate total variable costs, the formula is:

Total quantity of units produced x Variable cost per unit = Total variable cost

Direct materials are considered a variable cost. Direct labor may not be a variable cost if labor is not added to or subtracted from the
production process as production volumes change. Most types of overhead are not considered a variable cost.

The sum total of all manufacturing overhead costs and variable costs is the total cost of products manufactured or services provided.

An example of a variable cost is the resin used to create plastic products. The resin is the key component of a plastic product, and so varies in
direct proportion to the number of units manufactured.

1. (TCO

5) What is the difference between absorption costing and variable costing? (Points : 15)

Question 2.2. (TCO

6) What is the second step in the cost allocation process? Give an example of this

step. (Points : 15)

Question 3.3. (TCO

7) What is an incremental cost? What is an example of one? (Points : 15)

Question 4.4. (TCO

8) What is activity-based pricing? How is the price determined? (Points : 15)

1. (TCO

6) Identify 3 problems with cost allocation. Describe each problem in detail. Which problem do
you think it the most severe and why? (Points : 30)

Question 2.2. (TCO

7) Products Gamma and Delta are joint products. The joint production cost of the
products is $800. Gamma has a market value of $500 at the split-off point. If Gamma is further
processed at an additional cost of $600, its market value is $1,400. Product Delta has a market value of
$1,100 at the split-off point. If Product Delta is further processed at an additional cost of $300, its
market value is $1,400. Using the relative sales value method, calculate the joint product cost that would be
allocated to Gamma and Delta. How do you know if one of the products should be further processed? (Points : 30)

Question 3.3. (TCO

8) A company must incur annual fixed costs of $1,000,000 and variable costs of $200
per unit and estimates that it can sell 10,000 pumps annually and marks up cost by 30 percent. Using
cost-plus pricing, what is the cost per unit and the price? What are advantages and disadvantages of
cost-plus pricing? (Points : 30)

1. (TCO

9) A project will require an initial investment of $400,000 and will return $100,000 each year for
six years. If taxes are ignored and the required rate of return is 9%, what is the project's net present

value? Based on this analysis, should the company proceed with the project? (Points : 30)