Job Costing
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CPA Auditing and Attestation (AUD) › Job Costing
A company would most benefit from using an activity-based costing system as opposed to a traditional costing system under which of the following conditions?
When indirect costs are a high percentage of total costs
When different products use the different activities of the department in the same proportions
When each department within the company has a single activity
When batch level and product sustaining costs are immaterial
Explanation
When indirect costs are a high percentage of total costs, a company would benefit from an ABC system where costs can be broken out for further analysis.
In joint product costing and analysis, which one of the following costs is relevant when deciding the point at which a product should be sold in order to maximize profits?
Separable costs after the split off point
The company president's salary
Join costs to the split off point
Purchase costs of the materials required for the joint product
Explanation
In order to maximize profits, separable costs after the split-off point are relevant under a joint product costing system.
Which of the following is not an external failure cost?
Warranty costs
Lost customers
Liability claims
Tooling changes
Explanation
All of these costs except for tooling changes would be included as external failure costs.
Conversion cost pricing:
Places minimal emphasis on the cost of materials used in manufacturing a product.
Places heavy emphasis on direct costs and disregards consideration of indirect costs.
Could be used when the customer furnishes the material used in manufacturing a product.
Places heavy emphasis on indirect costs and disregards consideration of direct costs.
Explanation
Conversion cost pricing could be used when the customer furnishes the material used in manufacturing a product.
Which of the following costing methods provides the added benefit of usefulness for external reporting purposes?
A: Variable B: Absorption
A
Neither
Both
B
Explanation
Absorption costing methods represent GAAP generally used for the presentation of extenuation financial statements and are therefore for the benefit of external users.
Which of the following methods is the most commonly used and simplest method to allocate service costs?
Indirect method
Step down method
Direct method
Step up method
Explanation
The direct method is the most commonly used and simplest method of allocating service costs. The step-down method is a more complex approach and the step up is a distractor.