Manufacturing Cost Analysis Flashcards

Which costing method assigns overhead costs to products based on the activities that drive those costs?

Answer: Activity-based costing (ABC)

Activity-based costing (ABC) identifies cost drivers and assigns overhead based on actual activity consumption rather than broad allocation bases.

A product's selling price is $150 and its total variable cost is $90. What is the contribution margin ratio?

Answer: 40%

Contribution margin ratio = (Selling price − Variable cost) / Selling price = ($150 − $90) / $150 = 40%.

In target costing, the allowable cost is determined by:

Answer: Subtracting the desired profit from the market price

Target costing sets allowable cost as Market Price − Desired Profit Margin, pushing design and production teams to meet that cost.

Which variance measures the difference between actual hours worked and standard hours allowed, multiplied by the standard labor rate?

Answer: Labor efficiency variance

Labor efficiency variance = (Actual hours − Standard hours allowed) × Standard rate, indicating how efficiently labor was used.

Which of the following best describes a 'sunk cost' in manufacturing decision-making?

Answer: A past expenditure that cannot be recovered regardless of future decisions

Sunk costs are historical expenditures already incurred and irrecoverable, so they should be excluded from future decisions.

A company produces 10,000 units with fixed overhead of $50,000. If production increases to 12,500 units, the fixed overhead cost per unit becomes:

Answer: $4.00

Fixed overhead per unit = $50,000 / 12,500 units = $4.00; total fixed costs remain constant while unit cost decreases.

Which inventory valuation method results in the highest cost of goods sold during a period of rising prices?

Answer: LIFO (Last-In, First-Out)

Under LIFO, the most recently purchased (higher-cost) inventory is charged to COGS first, maximizing cost of goods sold when prices are rising.