Manufacturing Cost Analysis Flashcards

The high-low method is used to:

Answer: Estimate fixed and variable cost components from historical data

The high-low method uses the highest and lowest activity levels and their associated costs to separate fixed and variable cost components.

Which of the following is an example of an indirect manufacturing cost?

Answer: Factory supervisor salary

A factory supervisor salary is an indirect cost because it supports overall operations rather than being directly traceable to a specific product.

Return on investment (ROI) for a manufacturing division is calculated as:

Answer: Net income divided by average total assets

ROI = Net Income / Average Total Assets, measuring how effectively a division uses its asset base to generate profit.

Joint costs incurred before the split-off point in a joint production process are typically allocated using:

Answer: Relative sales value or physical measures at the split-off point

Joint costs before split-off are allocated using the relative sales value method or a physical quantity method since they cannot be directly traced to individual products.

A manufacturer's actual overhead is $480,000 and applied overhead is $450,000. This results in:

Answer: Under-applied overhead of $30,000

When actual overhead exceeds applied overhead, the difference is under-applied overhead, meaning not enough cost was charged to production.

Which pricing strategy sets the price by adding a markup percentage to the total product cost?

Answer: Cost-plus pricing

Cost-plus pricing calculates total manufacturing cost and adds a predetermined markup percentage to arrive at the selling price.

Which financial metric measures the number of days it takes a company to convert raw materials into cash from sales?

Answer: Cash conversion cycle (CCC)

The cash conversion cycle (CCC) = Days Inventory Outstanding + Days Sales Outstanding − Days Payable Outstanding, measuring the time between cash outflow and cash inflow.