Essay Questions: Double spaced and up to one page each.

Question 1) Describe in your own words how a job order cost system facilitates understanding how much it cost to produce a given unit of product – for example, a machine or a house. In what way does it help management to know how much to charge, what kind of profit will be earned at a given price, how profit could be improved by specific production decisions, etc.

Question 2) How is ABC Costing superior to traditional costing models in modern manufacturing environments, particularly those with relatively high capital investment and relatively low labor costs, plus highly differentiated manufacturing processes like specialized manufacturing cells. In particular, discuss how simple traditional methods for allocating factory overhead can cause major distortions in calculated costs, and how this can adversely affect production and pricing decisions common to managerial accounting?

Question 3) How is Cost-Volume-Pricing analysis useful in making pricing and product mix decisions? Why is it important that we have a good understanding of the way costs behave (fixed / variable / relevant range) in order for the tool to be effective? What makes it difficult to get this understanding in the real world and what tools can we use to help us get as close as possible. When is the contribution margin ratio approach to CVP analysis most useful? Why?