Acc 1100 - Ch 13

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ABC Company is planning to use activity-based costing and estimated the following budgeted cost and driver activity for each cost driver: Machining cost = $100,000; machining time = 10,000 hours Direct labor cost = $80,000; direct labor time = 20,000 hours Inspection cost = $10,000; inspection time = 2,000 hours. Calculate activity-based costing rates for each driver activity: Machining time = $_____ per machine hour Direct labor time = $_____ per direct labor hour Inspection time = $_____ per inspection hour

10 4 5

ABC Company uses machine hours to apply manufacturing overhead to units produced. If ABC estimates that it will generate 560,000 machine hours and incur $6,720,000 in manufacturing overhead costs during the year, its predetermined overhead application rate will be $_____ per _____ hour.

12 machine Reason: $672,000/560,000

cost pool

Costs that have been accumulated for assignment to a cost object.

Assume the following data for Elite Company's assembly department for the month of December: Units completed and transferred to the finishing department 150,000 Units in process at the end of December (60 percent complete) 25,000 Calculate the assembly department's equivalent units of production for the month of December.

165,000 units Reason: Assembly department equivalent units of production = Units completed and transferred + (units in process × percent complete) = 150,000 + (25,000 × 60%) = 150,000 units + 15,000 units = 165,000 units

Given the following information, calculate the product cost per unit. Direct materials = $28,000 Direct labor = $42,000. Overhead application rate = $15 per direct labor hour. Direct labor hours = 5,200. Units products = 7,400. Product cost per unit = $_____. Round your answer to a whole dollar.

20 Reason: (28,000 + 42,000 + ($15 x 5,200)) / 7,400 Direct materials + Direct labor + (Overhead application rate x Direct labor hours)) / units

Using the following information, calculate the cost of goods manufactured. Beginning work in process inventory = $44,000, Ending work in process inventory = $41,000, Raw materials used = $74,000, Direct labor incurred = $56,000, Manufacturing overhead applied = $83,000. Cost of goods manufactured = $_____.

216,000 or 216000 Reason: (44,000 - 41,000) + 74000 + 56000 + 83000 = cost of goods manufactured = (beginning wip inv. end - wip inv begin) + raw materials used + direct labor incurred + manufacturing overhead applied

If ABC Company has 80,000 units in process at the end of June and the work on those units is determined to be 40 percent complete, the equivalent units of production used to value ABC's ending work in process inventory is _____ units.

32,000 Reason: 80,000 x 0.4 = 32,000 units x percent

If ABC Company determines its cost per unit for July's production is $28.75 and it produced 12,600 units, ABC's total manufacturing costs (direct materials, direct labor, and manufacturing overhead) incurred in July is $_____.

362,250 or 362250 Reason: $28.75 x 12,600 cost per unit x units

ABC Company uses activity-based costing and has determined the following activity rates for each cost driver: Machining = $10 per machine hour Direct labor = $4 per direct labor hour Inspection = $5 per inspection hour Calculate the amount of overhead assigned to Job 123 based on the following amounts of driver activity incurred: Machining time = 640 hours; Machining activity cost assigned = $_____. Direct labor time = 240 hours; Direct labor activity cost assigned = $_____. Inspection time = 32 hours; Inspection activity cost assigned = $_____.

6,400 / 960 / 160 Reason: 640(10) 240(4) 32(5)

ABC Company incurred $124,000 of manufacturing overhead in March and applied $120,000 to March production. If ABC produced 16,000 units during March, its predetermined overhead rate being used for the year is $_____ per unit.

7.50 or 7.5 Reason: $124,000/16,000

ABC Company uses machine hours to apply manufacturing overhead to units produced at the rate of $12 per machine hour. If ABC generates 6,500 machine hours, manufacturing overhead applied to units produced is $_____.

78,000 or 78000 Reason: $12 x 6,500 =

ABC Company estimates total manufacturing overhead costs for the year to be $1,200,000 and expects to work 150,000 direct labor hours. ABC's predetermined overhead application rate to be used for product costing during the year would be $_____ per direct labor hour.

8 or 8.00 Reason: $1,200,000/150,000

ABC Company incurred the following product costs to manufacture 1,000 finished units in May. Direct materials: $2,600. Direct labor: $3,800. Manufacturing overhead: $2,200. The cost of each unit produced in May is $_____.

8.60 Reason: (total costs added together)/parts made

Cost accounting ______.

relates primarily to the accumulation and determination of product, process, or services costs

Using the following information, calculate the cost of raw materials used. Beginning raw materials inventory = $20,000, Ending raw materials inventory = $22,000, Raw materials purchased = $84,000. Cost of raw materials used $_____.

82,000 or 82000 Reason: purchased - (end - begin) 84,000 - (22,000 - 20,000) =

What is incurred when an organization acquires the resources used to fund the activities in its value chain?

A cost

direct cost

A cost directly related to a product or activity; the cost would not be incurred if the product or activity were discontinued.

indirect cost

A cost that is indirectly related to the product or activity under consideration; the cost would continue to be incurred if the product or activity were discontinued.

process costing system

A costing system used to accumulate costs for a production process that is more or less continuous, frequently involving several departments.

overapplied overhead

A credit balance in the Manufacturing Overhead account that results from applied overhead in excess of actual overhead costs.

underapplied overhead

A debit balance in the Manufacturing Overhead account that results from actual overhead costs in excess of applied overhead.

absorption costing

A product costing method by which both variable and fixed manufacturing costs are included in product costs.

variable costing

A product costing method in which only variable manufacturing costs are included in product cost. Sometimes called direct costing.

direct costing

A product costing method in which only variable manufacturing costs are included in product cost. Sometimes called variable costing.

job order costing system

A product costing system used when discrete products, or "jobs," are manufactured.

cost distortion

A shift in the relative amount of manufacturing overhead costs applied to the mix of products produced that occurs because a single cost driver application rate is used instead of activity-based costing rates.

cost accounting

A subset of both financial and managerial accounting that relates to the accumulation and determination of product, process, or service costs.

statement of cost of goods manufactured

A supplementary financial statement that supports cost of goods sold, which is an element of the income statement. This statement summarizes raw material, direct labor, and manufacturing overhead costs during the period.

Which of the following activities is not included in the organization's value chain?

Accounting

Which of the following costs would be classified as a period cost?

Advertising expense for the product

manufacturing overhead

All manufacturing costs except those classified as raw materials or direct labor.

The term "cost" means the price paid for maintenance supplies. the salary paid to a supervisor. the price charged by an accounting firm for its audit services. All of the answers are correct.

All of the answers are correct.

cost driver

An activity that causes the incurrence of a cost.

overhead

Another term for manufacturing overhead.

cost object

Any reference point for which cost is measured.

Which of the following manufacturing environments would use a process costing system?

Coal mining

Which of the following process steps occurs first for managers to observe costs for different organizational reference points?

Cost accumulation

direct labor

Effort provided by workers who are directly involved in the manufacture of a product.

Overapplied overhead represents a _____(debit/credit)_____ balance in the Manufacturing overhead account that results from applied overhead in excess of actual overhead costs.

credit

Underapplied overhead represents a _____(debit/credit)_____ balance in the Manufacturing overhead account that results from actual overhead costs in excess of applied overhead.

debit

Raw materials used in production represent a(n) _____(increase/decrease)____ in the Raw Materials Inventory account and represent a(n) _____(increase/decrease)_____ in the Work in Process Inventory account.

decrease increase

equivalent units of production

In a process costing system, the number of units that would have been produced if all production efforts during the period had resulted in completed products.

Which of the following are associated with the cost assignment classification?

Indirect cost Direct cost

product costs

Inventoriable costs including raw materials, direct labor, and manufacturing overhead.

Finished Goods Inventory

Inventory account applicable to goods available for sale to customers.

Raw Materials Inventory

Inventory account applicable to materials ready for the production process.

Work in Process Inventory

Inventory account for the costs (raw material, direct labor, and manufacturing overhead) of items that are in the process of being manufactured.

Which are true statements about cost accounting?

It is a subset of both financial and managerial accounting. It reports the cost of goods manufactured and sold, as well as the cost of goods manufactured and not sold.

Which of the following describes the correct sequence of flow of costs for a manufacturing firm?

Raw materials, work-in-process, finished goods, cost of goods sold

Which of the following is NOT an inventory account for a manufacturing company?

Manufacturing overhead

Which of the following are associated with the cost behavior classification?

Mixed cost Variable cost

period costs

Noninventoriable costs, including selling, general, and administrative expenses, that relate to an accounting period.

raw materials

The ingredients of a product.

For a manufacturing firm, _____ costs are inventoried and treated as assets until inventory is sold while _____ costs are recorded as expense in the accounting period incurred.

Product period

Which of the following could represent cost drivers in an activity-based costing system?

Raw material handling Production order preparation Quality inspection Machine setup for production runs

Which of the following items represent an increase in the Work in Process Inventory account?

Raw material used Direct labor incurred Manufacturing overhead applied

Which of the following manufacturing environments would use a job order costing system?

Textbook printing

activity-based costing (ABC)

The process of accumulating manufacturing overhead costs by production support activity (e.g., machine setup) and then applying manufacturing overhead to production based on the activity required for each job or product.

cost assignment

The process of allocating an amount of cost to a cost object.

cost accumulation

The process of collecting and recording transaction data through the accounting system.

cost management

The process of using cost information to assess and manage the activities of the organization.

predetermined overhead application rate

The rate per unit of activity (e.g., direct labor hour) used to apply manufacturing overhead to work in process.

overhead application rate

The rate used to allocate overhead to specific production runs. See predetermined overhead application rate.

value chain

The sequence of functions (R&D, design, production, marketing, distribution, and customer service) and related activities that, over the life of a product or service, creates value for the customer.

Which type of firms are likely to have the highest Work in Process Inventory balances at the end of an accounting period?

Those with long-duration manufacturing processes

True or false: Determining a product's cost is necessary to value the units, purchased or manufactured, of that product either as cost of goods sold or as ending inventory for any units unsold.

True

activity-based management (ABM)

Use of activity-based costing information by managers to support the decision-making process.

When units in production are completed, the resulting flow of cost of goods manufactured is that the Work in Process Inventory is _____(increased/decreased)_____ and the Finished Goods Inventory is _____(increased/decreased)_____.

decreased increased

Which inventory account is close to zero at the end of an accounting period for firms with very short production processes?

Work in Process

A cost that is clearly traceable to a product or activity such that the cost would not be incurred if the product or activity were discontinued is known as a(n) _____ cost.

direct

In an activity-based costing system, a cost _____ is an activity that causes the incurrence of a manufacturing cost.

driver

An example of a cost likely to have an indirect relationship with products being manufactured is:

electricity costs for packaging equipment.

Period costs are accounted for as _____(assets/expenses)_____ and recorded on the _____(balance sheet/income statement)_____.

expenses income statement

The difference between absorption costing and direct (or variable) costing is in the accounting for:

fixed manufacturing overhead

The process of accumulating manufacturing overhead costs by production support activity and then applying manufacturing overhead to production based on the activity required for each product is known as ______ costing.

activity-based

To achieve a more refined cost application for the assignment of overhead costs to products manufactured, the use of a single predetermined overhead rate is being replaced by:

activity-based costing

Cost accounting, in relation to financial and managerial accounting is generally focused on: accumulation and determination of product, process, or service cost. income measurement and inventory valuation. generally accepted accounting principles. all of the answers are correct.

all of the answers are correct.

Product costs are accounted for as _____(assets/expenses)_____ and recorded on the _____(balance sheet/income statement)_____.

assets balance sheet

A predetermined manufacturing overhead rate is used to:

assign indirect costs to the units produced.

A predetermined overhead rate is used to:

assign indirect costs to units produced.

An activity-based costing system involves identifying the activity that causes the incurrence of a cost; this activity is known as a:

cost driver.

Any sub-part (reference point) of an organization for which managers are interested in having cost measurement information is known as a(n) _____ _____.

cost object

Drilling down to varying levels of an organization for the purpose of observing separate and specific cost measurement information is a process for describing:

cost objects

Total manufacturing costs for the month on the statement of costs of goods manufactured equals:

cost of raw material used + direct labor cost incurred + manufacturing overhead applied.

The manufacturing overhead component of a product's cost:

includes all manufacturing costs except those for raw materials and direct labor.

Product costs are initially accounted for as inventory and ultimately transferred to the ____(balance sheet/income statement)_____ when the product is _____.

income statement sold

A cost that is not clearly traceable to a product or activity under consideration such that the cost would continue to be incurred if the product or activity were discontinued is known as a(n) _____ cost.

indirect

A firm _____(can elect/is required)_____ to use absorption costing for both financial reporting and income tax purposes.

is required

The product cost accounting system used when discrete products are manufactured is known as a _____(job/process)_____ costing system.

job

The Finished Goods Inventory account is increased for the cost of goods _____(manufactured/sold)_____ and is decreased for the cost of goods ______(manufactured/sold)_____.

manufactured sold

The product cost accounting system used when homogeneous products are manufactured in a relatively continuous production flow is known as a _____(job/process)_____ costing system.

process

Costs accounted for initially as inventory when produced and later as expense when sold are:

product costs

An example of a product cost is:

production line maintenance costs

Cost accounting would best be characterized as:

serving the needs of both financial and managerial accounting.

The sequence of functions and related activities that, over the life of a product or service, can ultimately make a difference to the customer are:

the value chain.

On the Statement of Cost of Goods Manufactured, the sum of raw materials used + direct labor incurred + manufacturing overhead applied is known as:

total manufacturing costs

An organization's _____ _____ is the sequence of functions and related activities that adds value for the customer over the life of a product or service.

value chain

A predetermined overhead application rate is established to apply manufacturing overhead to ______.

work in process


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