Accounting 2 - Exam 1

What is a fixed cost?

-Total fixed cost is constant within the relevant range -Average fixed cost per unit varies inversely with changes in volume

What is a variable cost?

-Variable cost per unit is constant -Total variable cost changes in direct proportion to changes in volume

How to find how much property, plant & equipment company purchased

1. Beginning Balance - original cost = amount after sale 2. Ending balance - amount after sale

What are the 3 major sections on a statement of cash flows

1. Operating activities: include cash inflows and outflows related to revenue and expense transactions that affect net income 2. Investing: include cash inflows and outflows related to acquiring or disposing of noncurrent assets 3. Financing: include cash inflows and outflows related to borrowing from and repaying principal to creditors and completing transactions with company's owners

In the linear cost function, Y=10,000+2.4x, which value represents the total fixed cost?

10,000

Of the items below, the one that appears las on the statement of clash flows is?

Cash at the end of the period

If a company has both inflow and outflow of cash related to property, plant, and equipment, then how is the cash inflow and outflow reported?

Cash inflow and cash outflow should be reported separately in the investing activities section

If the credit side of MOH is bigger than the debit side, is it overapplied or underapplied?

Overapplied MOH xx CGS xx

How do you find MOH when all that is given to you is machine-hours, DLC, or DLH?

Predetermined OH Rate x number of hours or costs

Difference between product cost and period cost?

Product costs is any cost involved in purcahsing or manufacturing goods. Period costs is a cost that is taken directly to the income statement as an expense in the period in which it is incurred

What is the relevant range?

Range of activity within which assumptions about variable and fixed cost behavior are valid

What is a cost behavior?

Refers to the way in which costs change in response to changes in a measure of activity such as sales volume, production volume, or orders processed

What is a differential cost?

a cost that differs between alternatives in a decision -can be either variable or fixed

What is a sunk cost?

a cost that has already been incurred and cannot be altered b any decision taken now or in the future

If you retire bonds payable, do you add or subtract?

subtract

In the linear cost function, Y=10,000+2.4x, which value represents the number of units of cost driver activity?

x

In the linear cost function, Y=10,000+2.4x, how much is the total cost when the level of cost driver activity is 50,000

$130,000 10,000+2.4(50,000)

Vision company repurchases common stock with a cost of $16,000 during 2019. During the year, the company paid dividends of $20,000 and issued bonds payable for proceeds of $860,000. Vision company purchased a delivery truck for $22,000. Cash flows from financing activities for 2019 total?

$824,000 net cash inflow -16,000-20,000+860,000

How do you find free cash flow?

Net cash provided by operating activities - capital expenditures - dividends

In the linear cost function, Y=10,000+2.4x, which value represents the variable cost per unit?

2.4

What is a mixed cost?

A mixed cost contains both variable and fixed cost elements

Which of the following costs should be expenses as incurred, never being recorded as an asset, for financial reporting purposes? a. advertising costs b. work in process c. indirect labor costs d. direct labor costs

A. advertising costs

How do you solve for sale of equipment?

Accumulated depreciation - equipment + (-) gain or loss on sale

How do you find MOH applied?

Actual direct labor-hours x Predetermined OH rate

If you issue bonds payable, do you add or subtract?

Add

If you issue common stock, do you add or subtract?

Add

Which of the following costs is not considered a product cost? a. depreciation on factory machinery b. cost of the salary for the vice president of finance c. indirect materials cost d. cost of lubricant that keeps the manufacturing equipment running

B. cost of the salary for the vice president of finance

Lending money and collecting the loans are a. operating activities b. investing activities c. financing activities d. non-cash investing and financing activities

B. investing activities

The statement of cash flows a. must be prepared on a daily basis b. summarizes the operating, financing, and investing activities of an entity c. is another name for the income statement d. is a special section of the income statement

B. summarizes the operating, financing, and investing activities of an entity

Why are cash equivalents included with cash on the statement of cash flows?

Because investments of this type are made solely for the purpose of generating a return on temporarily idle funds and they can be easily converted into cash

Why aren't transactions involving accounts payable considered to be financing activities?

Because such transactions relate to a company's day-to-day operating activities rather than to its financing activities

If an asset is sold at a gain, why is the gain subtracted from net income?

Because the entire cash proceeds from the sale of a noncurrent asset appear as a cash inflow from investing activities, the gain must be deducted from net income to avoid double counting a portion of those proceeds

How to solve for depreciation expense?

Beginning AD - ending AD = # Depreciation on asset that sold (given) - #

How do you find CGS using direct method?

Beginning Balance + DM + DL + MOH = Total / units completed x units sold

How do you solve for cash dividends?

Beginning retained earnings + net income - ending retained earnings

Financing activities involve a. lending money b. acquiring investments c. issuing and retiring bonds c. acquiring long-lived assets

C. issuing and retiring bonds

The statement of cash flows reports each of the following EXCEPT a. cash receipts from operating activities b. cash payments from investing activities c. the net change in cash d. cash sales

D. cash sales

When the cost object is a specific product's manufacturing process, which of the following costs is an indirect cost? a. cost of materials used to product units on that line's product b. cost of labor used in production of that line's product c. cost of the salary and benefits of the supervisor that supervises production of that product only d. cost of the salary for the plant foreman, who supervises the production that line and several others

D. cost of the salary for the plant foreman, who supervises the production that line and several others

Depreciation is one of the biggest operating cash inflows. True or False?

Depreciation is not a cash inflow, even though it is added to net income on statement of cash flows.

What are the three major types of product costs in a manufacturing company?

Direct materials, direct labor, and manufacturing overhead

How do the direct and indirect methods differ?

Direct method reconstructs the income statement on a cash basis by restating revenues and expenses in terms of cash inflows and outflows. Indirect method starts with net income and adjusts it to a cash basis to determine the net cash provided by OA

As the units of cost driver activity fall, what happens?

Fixed cost per unit increases

What is the purpose of a statement of cash flows?

Highlights the major activities that impact cash flows and hence affect the overall cash balance

Contribution Income Statement

Sales -CGS -Variable costs =contribution margin -Fixed costs =NI

Solve for contribution margin

Sales - Variable costs (all of them)

What are cash equivalents?

Short-term, highly liquid investments such as treasury bills, commercial paper, and money market funds

If you repurchase stock, do you add or subtract?

Subtract

Assume that a company repays a $300,000 loan from its bank and then later in the same year borrows $500,000. What amount(s) would appear on the statement of cash flows?

They must both be shown on the statement of cash flows. It would show $500,000 of cash provided by financing activities and then show $300,000 of cash used by financing

What effect does an increase in the activity level have on total fixed costs?

Total fixed costs remain constant as the activity level increases

What effect does an increase in the activity level have on a total variable costs?

Total variable costs increase as the activity level increases

If the debit side of MOH is bigger than the credit side, is it overapplied or underapplied?

Underapplied CGS xx MOH xx

What effect does an increase in the activity level have on a unit fixed cost?

Unit fixed costs decrease and the activity level increases

What effect does an increase in the activity level have on a unit variable cost?

Unit variable costs remain constant as the activity level increases

What is an opportunity cost?

potential benefit that is given up when on alternative is selected over another