Accounting Chapter 10

Product costs are first recorded as ______.

assets

Direct raw materials are ______.

easily and conveniently traced to products

The primary difference between how manufacturing and service companies handle product costs is that service companies ______.

expense product costs because services are consumed immediately

Indirect costs incurred to make a product, including indirect labor, indirect materials, factory utilities, rent on manufacturing facilities, and depreciation on manufacturing facilities are called ______.

manufacturing overhead

The three costs recognized by GAAP that are incurred in the process of making products are

materials, labor, overhead

Costs incurred in the process of making products, including direct materials, direct labor and manufacturing overhead are

midstream costs

GAAP requires ______ on public financial statements.

midstream costs to be reported separately from upstream and downstream costs

Just-in-time inventory ______.

minimizes inventory holding costs by making products just in time for customer consumption

If a company incurs $2,000 in manufacturing costs to produce 1,000 units, the average cost per unit is

$2

If a company incurs $4,000 in manufacturing costs to produce 200 units, the average cost per unit is ______.

$20 ($4,000 ÷ 200 units = $20)

Identify the costs that are included in manufacturing a product.

-materials -labor -overhead

Direct labor is ______.

labor cost that can be easily and conveniently traced to products

A company recorded a total of $1,200 in depreciation. If $900 is for manufacturing equipment and $300 is for office equipment, a total of _________ will be recorded as an expense.

$300

Paying production workers with cash ______.

-decreases cash -increases inventory -decreases operating cash flow

Purchasing materials with cash ______.

-does not affect liabilities -decreases cash -increases inventory -decreases operating cash flow

Inventory holding costs include _______.

-financing -obsolecence -diminished motivation -warehouse space

Inventory accounts for manufacturers are ______.

-finished goods -work in process -raw materials

Which of the following would be included in manufacturing overhead?

-indirect labor -factory utilities -rent on manufacturing facilities -depreciation on marketing assets -indirect materials

Recognizing depreciation on manufacturing equipment results in ______.

-no change to the income statement -increased inventory

How do product costs flow through the financial statements?

Added to the inventory account when incurred and expensed on the income statement when the inventory is sold.

Recording a cash payment for product costs decreases

cash and increases inventory

Service companies typically do not have inventory accounts, since their services are

consumed immediately

To help managers analyze manufacturing costs schedule of ________ is prepared.

cost of goods manufactured and sold

Labor costs that can be easily and conveniently traced to products are called

direct labor

Raw materials that can be easily and conveniently traced to products are called

direct raw materials

When a company records a cash payment for manufacturing costs, total assets _____.

do not change (this is an asset exchange transaction)

Costs incurred after the manufacturing process is complete are called

downstream costs

Selling and advertising costs are considered ______ costs. Multiple choice question.

downstream costs

Production wages are recorded as inventory and salaries to selling and administrative employees are

expensed as incurred

Production wages are recorded as inventory and salaries to selling and administrative employees are

expensed as incurred.

True or false: Costs incurred in the process of making products, including direct materials, direct labor and manufacturing overhead are upstream costs.

false

True or False: Managers should only consider manufacturing product costs when pricing products.

false (Managers should also consider upstream and downstream costs.)

Goods are transferred to cost of goods sold from ______ inventory.

finished goods

Diminished motivation, sloppy work and inattentive attitudes are all examples of hidden inventory

holding costs

Diminished motivation, sloppy work and inattentive attitudes are all examples of hidden inventory __________

holding costs

General operating costs and selling and administrative costs are generally expensed when ______.

incurred

Costs that cannot be traced to a product or service in a cost-effective manner are called

indirect costs

Reduced inventory holding costs and increased customer satisfaction can occur as a result of implementing ______.

just in time

On public financial statements, ______ costs are classified as product costs and expense when goods are sold.

only midstream

Resources, such as equipment and utilities, consumed in the process of manufacturing a product are called

overhead

Cost that are expensed as soon as they are incurred are called

period costs

Selling, general and administrative costs are sometimes called

period costs

Lumber, metals, paints, and chemicals that will be used to make the company's products are all part of _______ inventory.

raw materials

Materials used to make products are usually called

raw materials

Purchasing materials with cash affects ______.

total assets on the balance sheet (Purchasing materials is classified as a product cost. Product cost are not expensed until the inventory is sold. This transaction affects two asset accounts. Cash decreases and inventory increases. Therefore, there is no effect on total assets)

rue or false: Initially classifying a cost as a product cost, delays but does not eliminate its recognition as an expense. True false question.

true

Costs incurred before the manufacturing process begins are called

upstream costs

Research and development costs are ______ costs.

upstream costs

As production occurs, materials used, labor and overhead are first accumulated in ______ inventory.

work in process