Accounting Quiz 1

What is the formula for Unit Variable Cost?

unit VC = total VC/# of units

Classify the following items as direct materials, direct labor, manufacturing overhead, or SG&A costs: 1. Factory supervisor's salary 2. Lubricant for refrigerator door hinges 3. Wages of assembly workers 4. Refrigerator motors 5. Cost of processing customers' orders 6. Rent for the factory building 7. Rent for the CEO office 8. Depreciation of production equipment 9. Depreciation on computers in the sales office 10. Customer-support supervisor's salary 11. Manufacturing plant maintenance costs

1. Overhead 2. Overhead 3. Direct labor 4. Direct materials 5. SG&A 6. Overhead 7. SG&A 8. Overhead 9. SG&A 10. SG&A 11. Overhead

Product or Period Costs 1. Factory supervisors' salary 2. Lubricant for refrigerator door hinges 3. Wages of assembly workers 4. Refrigerator motors 5. Cost of processing customers' orders 6. Rent for the factory building 7. Rent for the sales office 8. Depreciation on production equipment 9. Depreciation on computers in the sales office 10. Customer-support supervisor's salary 11. Manufactoring plant maintenance costs

1. Product cost 2. Product cost 3. Product cost 4. Product cost 5. Period cost 6. Product cost 7. Period cost 8. Product cost 9. Period cost 10. Period cost 11. Product cost

Classify the following costs as Variable cost, Fixed cost, or Mixed cost: 1. Assembly workers' wages 2. Production supervisors' salaries 3. Cost of materials used in production 4. Rent 5. Depreciation on production equipment 6. TV Advertising 7. Sales commissions (a fixed % of sales) 8. Electric bill (a flat fee of $50 per month + 10 cents per kilowatt-hour)

1. Variable 2. Fixed 3. Variable 4. Fixed 5. Fixed 6. Fixed 7. Variable 8. Mixed

Exercise: Costs per unit at current production volume of 1,000 units. Direct labor: cost per unit is $10 Direct materials: cost per unit is $20 Variable overhead: cost per unit is $5 Fixed overhead: cost per unit is $5 Variable SG&A costs: cost per unit is $10 Fixed SG&A costs: cost per unit is $10 1.) Compute variable cost per unit

1. Variable cost per unit is $45

What're some examples of SG&A costs?

Advertising, promotional materials, etc.

Manufacturing overhead includes?

Both big items that cannot be traced (ex. factory rent) and small items that are not worth tracing (ex. glue, grease)

Walmart is a small retailer. The beginning inventory on June 1 was $15,000 and the ending inventory on June 30 was $25,000. Walmart purchased $60,000 worth of merchandise in June. Sales revenue for June was $80,000. Compute the cost of goods sold (COGS) for June.

COGS = 15,000 + 60,000 - 25,000 = $50,000

Formula for COGS

COGS = beginning inventory + cost of good purchased by the firm during the period - ending inventory

What are cost caused by?

Costs are caused by resources. Ex.) in order to use your office building, and factory building, you need to pay rent.

Direct costs

Costs that are traced to products

What're overhead costs? What're some examples of fixed & variable manufacturing overhead costs?

Costs that aren't directly related to the production process. Costs that cannot be traced to products + small costs that are impractical to trace. Fixed manufacturing overhead costs: Factory rent, machine depreciation, production supervisors' salaries Variable manufacturing overhead costs: Glue used in production, drill bits, packaging materials, and other small items

Formula for profit on the Income statement

Profit = gross margin - period costs

What is the calculation for Profit?

Profit= revenue - costs

Long term

Long term is change that is implemented in 7 plus years.

Direct labor includes?

Only hourly production workers (aka assembly workers)

Direct materials include?

Only major materials and components.

What are your total cost in manufacturing firms?

Product costs and period costs.

What does SG&A stand for?

Selling, general and administrative costs

Time horizon: Short term

Short term is change that is implemented in several weeks.

Total cost equation

TC = FC + unit VC x volume

Capacity resources

These are resources that cannot be adjusted on short notice due to technological and contractual constraint. They can be: buildings, equipment and skilled staff

What are capacity costs?

They can be rent, depreciation and salaries.

At current production volume of 100 units, the unit cost is $10 per unit. How much will total costs change if we increase production by 10 units? Additional information: The unit cost of $10 consists of fixed costs of $6 per unit and variable costs of $4 per unit. TRY THIS PROBLEM**

Total FC: 6*100 = $600 unit VC: $4 per unit - regardless of volume TC equation: TC = 600 + 4 x volume at volume = 100: TC = 600 + 4 x 100 = $1,000 at volume = 110: TC = 600 + 4 x 110 = $1,040 changes in TC = $40 increase

Period cost & examples of period cost

all costs that are not product costs. Ex.) sales office rent, advertising, customer service costs, sales staff salaries, CEO salary

Product cost & examples of product cost

are all manufacturing cost like: Direct materials (only major materials and components) Direct labor (only hourly assembly workers) Manufactoring overhead