ACCT 202 Chapters 4, 5, 6, 7

Which statement is correct? Activity-based cost systems are less costly than traditional cost systems. Activity-based cost systems are easier to implement than traditional cost systems. Activity-based cost systems are more accurate than traditional cost systems. Activity-based cost systems provide the same data as traditional cost systems.

Activity-based cost systems are more accurate than traditional cost systems.

What are the advantages and disadvantages of the bottom-up budgeting approach?

Advantages: employees working with the units know the most about what budgets would be appropriate because they work with sales, production, materials, etc everyday If they have some participation in determining the budget, they will have more motivation to continue with the company Disadvantages: very time consuming, some employees may be overly optimistic or pessimistic

process costing equation (chpt 5)

BI + Started (TI)= Transferred Out + EI

The initial processing department had a beginning inventory of 750 units and an ending inventory of 1,350 units, and it started 9,500 units into production. How many were transferred out to the next department 750 1,350 8,900 10,250

BI 750 STARTED 9,500 = 10,250 9500-1350= 8150 750+ 8150= 8900

formula/steps for computing cost of materials used

BI DM+ DM Purchased= Answer- EI DM= Cost of Direct Materials used

formula/ steps for computing cost of goods sold

BI Finished Goods Inventory+ Cost of Goods Manufactured (answer from above)= Cost of Goods available for sale Cost of goods available for sale- EI Finished Goods= Cost of Goods Sold

formula/steps for computing cost of goods manufactured

BI WIP+ DM used (final answer from above)+ DL= Add these three up Factory OH: Factory Maintenance+ Indirect Labor+ Factory Rent+ Indirect Materials= Total Factory OH Now take the three at the top's total+ Total Factory OH= Total Manufacturing Cost Total Manufacturing Cost- EI WIP= Cost of Goods Manufactured Used

formula for finding the budgeted (predetermined) overhead rate

Budgeted fixed overhead/total budgeted machine hours +budgeted variable overhead (a $ amount, like $15 per machine hour as an example)

What is the cost of direct labor if the conversion costs are $330,000 and manufacturing overhead is $275,000? $55,000 $275,000 $330,000 $605,000

DL $55,000 FACTORY OH $275,000 TOTAL CONVERSION COSTS: $330,000

Given the following information from Rowdy Enterprises' direct materials budget, how much direct materials needs to be purchased? (More like an example on test) Beginning Materials Inventory $75,800 Ending materials inventory 79,200 Materials needed for production 500,000

Desired EI 79,200 To meet production 500,000 Total Needed = 579,200 Less BI 75,800 = $503, 400

List all of the manufacturing costs

Direct Materials Direct Labor Factory (manufacturing) overhead- all manufacturings costs except DM and DL

What is Job order costing

Individual jobs, such as houses or special orders or a group of like units, such as 500 chairs or 200 generic doors. Each job is distinguishable from other jobs Trace direct material costs to individual jobs, to jobs using DM. Material requisitions trace direct labor costs to individual jobs, to jobs using DL. Time cards apply factory (manufacturing) overhead to individual jobs.

What is process costing

Long production runs of alike units (ex. making one size fits all socks, taffy, etc)

Which of the following product situations is better suited to job order costing than to process costing? Each product batch is exactly the same as the prior batch. The costs are easily traced to a specific product. Costs are accumulated by department. The value of work in process is based on assigning standard costs.

The costs are easily traced to a specific product.

Which of the following is a reason a company would implement activity-based costing? The cost of record keeping is high. The additional data obtained through traditional allocation are not worth the cost. They want to improve the data on which decisions are made. A company only has one cost driver.

They want to improve the data on which decisions are made.

A process costing system is most likely used by which of the following? airplane manufacturing a paper manufacturing company an accounting firm specializing in tax returns a hospital

a paper manufacturing company

Non-value added activities are...

activities that do NOT increase value to the customer, but just increase the time to make the product. Eliminating Non-value added activities does not decrease the value of the product. Does not mean that can eliminate these activities, but can try to reduce them. Reduce transportation, inventory, setups, inspections, etc.

Value added activities are...

activities that increase the value of the product in the eyes of the consumer. The consumer is willing to pay for this value. Is usually viewed as just the activities that manufacture the product- cutting, molding, finishing. Not include moving or storing.

What are product costs

also called manufacturing costs. they attach to the product and go where the products go. To inventory if not sold and to COGS if sold. Transportation to get materials in is a product cost. Anything that says "Factory" in it will be a product cost.

what are period costs

also called non manufacturing costs. Do not attach to the product and go directly to the income statement when incurred. Transportation to deliver materials to customer is a period cost

what is job cost record

also known as job cost sheet. Will have a job cost sheet for each job. Will show direct materials and direct labor costs traced to the job, and manufacturing overhead assigned/allocated to the job

A job order costing system is most likely used by which of the following? a pet food manufacturer a paper manufacturing company an accounting firm specializing in tax returns a stereo manufacturing company

an accounting firm specializing in tax returns

Which is not a task typically associated with ABC systems? calculating the overhead application rate for each cost pool applying a single cost rate identifying a cost driver more correctly allocating overhead costs

applying a single cost rate

Assets are ? and what side do they go on an entry?

debits and they go on the left hand side of an entry

Which of the following is a prime cost? indirect materials direct labor administrative expenses factory depreciation expenses

direct labor

what are time cards

employees fill out time cards and the time cards show hours spent on products as direct labor and indirect labor. When combining with labor rates, can compute direct labor costs and indirect labor costs.

budgeting as a managment tool...

ensures that activites of employees and departments contribute to meeting the company's overall goals. Budgeting is the process of planning future business actions and expressing them as formal plans

advantages of activity based costing

identifies what is causing costs to be incurred more accurate allecoation of indirect costs more accurate product costing improved ability to make correct managment decisions improved ability to bid on projects because we know what is driving costs

what are all the factory overhead costs

indirect materials, indirect labor, factory rent, factory maintence

understand how to tell if overhead is under-applied or over-applied

kind of common sense.

what is a flexible budget

one based on different volumes of sales. A flexible budget flexes the static budget from each anticipated level of production. This flexibility allows managment to estimate what the budgeted numbers would look like at various levels of sales. Flexible budgets are prepared at each analysis period (usually monthly) rather than in advance since the idea is to compare the operating income to the expenses deemed appropriate at the actual production level.

what is a static budget

one that is prepared based on a single level of output for a given period. The master budget and all the budgets included in the master budget are examples of static budgets. Actual results are compared to the static budget numbers as one means to evaluate company performance. However, this comparison may be like comparing apples to oranges because variable costs should follow production, which should follow sales.

how to find the total amount of overhead that would be applied

pre-determined overhead rate * actual machine hours

The direct materials budget is prepared using which budget's information? cash payments budget cash receipts budget production budget raw materials budget

production budget

where can you use process costing

repetitive operations homogeneous products and services high production volume low product flexibility

what budget must you prepare first before any other budget?

sales budget

Which of the operating budgets is prepared first? production budget sales budget cash received budget cash payments budget

sales budgets

direct materials budget

shows budgeted costs for direct materials that will be needed to be purchased to satisfy the estimated production for the period

cash budget

shows expected cash inflows and outflows during budget period. Managing cash is vital for the firms success. Helps company meet cash balance goal

where would activity based costing be useful

simple vs complex products low tech vs high tech products standard vs special order products

Which is not needed to compute equivalent units of production? the percentage of completion for inventory still in process the number of units transferred out the number of units started and completed the material cost per unit

the material cost per unit

what are equivalent units

the number of units that could have been completed if all of a companys effort had been used to just start and finish units instead of completing incomplete units in beginning inventory and starting but not finishing units

disadvantages of activity based costing

time consuming and costly requires constant updating some employees fear and resist change employees must learn new skills must keep track of cost driver units does not conform to GAAP not all costs will have an identifiable cost driver

Overhead costs are assigned to each product based on ________. the proportion of that product's use of the cost driver a predetermined overhead rate for a single cost driver price of the product machine hours per product Using activity based costing

using activity based costing

what are materials requisition

when production department needs materials for products to be manufactured, a materials requistion is prepared. It is authorization for the materials to be released by production. The materail requisition form show how much direct materials were used by individual products and how much indirect materials were used.