ACCT 202 Review M1,M2,M4

Manufacturers may use multiple predetermined overhead allocation rates that have different allocation bases. This method is more complex than a single plantwide rate, but it may be more accurate and result in better costing information for companies producing diverse products

True

Most companies using just-in-time manufacturing combine direct labor and manufacturing overhead costs into a single account called Conversion Costs.

True

Planning means choosing goals and deciding how to achieve them. Planning requires managers to look to the future and establish goals for the business

True

Production in just in-time management systems is completed in self-contained work cells. A work cell is an area where products are manufacturing using continuous flow processing.

True

The journal entry to allocate manufacturing costs to Work-in-Process Inventory increases Work-in-Process Inventory and decreases Manufacturing Overhead by debiting Work-in-Process and crediting Manufacturing Overhead

True

The journal entry to transfer good that are completed would include a debit to Finished Goods Inventory and a credit to Work-in-Process Inventory.

True

The key to allocating indirect manufacturing costs to jobs is to identify a workable manufacturing overhead allocation base. The allocation base is a denominator that links overhead costs to the products. Ideally, the allocation base is the primary cost driver of manufacturing overhead. As the phrase implies, a cost driver is the primary factor that causes (drives) a cost.

True

The most accurate overhead allocation can be made only when total overhead costs are known and that is not until the end of the accounting period. But managers cannot wait that long for product cost information because knowing product cost information helps managers set a sales price for the product

True

The predetermined overhead allocation rate is based on estimated overhead cost per unit of the allocation base calculated at the beginning of the accounting period. It is equal to estimated overhead costs divided by the total estimated quantity of the overhead allocation base

True

When a job is completed, the costs must be transferred from Work-in-Process Inventory to Finished Goods Inventory.

True

A job order costing system

accumulates costs for each unique batch or job. A job may be a single unique product or specialized service, or a batch of unique products

process costing system

accumulates the costs of each process needed to complete the product over a period of time instead of assigning costs to specific jobs. Process costing is used primarily by companies that produce large quantities of similar products

Direct materials

can be easily traced to specific jobs. The cost of direct materials is transferred out of Raw Materials Inventory to Work-in-Process Inventory by debiting Work-in-Process and crediting Raw Materials Inventory accounts. Page 8 - Indirect materíals are those that are difficult to trace to specific jobs. The cost of indirect materials is transferred out of the Raw Materials Inventory account and is accumulated in the Manufacturing Overhead account

Manufacturing overhead includes

costs that support production activities such as storing materials, setting up machines, and cleaning the work areas. Examples include manufacturing factory managers' salaries, repair and maintenance costs, and depreciation on manufacturing building and equipment

Direct Labor

the cost of wages and salaries of employees who convert the raw materials into the finished product. Direct labor is a direct cost that can be easily traced to the finished product

Controlling

the process of monitoring day-to-day operations and keeping the company on track

Manufacturing overhead refers

to indirect manufacturing costs that cannot be easily traced to specific products. Manufacturing overhead is also called factory overhead or indirect manufacturing costs

Predetermined Overhead Allocation Rate

used to allocate overhead costs to specific jobs. It is calculated by dividing the total estimated overhead costs by the total estimated quantity of the overhead allocation based. For example, if the estimated overhead costs are $68,000 and the total estimated direct labor costs are $170,000, then the predetermined overhead allocation rate would be 40% (568,000/§170,000)

Activity-based management information

used to make decisions that improve customer satisfaction while also increasing profits.

Landon Inc Schedule of Cost of Goods Manufactured Year Ended DEC 31, 2022

Beginning Work-in-Process Inventory (3rd column) Direct Materials Used: Beginning Direct Materials + Purchases of Direct Materials + Direct Materials Available for Use= add top two Ending Direct Materials - Direct Materials Used= add 2 sub 1 (second column) Direct Labor (second column) Manufacturing Overhead: Indirect Materials + Indirect Labor + Depreciation - Plant and Equipment * Plant Utilities and Insurance + Total Manufacturing Overhead =add all (second column) (The rest third column) Total Manufacturing Costs Incurred During the Year =add all second column Total Manufacturing Costs to Account For= incurred + beginning inventory Ending Work-in-Process Inventory - Cost of Goods Manufactured= Accounts- ending inventory

Underallocated Overhead

Occurs when the actual manufacturing overhead costs are more than allocated manufacturing overhead costs.

Period costs are non-manufacturing costs

Period costs are selling and administrative expenses and other expenses such as taxes and interest. Examples of period costs might include the salaries and wages of the accounting staff, rent for the administrative building, depreciation on administrative equipment, and sales commissions paid to sales representatives

A single plantwide overhead allocation rate may be appropriate if the allocation base has the same relationship to overhead costs in all plant activities.

True

All actual manufacturing overhead costs are accumulated as debits to a single general ledger account - Manufacturing Overhead. Examples of manufacturing overhead include indirect materials and indirect labor as well as depreciation on manufacturing plant and equipment, plant utilities, plant insurance, and plant property taxes

True

Because companies allocate overhead to jobs using a predetermined rate that is based on estimates, they need to adjust for the under- or overallocated overhead at the end of the period. Underallocated overhead is adjusted with a debit to cost of goods sold and overallocated with a credit

True

Because just-in-time management systems have very little inventory on hand, companies are far more vulnerable to production shutdowns if they receive poor-quality or defective raw materials

True

Beginning finished goods inventory plus cost of goods manufactured is equal to cost of goods available for sale.

True

During production, the manufacturer uses direct labor and manufacturing overhead (including indirect labor and indirect materials) to convert direct materials into Work-in-Process inventory Work-in-Process is included in the calculation of Cost of Goods Manufactured

True

How costs are classified depends on the type of businesses the company engages in. Businesses are generally classified as service, merchandising, or manufacturing companies. Service companies sell their time, skills, and knowledge. Merchandising companies resell products that they buy from suppliers

True

Internal failure costs occur when the company corrects poor-quality goods or services before delivery to customers. External failure costs occur when the company delivers poor-quality goods or services to customers and then must make things right with the customer

True

allocated manufacturing overhead cost

equal to the predetermined overhead allocation rate times the actual quantity of the allocation base used by each job. For example, if the predetermined overhead allocation rate is 40% of direct labor cost and the direct labor cost is $1,250, then the allocated overhead will be $500 (40% x $1,250).

Managerial accounting

focuses on providing information for internal decision makers. Financial accounting focuses on providing Information for external decision makers

Target pricing

full product costs in the analysis. Full production costs includes all production costs (direct materials, direct labor, and allocated manufacturing overhead), plus all nonmanufacturing costs (operating expenses, such as administrative and selling expenses). Thus, the target cost is determined by subtracting desired net profit from the target sales price.

Quality management systems

help managers improve a business's performance by providing quality products and services

In ABC systems

ideally the allocation base is the primary cost driver, the factor that causes the cost to increase or decrease.

work in process inventory

includes goods that are in the manufacturing process but are not yet complete

Overallocated Overhead

occurs when the actual manufacturing overhead costs are less than allocated manufacturing overhead costs.

Value engineering

reevaluating activities to reduce costs while satisfying customer needs. Companies set sales prices based on target prices - what customers are willing to pay for the product or service.