ACCT Midterm Study Guide
be able to calculate the PDOHR, apply MOH, and determine over or under applied overhead
-A Predetermined Overhead rate shall be used to calculate an estimate on the projects that are yet to commence for overhead costs.
what is a job order cost sheet, and what is it used for?
-A job cost sheet is maintained for each job. -It shows information about the total cost of a particular job. -Each job sheet breaks the costs down in terms of direct materials, direct labor, and manufacturing overhead assigned to individual jobs. -A job order cost sheet accumulates the costs charged to a specific job. -It is used within a job costing system.
what is the materials ledger?
-A material ledger retains all transactions that relate to the purchase and use of materials for producing goods.
what is a materials requisition used for? / a time ticket? / a receiving report? / a purchase requisition? / a clock card?
A material requisition, also known as a materials requisition form, or a material request, is a document used by the production department to request materials they need to complete a manufacturing process. -A time ticket is a document used by an employee to record hours worked. -A receiving report is a document companies use to record goods and materials received from suppliers during deliveries. -A purchase requisition is a request from an employee or department to buy goods or services. -A clock card, also called a time card, is a source document that records the number of hours each employee works during a pay period.
who is the controller? -the CFO? --the CEO? -the CAO?
-Controller= At some companies, the manager of the accounting function of a vertical (business unit) is referred to as the controller.-The controller carries out the implementation and day-to-day management of the operations of the accounting department. -CFO= The CFO is the finance leader and chief financial strategist of a company. CFOs play a significant role in laying out the direction for a company's future and advising stakeholders on important business decisions. Chief Financial Officers identify business risks by looking at financial data and make appropriate decisions to mitigate those risks, among their many leadership functions. -CEO= The 'CEO' meaning is Chief Executive Officer - the leader of the C-suite team and, by extension, the organization as a whole. CEOs are the ones primarily responsible for company strategy, mission and organization.
define cost allocation --what is an activity base, and what are three common activity bases used to allocate MOH? --which base would be most likely in a highly automated environment?
-Cost allocation is the process of identifying, aggregating, and assigning costs to cost objects. -Cost allocation is also used in the calculation of profitability at the department or subsidiary level, which in turn may be used as the basis for bonuses or the funding of additional activities -An activity base is a measured activity that is used to allocate overhead costs. -For example, the number of machine hours used during a reporting period is a reasonable activity to use as the basis for allocating machine costs to units produced. -The three most common allocation bases—direct labor hours, direct labor costs, and machine hours—are relatively easy to measure. -which base would be most likely in a highly automated environment? =machine hours
what do cost systems do? --how do managers use product costs?
-Cost systems measure, record, and report product costs. -Managers use product costs for setting product prices, controlling operations, and developing financial statements.
be able to calculate CGM
COGM = Beginning WIP inventory + total manufacturing costs - ending WIP inventory 800,000 (Direct Materials) 1,200,000 (Direct Labor) 2,200,000 (Factory Overhead) 600,000 (Beginning WIP Inventory) = 4,800,000 - 480,000 (Closing WIP Inventory) =4,320,000
be able to calculate CGS
COGS = Beginning Inventory + Purchases - Ending Inventory Let's say there's a retail store that starts a year with a certain inventory in stock. -The inventory has a retail value of $60,000 and costs the store owners $30,000 to acquire. -Now, let's say that over the ensuing year, the store owners purchase $100,000 of additional inventory, with a total retail value of $225,000. -And, at the end of the year, the store has a remaining inventory worth $40,000, which had cost $20,000 to acquire. The store's owners could use COGS to determine their total cost of inventory sold over the course of the year - a key number in determining their overall profitability for the year. COGS = $30,000 + $100,000 - $20,000 = $110,000
what is the purpose of the Stmt of CGM?
The cost of goods manufactured is determined by preparing a statement of cost of goods manufactured. -This statement summarizes the cost of goods manufactured during the period
what are the basic management process functions—know what each process entails (4= SP, M, E, & C)
The management process is composed of the following four basic functions: -Strategic planning= is where the management process begins to develop long-term objectives and normally involves a time horizon of five to ten years. -Measurement= is the process where managers develop and agree upon performance metrics on how well the company is achieving its objectives. -Evaluation= is the process by which management monitors operations by comparing actual and expected results. -Control= is the process by which management takes actions to encourage specific behaviors or outcomes.
what is WIP?
Work in Process
what are the 3 product costs (AKA manufacturing costs)? (be able to give examples) --which statement(s) contain product costs?
-Direct Materials (DM)= To be classified as a direct materials cost, the cost must be both of the following: -An integral part of the finished product -A significant portion of the total cost of the product -Examples of direct materials costs include the following: -The cost of the wood used in producing a guitar -The cost of electronic components for a television -Silicon wafers for microcomputer chips -Tires for an automobile -Direct Labor (DL)= The cost of employee wages that is an integral part of the finished product is classified as direct labor cost.Examples of direct labor costs include the following: -The wages of employees who cut guitars out of raw lumber and assemble them -Mechanics' wages for repairing an automobile -Assemblers' wages for assembling a laptop computer -Factory Overhead= Costs other than direct materials cost and direct labor that are incurred in the manufacturing process are combined and classified as factory overhead cost (sometimes called manufacturing overhead or factory burden) -All factory overhead costs are indirect costs of the product. -Some factory overhead costs include the following: -Heating and lighting the factory -Repairing and maintaining factory equipment -Property taxes on factory buildings and land -Insurance on factory buildings -Depreciation of factory plant and equipment -Factory overhead cost also includes indirect materials and indirect labor costs that are not directly traced to the finished product. Examples include the cost of glue used to assemble guitars and the wages of janitorial and supervisory employees. which statement(s) contain product costs? =balance sheet
what are the two main types of cost accounting systems for manufacturing operations --be able to give examples of both types
-Job Order Costing= Job order costing provides product costs for each quantity of product that is manufactured. -Each quantity of product that is manufactured is called a job. -Job order costing is often used by companies that manufacture custom products for customers or batches of similar products. -For example, an apparel manufacturer, such as Levi Strauss & Co., or a guitar manufacturer, such as Gibson Guitars, would use job order costing. -Process Costing= Process costing provides product costs for each manufacturing department or process. -Process costing is often used by companies that manufacture units of a product that are indistinguishable from each other and are manufactured using a continuous production process. -Examples would be oil refineries, paper producers, chemical processors, and food processors.
what is the difference between prime costs and conversion costs? (be able to give examples)
-Prime costs, which consist of direct materials and direct labor costs. -Prime costs are defined as the expenditures directly related to creating finished products -Conversion costs are the costs of converting the materials into a finished product. -Conversion costs, which consist of direct labor and factory overhead costs
what are the 2 types of non manufacturing (AKA period) costs? --be able to give examples
-Product costs consist of manufacturing costs: direct materials, direct labor, and factory overhead. These costs are stored in inventory. -Period costs consist of selling and administrative expenses. Selling expenses are incurred in marketing the product and delivering the product to customers. -Administrative expenses are incurred in managing the company and are not directly related to the manufacturing or selling functions.
be familiar with verticals and horizontals
-Verticals are sometimes referred to as business units, because they are often structured as separate businesses within the parent company. -Verticals develop products that are sold directly to customers. -Horizontals are departments within the company that are not responsible for developing products. -Horizontals provide services to the various verticals and other horizontals.
be able to identify direct and indirect costs
Direct Costs= are identified with and can be traced to a cost object. EX: direct labor, direct materials, commissions, piece rate wages, and manufacturing supplies. Indirect Costs= are not identified with or traced to a cost object. EX: production supervision salaries, quality control costs, insurance, and depreciation.
what is the difference between DM and Indirect Materials? / DL and Indirect Labor?
Direct Materials= Direct materials are those materials that are used in the production of a product or service and become a part of the finished item. EX: Examples of direct materials include leather for a shoe company, wood for a furniture company, fabric for clothes making company etc. Indirect Materials= Indirect materials are those that support the production process, but are not incorporated into the final product. EX: Examples of indirect materials include maintenance and housekeeping supplies, machine oils, safety equipment, stationery expenses etc. Direct Labor= Only labor involved in the hands-on production of goods and services is considered to be direct labor. EX: or example, hair stylists at a salon who perform haircuts and other services are considered direct labor Indirect Labor= All other labor is, by default, classified as indirect labor. EX: The maintenance staff and the receptionist who support them are indirect labor.
what is manufacturing overhead also known as?
MOH= (sometimes called manufacturing overhead or factory burden).
define managerial accounting
Managerial accounting, sometimes called management accounting, is the process of developing information and management tools to achieve an organization's objectives.
which statement contains period costs? which contains product costs?
Period Costs= Income Statement Period costs are reported as expenses on the income statement in the period in which they are incurred and, thus, never appear on the balance sheet. Product Costs= Balance Sheet As product costs in a manufacturing company are incurred, they are recorded and reported on the balance sheet as inventory.
when accounting for manufacturing costs in a JOCS or process cost system, does the cost system use periodic or perpetual procedures?
Process Costing System= Periodic Inventory Systems
when would using a job order cost system be appropriate? / a process cost system?
Process Costing= Companies that mass produce a product or offer the same service to all customers will use a process costing system. -Process costing is a costing system in which a product is mass produced, so costs are determined by equivalent units produced. Job Order Costing= Companies that custom make products or offer tailored services will use a job order costing system. -Job order costing is a costing system that is used for specifically identifiable products, services, and projects. -Job order costing is a costing system in which each product or job has traceable costs.
what are the inventory accounts of a manufacturer, and where do they appear on the financial statements? (3= M, WIP, F)
These appear on the balance sheet. -Materials inventory (sometimes called raw materials inventory). -This inventory consists of the costs of the direct and indirect materials that have not entered the manufacturing process. -Examples for Legend Guitars: Wood, guitar strings, glue, sandpaper -Work in process inventory -This inventory consists of the direct materials, direct labor, and factory overhead costs for products that have entered the manufacturing process, but are not yet completed (in process). -Example for Legend: Unfinished (partially assembled) guitars -Finished goods inventory. -This inventory consists of completed (or finished) products that have not been sold. -Example for Legend: Unsold guitars Exhibit 12 illustrates the reporting of inventory on the balance sheet for a retail and a manufacturing business. MusicLand Stores, Inc., a retailer of musical instruments, reports only Inventory. In contrast, Legend Guitars, a manufacturer of guitars, reports Finished Goods, Work in Process, and Materials inventories. In both balance sheets, inventory is reported in the "Current assets" section.
what is classified as MOH?
Usually manufacturing overhead costs include depreciation of equipment, salary and wages paid to factory personnel and electricity used to operate the equipment.