Chapter 2; Cost Accounting Concepts

A company started the year with $185,000 of goods finished and ready for sale. During the year, a total of $700,000 of goods were started in production. Of the goods started, $550,000 were finished during the year. If total cost of goods sold for the year equals $625,000, the company's ending finished goods inventory equals $?

$110,000

Given the following, calculate cost of goods manufactured: Inventories: Direct materials Beginning=$300 Ending=$250 Work in process Beginning=$400 Ending=$200 Finished goods Beginning=$500 Ending=$350 Direct material purchases $4,200 Direct labor $3,000 Manufacturing overhead $5,000

$12,450 Reason: Cost of goods manufactured: Beginning WIP inventory ($400) + Direct materials put into production ($300 + $4,200 - $250 = $4,250) + Direct labor ($3,000) + O/H ($5,000) - Ending WIP inventory ($200) = $12,450.

The flowchart that illustrates the cost allocation process is called a(n)

COST FLOW DIAGRAM

Cost to be assigned to cost objects are accumulated in a(n) ____________ _________

COST POOL

The way costs respond to changes in activity levels is called

Cost Behavior

Product costs added to inventory accounts are called

Inventoriable Cost

Product costs debited to work in process and finished goods are called

Inventoriable Cost

Which of the following statements are true?

Labor is the most important single cost for many service organizations. Information technology represents the major cost for some service organizations.

Any end to which a cost is assigned is a cost________.

OBJECT

Customers are provided with an intangible product by ______________companies.

Service

Which of the following workers are classified as direct labor?

Tax preparers Assembly line workers

To calculate cost of goods manufactured during the year, take total manufacturing costs and ______.

add beginning work in process and subtract ending work in process inventory.

Under variable costing, ______.

all costs except variable manufacturing costs are period costs

The process of assigning costs is called cost ______.

allocation

The process of assigning indirect costs is called cost ________.

allocation

The method or process used to assign costs to cost objects is the cost_________.

allocation rule

Product costs for unsold units are ______.

assigned to inventory under both absorption and variable costing

On a per unit basis, the _______ _______ equals the difference between sales price and the variable cost per unit.

contribution margin

The amount available to cover fixed expense and earn a profit is the _____ - ______.

contribution margin

The difference between revenue and variable cost is _____.

contribution margin

A sacrifice of resources is a(n) ________.

cost

The way costs respond to changes in activity levels is called __________ __________.

cost behavior

Cost allocations can be illustrated in a flowchart or _________ ___________ diagram

cost flow

Which of the following is NOT one of the four basic cost behavior categories?

direct

Workers must be identified with a product at a reasonable cost to be classified as __________ __________.

direct; labor

The cost of parts purchased by a manufacturer that can be identified with units or batches of products are classified as ________ _________ cost.

direct; manufacturing

When preparing financial statements,__________ are deducted from revenues associated with an accounting period.

expenses

Departments, units of products, and product lines are all examples of cost __________

object

Nonmanufacturing costs are also called _________ costs and manufacturing costs are also called _________ costs.

period, product

Department costs, rental costs, or travel costs incurred to visit multiple clients are examples of items accumulated in cost ___________to be assigned to cost__________

pool; object

Cost of goods manufactured and sold statements are ______.

prepared as part of a company's internal reporting system

Which account is included on the income statement of wholesalers and retailers, but not service companies?

Cost of Goods Sold

Costs that do not change as volume changes are ________ costs and costs that change in direct proportion with a change in volume are _______ costs.

Fixed; Variable

Which of the following statements are true??

For managerial purposes, managers often assign nonmanufacturing costs to products. Nonmanufacturing costs are expensed as incurred for financial accounting purposes. Distinguishing between manufacturing and nonmanufacturing costs can be difficult.

Which of the following are true?

Information technology represents the major cost for some service organizations. Labor is the most important single cost for many service organizations.

Which of the following statements are true?

Information technology represents the major cost for some service organizations. + Labor is the most important single cost for many service organizations.

Any end to which a cost is assigned is a cost ________.

Object

Which of the following statements are true?

Transportation-in is included in the cost of direct materials. Direct materials are directly identified with products. Direct materials are often called raw materials.

For a manufacturer, finished goods inventory is optional.

True (If goods are shipped directly from the production line, no finished goods inventory exists.)

Products that have been started but not yet completed are called

WORK IN PROCESS

Examples of companies that sell, but do not make tangible products include ______.

Wholesalers Retailers

True or false: The focus of cost accounting is on expenses

false

The difference between full cost and full absorption cost is ______.

fixed and variable selling costs are included in full cost but not in full absorption cost

True or false: Whether a cost is direct or indirect depends on the cost object.

true

If a company is focused on trying to eliminate waste, income statement costs can be divided into ______.

value-added vs. nonvalue-added activities

If a company is focused on trying to eliminate waste and reduce costs, financial statements can be developed that classify costs into ___________-_______ and ________-________ activities.

value-added, nonvalue-added

In a manufacturing environment, labor has traditionally been considered a(n)

variable

Direct materials and sales commissions are most likely _________ costs, whereas many manufacturing overhead costs such as rent and supervisor salaries are ________ costs.

variable, fixed

Direct materials and sales commissions are most likely,____________whereas many manufacturing overhead costs such as rent and supervisor salaries are __________ costs.

variable; fixed

Goods that have been started in production but are not yet completed are called ______.

work in process

Products that have been started but not yet completed are called ________ ________ ________.

work in process

Given the following, calculate cost of goods sold: Inventories: Direct materials Beginning=$300 Ending=$250 Work in process Beginning=$400 Ending=$200 Finished goods Beginning=$500 Ending=$350 Direct material purchases $4,200 Direct labor $3,000 Manufacturing overhead $5,000

$12,600

Which of the following is NOT one of the four basic cost behavior categories?

Direct

Which of the following statements are true?

Direct materials are often called raw materials. Direct materials are directly identified with products. Transportation-in is included in the cost of direct materials.

The three major categories of product costs are __________ materials_____________ ____________, and manufacturing _______________

Direct;Direct;Labor;Overhead

Product costs that can be identified with units at a relatively low cost are______________ manufacturing costs and all other product costs are _________manufacturing costs.

Direct;Indirect

Which of the following statements are true?

Distinguishing between manufacturing and non-manufacturing costs can be difficult. non-manufacturing costs are expenses as incurred for financial accounting purposes. For managerial purposes. managers often assign non manufacturing costs

Products ready for sale are called

FINISHED GOODS

On a per unit basis, ___________ ___________equals the sales price minus the full absorption cost per unit

Gross Margin

Which of the following are true?

Gross margin reflects the ability of a wholesaler to price products. Retailers have an entire category of amounts that do not appear on service company income statements.

Which of the following statements are true??

Gross margin reflects the ability of a wholesaler to price products. Retailers have an entire category of amounts that do not appear on service company income statements.

JPL Inc. makes a product that has a manufacturing cost of $2.75 per unit. ($1.75 per unit variable manufacturing and $1.00 per unit fixed manufacturing cost.). JPL has received a special order for 5,000 units of the product at $2.50 each. Marketing, administrative, and total fixed manufacturing costs will not be affected if the order is accepted, and it will not affect the regular market for the product. Which of the following statements regarding the special order is correct?

JPL should accept the order because it will contribute $3,750 to operating profit.

All product costs other than direct materials and direct labor are commonly referred to as indirect costs or__________ ____________

MANUFACTURING OVERHEAD

Which of the following statements are true?

Putting fixed costs on a per unit basis makes it appear that they are variable costs. Per unit fixed costs are only valid at one volume.

Which of the following are true?

Some opportunity costs are generally overlooked when making decisions. Opportunity costs should be considered when making decision. Taking time off from your job for a vacation is an opportunity cost.

A doctor's office requires one nurse for each 10 patients scheduled per day. In this case, the nurses' salaries represent a ______ cost.

Step

semifixed cost are also called ______ cost

Step

True or false: Whether a cost is direct or indirect depends on the cost object.

TRUE (A cost can be direct for one cost object and indirect for another.)

Which of the following statements are true???

The cost of goods manufactured and sold statement focuses on both current costs and inventories. Managerial reports are tailored to the individual company's needs. Cost of goods manufactured and sold statements can be effective communication devices.

Goods that have been started in production but are not yet completed are called

Work In Process

To calculate cost of goods sold during the year, take total cost of goods manufactured and:

add beginning finished goods and subtract ending finished goods inventory

To calculate cost of goods manufactured during the year, take total manufacturing costs and

add beginning work in process and subtract ending work in process inventory

A company is considering a special order that would not impact marketing, administrative, or total fixed manufacturing costs. Assuming the special order would not affect the regular market for the product, the special order should ______.

be accepted as long as the purchase price per unit is greater than the variable manufacturing cost per unit

The two types of product costs are _______ and _______.

direct and indirect

Workers must be identified with a product at a reasonable cost to be classified as ____________ __________.

direct labor

Major categories of product costs include

direct labor direct materials manufacturing overhead

The cost of parts purchased by a manufacturer that can be identified with units or batches of products are classified as _________ _________ cost.

direct manufacturing.

Costs that can be unambiguously related to cost objects are _____ costs whereas costs that cannot be unambiguously related to cost objects are ______ costs.

direct, indirect

Product costs that can be identified with units at a relatively low cost are _______ manufacturing costs and all other product costs are _______ manufacturing costs.

direct, indirect

The two types of product costs are _______and _______

direct; indirect

To calculate net income, operating profit is adjusted for ______.

extraordinary items interest expense other required regulatory adjustments

Manufacturing overhead costs include ______.

factory cleaning materials inventory warehouse workers factory depreciation

Indirect labor includes

factory supervisors factory maintenance workers

True or false: Cost of goods sold includes the actual cost of goods that were sold and the costs required to sell them.

false

True or false: The excess of operating revenues over the operating costs incurred to generate those revenues is net income

false

When the amount of labor required is not sensitive to the amount produced, then it is probably best to consider labor to be a(n) ______ cost.

fixed

The difference between full cost and full absorption cost is _____

fixed and variable selling costs are included in full cost but not in full absorption cost

Costs that do not change as volume changes are ______ costs and costs that change in direct proportion with a change in volume are ______ costs.

fixed, variable

Common approaches for determining product costs discussed in the text do not include ______ costing.

full

A cost ______.

is a sacrifice of resources may be recorded as an asset

Full absorption cost

is required by GAAP is the inventoriable cost for external financial statements

Full absorption cost ______.

is the inventoriable cost for external financial statements is required by GAAP

Any new costs incurred when adding a product are considered product costs under ________ costing.

managerial

The full cost of a product equals all ______.

manufacturing and selling costs (both fixed and variable)

All product costs other than direct materials and direct labor are commonly referred to as indirect costs or_______ ________

manufacturing overhead

Assume total units produced equals total units sold. If the company prepares a gross margin income statement and a contribution margin income statement, ______.

marketing and administrative costs will be the same on both statements operating profit will be the same on both statements

Costs required to obtain customer orders are _______ costs and costs required to manage the organization are __________ costs.

marketing, administrative

Costs required to obtain customer orders are _______ costs and costs required to manage the organization are ________ costs.

marketing, administrative

Putting fixed cost on a per unit basis

may be misleading for decision making

Semivariable costs are also called _______ costs.

mixed

Companies with low overhead costs focus on managing ______ costs, whereas companies with high overhead costs focus on managing ______ costs.

prime, conversion

The sum of direct materials and direct labor equals ______ costs and the sum of direct labor and manufacturing overhead equals ______ costs.

prime, conversion

The sum of direct materials and direct labor equals _________costs and the sum of direct labor and manufacturing overhead equals ___________ costs.

prime, conversion

Costs assigned to units of production and expensed when the units are sold are _________ costs, whereas ________ costs are expensed as incurred.

product and period

Beginning work in process inventory plus total manufacturing costs equals ______.

resources put into production during the year

Beginning work in process inventory plus total manufacturing costs equals ______.

resources put into production during the year.

Examples of companies that sell, but do not make tangible products include

retailers wholesalers

An international long distance plan that charges a flat fee of $10 plus $.05 per minute of use is an example of a ______ cost

semivariable

Customers are provided with an intangible product by ________ companies.

service

Customers are provided with an intangible product by _________ companies.

service

True or false: For a manufacturer, finished goods inventory is optional.

true