Accounting Module 1

How many units need to be sold to to earn a profit of $24,000? a) 150,000 units b) 33,333 units c) 90,000 units d) 50,000 units

50,000 units units sold to earn a profit = fixed cost + profit / contribution margin per unit $36,000 + $24,000 profit / $1.20 C.M per unit = 50,000 units

Which of the following would not be a variable cost? a) Cost of shipping goods to customers via Federal Express. b) Commissions paid to a salesperson. c) Direct materials used in production. d) A salary paid to the factory supervisor.

A salary paid to the factory supervisor.

Manufacturing Overhead -

ALL other Costs Associated with plant/factory

Direct materials and direct labor are both classified as a mixed cost. a) True b) False

False Direct labor and direct materials are both variable (in terms of cost behavior).

Insurance costs at corporate headquarters would be classified a period cost and in terms of cost behavior a variable cost. a) True b) False

False Insurance costs are a fixed cost not a variable cost.

The cost to pack and ship bottles of Diet Coke would be classified as a product cost and part of manufacturing overhead. a) True b) False

False The costs related to packaging and shipping a product would be classified as a period cost - specifically a selling cost. If the product has already been manufactured then any costs after production are non product cost. In other words a period cost.

Debits to the asset account "Work in Process" include actual direct raw materials, actual direct labor and actual manufacturing overhead. a) True b) False

False This statement is false because actual overhead is not debited to the account "Work in Process." APPLIED overhead is debited to the account "Work in Process."

Traditional Format Statement (Financial/External User)

Sales - Cost of Goods Sold = Gross Margin - Selling and Administrative Expense = Net Income

Contribution Format Statement (managerial/internal users)

Sales - Variable Expense = Contribution Margin - Fixed Expense = Net Income

Period Costs = Non-Manufacturing Cost

Selling Expense - sales staff, shipping, advertising Administrative (ie accounting, CEO salary, corporate expense

Finished Goods, Raw Materials and Work-in-Process are decreased by credits and all are classified as assets on the Balance Sheet. a) True b) False

True

Glue used in producing a table would be classified as an indirect materials cost. True False

True

Rent at a manufacturing plant would be classified as part of manufacturing overhead and in terms of cost behavior would be classified as a variable cost. a) True b) False

b) False Rent would be considered a fixed cost not a variable cost. Rent is part of manufacturing overhead.

Which of the following is true regarding the cost formula y = a + bx? a. "b" represents total variable costs. b. "a" represents total fixed costs. c."x" represents total mixed costs.

b. "a" represents total fixed costs.

The difference between variable costs and fixed costs is: a.variable cost per unit changes and fixed cost per unit remains constant. b.variable cost per unit is constant and fixed costs per unit can change. c. both total variable costs and total fixed costs are constant.

b. Variable cost per unit is constant and fixed costs per unit can change.

A hard drive in a computer would be classified as an indirect materials cost. a) True b) False

false A hard drive used to produce, or make, a computer would be considered a direct material cost as it would be easily traceable and is an integral part of the product. Indirect materials are not easily traceable.

Given the cost formula "y = a + bx," which of the following statements would be correct? a) "x" represents the variable cost per unit. b) "a" represents the total fixed cost component. c) "b" represents the activity level. d) "y" represents the total variable cost.

"a" represents the total fixed cost component.

(6) What is the variable cost per unit? a) $180,000 b) $1.20 per unit c) $3.00 per unit d) $1.80 per unit

$1.80 per unit $3.00 selling price per unit X 60% V.C. = $1.80 per unit

Don Taco's electricity cost is a mixed cost and can be tied directly to the number of meals served. Don Taco has determined the electricity cost formula to be: y = $800 + $2.00 x. Required: Compute the total electricity cost if 5,000 meals are served. a) $1,800 b) $4,200 c) $10,800 d) $5,800

$10,800

The Matisse Co. incurred the following costs during the month of December: Direct Materials Cost $30,000 Selling Cost$40,000 Direct Labor Cost$90,000 Manufacturing Overhead Cost $50,000 Administrative Cost$100,000 Required: Compute the total period cost for the period. a) $190,000 b) $140,000 c) $240,000 d) $170,000

$140,000 Period costs includes selling and administrative costs only. Selling Expense $40,000 + Administrative Expenses $100,000 = $140,000. Examples of selling expenses: packaging costs, shipping costs, commissions paid to sales staff, advertising. Examples of Administrative expenses: Upper management salaries, secretarial staff at corporate headquarters, payroll costs, internships, executive compensation, executive travel costs

The Matisse Co. manufactures laptop computers. Each computer requires a hard drive that costs the company $150 per unit. Total fixed costs for the month of April are $5,000. Required: Compute the total variable cost if 100 computers are manufactured during the month of April. a) $15,000 b) $1,500 c) $20,000 d) $10,000

$15,000

The Dawg Company rents space at the SIU Student Center and sells only 1 product; a 16 ounce cup of coffee called the "Saluki Bang." The following information relates to the variable and fixed costs the Dawg Company expects to incur if 1,500 cups of "Saluki Bang" are sold during the month of January. The company estimates the variable cost will be $0.30 per cup. Activity Level: 1,500 cups of coffee served Total Fixed Cost: $1,200Total Variable Cost $450 Question: The total cost, at a level of 5,000 cups of coffee served, would be closest to: a) $2,100. b) $2,850. c) $3,300. d) $2,244 e) $2,700.

$2,700.

(2) Use the following information to answer questions 1, 2 and 3. The information will be repeated in each question. Budgeted Overhead for the Year $100,000 Actual Overhead for the Year $110,000 Budgeted Direct Labor Hours 5,000 hours Actual Direct Labor Hours5,100 hours Question: What is the POR (predetermined overhead rate) for the year? a) $22.00 per direct labor hour b) $21.56 per direct labor hour c) $20.00 per direct labor hour d) $19.60 per direct labor hour

$20.00 per direct labor hour POR = budgeted overhead / budgeted direct labor hours POR = 100,000 / 5,000 DLH POR = $20.00 per DLH

(6) Use the following information to answer questions 1, 2, 3, 4, 5 and 6. The information will be repeated in each question. The Matisse Co. manufactures and sells one product called "Fox Boom Blast" sold in 3 ounce bottles. The following information relates to production and sales for 2014: Total Sales Revenue $300,000 (100,000 units sold) Total Variable Costs $180,000 (60% of sales) Total Fixed Costs $36,000 Question: What is the selling price per unit? a) $1.80 per unit b) $3.00 per unit c) $1.20 per unit d) $300,000

$3.00 per unit total sales $300,000 / 100,000 units sold = $3.00 per unit selling price

What is the breakeven point in total sales dollars? a) $36,000 b) $180,000 c) $90,000 d) $120,000

$90,000

The Fox Company incurred the following costs during the year: Cost Amount Direct Materials Cost $110,500 Depreciation Cost at the Factory $20,000 Utilities Cost at the Factory $7,000 Direct Labor Cost $90,000 Factory Insurance Cost $32,500 Selling Cost $42,500 Indirect Labor Cost $22,500 Indirect Materials Cost $18,000 Administrative Cost $57,500 Question: Total manufacturing overhead cost would be: a) $59,500 b) $82,500 c) $100,000 d) $59,500 e) $233,000

100,000

(2) Compute applied overhead for the year. a) $102,000 b) $100,000 c) $110,000 d) $112,200

102,000 $20 POR X 5,100 actual hours = $102,000 applied overhead Remember, applied overhead is based on the actual hours incurred X POR

Differential Cost

2 or more alternatives with different costs

The Fox Company is a landscaping business in southern Illinois. The company uses a job order costing system and charges overhead based on direct labor hours. The following information relates to all jobs completed in 2015: Estimated Direct Labor Hours 10,000 Actual Direct Labor Hours ($30 per hour) 10,400 Actual Manufacturing Overhead $103,000 Estimated Manufacturing Overhead $100,000 Assume Job #14 was started and completed during the year. The actual direct materials cost was $2,625 and a total of 30 direct labor hours were incurred. What is the total cost charged to Job #14? a) $11,625 b) $2,925 c) $3,825 d) $3,834

3,825

How many units need to be sold to breakeven? a) 36,000 units b) 30,000 units c) 90,000 units d) 20,000 units

30,000 units units sold to breakeven = fixed cost / contribution margin per unit $36,000 / $1.20 C.M per unit = 30,000 units

What is the contribution margin ratio? a) $120,000 b) 60% c) $1.20 per unit d) 40%

40% If the variable cost % is 60%, then the contribution margin ratio is 40%. Variable cost + contribution margin = total sales

A debit to Manufacturing Overhead represents: a) Cost of Goods Manufactured. b) Cost of Goods Sold. c) Goods transferred to Finished Goods. d) Actual overhead.

Actual overhead.

sunk cost

Cost has already occurred and cannot be changed now or in future (depreciation, past purchase)

A credit to Work in Process represents: a) Finished Goods sold. b) Applied Manufacturing Overhead. c) Cost of Goods Manufactured. d) Cost of Goods Sold.

Cost of Goods Manufactured.

Variable Expense

Cost/Unit does NOTE change when activity levels change Cost in TOTAL does change when activity level changes (ex. Direct material cost, commissions, wages)

Contribution Format

Differentiates between fixed and variable expense

Traditional

Does not separate variable from fixed costs

A hard drive in a computer would be classified as manufacturing overhead. True False

False

At year-end, a credit balance in the Manufacturing Overhead account would indicate overhead was over-applied. a) True b) False

False

Differential costs are irrelevant costs. True False

False

If sales revenue is $20,000 and variable costs are 70% of sales then the contribution margin will be equal to $14,000. a) True b) False

False

Irrelevant costs should be considered when making decisions. True False

False

Managerial accounting follows G.A.A.P. True False

False

Period costs are included in manufacturing overhead. True False

False

The Schedule of Cost of Goods Manufactured includes Direct Labor, Direct Materials, Cost of Goods Sold and Beginning Work in Process. a) True b) False

False

The traditional format income statement considers variable and fixed costs. True False

False

The "y" in the cost formula "y = a + bx" represents the total fixed cost. a) True b) False

False "y" represents the total mixed cost. The "a" represents the total fixed cost.

A committed fixed cost includes advertising, property taxes, rent and costs related to offering internships to college students. a) True b) False

False A committed fixed costs cannot be changed or eliminated without causing significant changes to the functionality of the organization.

All other things being equal, a decrease in the variable cost per unit will increase the breakeven point. a) True b) False

False A decrease in the variable cost per unit will decrease the breakeven point because the contribution margin per unit will increase which means the contribution margin ratio will increase.

The cost of advertising a product in Sports Illustrated would be considered an administrative cost. a) True b) False

False Advertising would be classified as a selling cost and not an administrative cost.

Direct labor costs, direct material costs and selling costs are considered manufacturing costs. a) True b) False

False Selling costs are not considered a manufacturing cost. A selling cost, for example commissions paid to a sales person, would be classified as a period cost (also known as a non manufacturing cost).

Direct labor

Hands on the product labor (assembly line workers)

Mixed cost

Has a fixed cost component and variable cost component (ex. Salary & wages COMBINED, Utilities, phone usage expense)

Which of the following is a characteristic of managerial accounting? a) The S.E.C. requires financial statements be released annually as part of the function of managerial accounting. b) Managerial accounting prepares all financial statements in accordance with GAAP. c) Managerial accounting places emphasis on future events. d) Managerial accounting generally provides information to external users.

Managerial accounting places emphasis on future events. Managerial accounting focuses on future events related to production, budgeting, income predictions, etc.

Product Cost =

Manufacturing Cost

Which of the following is not an asset? a) Work in Process. b) Manufacturing Overhead. c) Finished Goods. d) Raw Materials Inventory.

Manufacturing Overhead. Manufacturing overhead is not defined as any specific type of account. It is used to accumulated actual overhead incurred throughout the year and applied overhead charged to production throughout the year.

The margin of safety is equal to a) net income plus breakeven sales. b) breakeven sales minus contribution margin. c) budgeted sales plus breakeven sales. d) breakeven sales minus budgeted sales. e) None of the above.

None of the above.

The Coca Cola Co. produces Coke, Diet Coke and Sprite. The cost of advertising Diet Coke in Sports Illustrated would be considered a: a) Period cost and in terms of cost behavior a variable cost. b) Period cost and in terms of cost behavior a fixed cost. c) Product cost and in terms of cost behavior a fixed cost. d) Product cost and in terms of cost behavior a mixed cost.

Period cost and in terms of cost behavior a fixed cost.

Which item would not be classified as a variable cost (in terms of cost behavior)? a. Cost of shipping goods to customers via express mail. b. Sales commissions. c.Plant manager's salary.

Plant manager's salary.

Opportunity Cost

Potential BENEFIT (not cost) that is given up when one alternative is chose over another

Direct Material

Primary component of product

A product cost can be a variable cost or a fixed cost. a) True b) False

True

All other things being equal, a decrease in the variable cost per unit will decrease the break-even point. A) True B) False

True

At the breakeven point, fixed expenses are equal to the contribution margin. a) True b) False

True

Budgeted data is used when computing the predetermined overhead rate. a) True b) False

True

Cost of goods sold is calculated by taking the beginning merchandise inventory, adding material purchases, and subtracting ending inventory. (220 review) True False

True

Differential costs should be considered when making decisions. True False

True

Glue used in producing a table would be classified as part of manufacturing overhead. a) True b) False

True

Sales commissions paid to the company's sales staff would be classified as a period cost. True False

True

The cost of advertising a product in the Wall street Journal would be a selling cost. True False

True

The cost of insurance at a manufacturing plant would be classified as manufacturing overhead. a) True b) False

True

The direct material cost combined with the direct labor cost is known as the prime cost. a) True b) False

True

The operating leverage is used to measure how sensitive net operating income is to a given percentage change in sales dollars. a) True b) False

True

The three basic categories of manufacturing costs are direct labor, direct materials and manufacturing overhead. True False

True

The variable cost per unit is constant but the fixed cost per unit changes as the activity level changes. a) True b) False

True

The wages of an assembly line worker would be classified as a direct labor cost. True False

True

The wages of employees who assemble computers would be classified as a product cost and in terms of cost behavior a variable cost. a) True b) False

True

If the Manufacturing Overhead account has total debits of $100,000 and total credits of $110,000, then overhead would have been over applied by $10,000. a) True b) False

True Actual overhead is a debit $100,000 Applied overhead is a credit $110,000 Difference $10,000 Since applied is greater than actual then overhead would have been over applied by $10,000. In other words, too much was charged to production.

Cost of Goods Manufactured would be a credit to Work in Process and a debit to Finished Goods. a) True b) False

True As goods are completed they are transferred from the asset account "Work in Process" into the asset account "Finished Goods Inventory."

Product costs are variable and period costs are fixed. a) True b) False

True Product costs and period costs can be variable, fixed or mixed.

Overhead was a) Under applied by $8,000 b) Over applied by $8,000 c) Under applied by $10,000 d) Over applied by $10,000

Under applied by $8,000

Total Cost Formula

Y = a + bx a represents fixed cost b represents variable cost/unit x represents activity level (number of units)

The journal entry used to apply manufacturing overhead includes: a) a debit to Manufacturing Overhead and a credit to Work in Process. b) a debit to Work in Process and a credit to Finished Goods. c) a debit to Finished Goods and a credit to Cost of Goods Sold. d) a debit to Work in Process and a credit to Manufacturing Overhead.

a debit to Work in Process and a credit to Manufacturing Overhead. Work in process Manufacturing overhead

In terms of cost behavior, "Salary and Wage Expense" would be considered a mixed cost. a) True b) False

a) True If stated together "Salary and Wage Expense" it would be considered a mixed cost because the expense contains both a variable cost component and a fixed cost component. Salaries are a fixed cost (overall does not change in total). Wages are a variable cost (overall does change in total with a change in activity level).

The three basic categories of manufacturing costs are direct labor, manufacturing overhead and: a)Direct Materials b)Selling and Administrative Cost c)Period Cost d)Cost of Goods Sold

a)Direct Materials

Manufacturing overhead: a. Can be either a variable cost or a fixed cost. b. Includes the costs of shipping finished goods to customers. c. Includes both direct labor and indirect labor.

a. Can be either a variable cost or a fixed cost.

The cost of insurance for a manufacturing plant is generally considered to be a: a. Product cost. b. Period cost. c.Variable cost.

a. Product cost.

Property taxes at corporate headquarters would be considered a/an: a) period cost and a selling cost. b) product cost and an administrative cost. c) period cost and a manufacturing cost. d) administrative cost and a period cost.

administrative cost and a period cost.

A variable cost: a. Increases in total as the activity level decreases. b. Decreases in total as the activity level increases. c. Increases in total as the activity level increases

c. Increases in total as the activity level increases.

A prime cost includes a) manufacturing overhead and direct labor. b) direct labor and direct materials. c) direct materials and manufacturing overhead. d) selling and administrative costs.

direct labor and direct materials.

If the contribution margin is less than the total fixed cost: a) the company will break even. b) the company will report net income for the year. c) the company will report a net loss for the year. d) the company will need to increase advertising costs to decrease the total fixed cost. e) the company will need to increase their variable cost to increase the contribution margin.

the company will report a net loss for the year.