ACTG - 202: Exam 2

predetermined over head rate

(estimated) budgeted overhead/ (estimated) budgeted cost driver

Chapter 2 Practice Problems:

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cost driver

a factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes overhead costs.

required to earn profit sales

total FC + target profit/ CM ratio

unit contribution margin ratio

unit CM/ sales price per unit (sales price per unit - VC per unit) - (sales price per unit)/ (sales price per unit)

process costing

used to provide product costs for a department of process. used by companies that manufacture finished goods that are identical (continuous production). ex. sugar, gasoline, cleaning solutions

contribution margin

(CM) measures the amount available to contribute to fixed expenses after all variable expenses have been covered. sales - VC CM changes in direct proportion to the change in sales volume.

fixed costs

(FC) costs that do not vary with the quantity of output produced

variable costs

(VC) varies in relation to business activity; USUALLY period costs.

TC total

FC total + VC total VC = total units/ VC per unit

required to earn profit units

Total FC + target profit/ unit CM

BEP sales

Total FC/ CM ratio

cost volume profit analysis (CVP)

a technique that summarizes the effects of changes in an organization's volume of activity on its costs (expenses), profits (revenue), and sales (revenue). All of these factors are on the income statement. CVP also summarizes the effects of changes in an organizations selling price, service fees, costs, and income tax rates to its profits. CVP is not confined to profit seeking firms - it is used by non profits too.

at the end of the period, blue corporation calculates that their actual overhead is $2,450 and their applied overhead is $2,325. What is the adjusting entry that blue corporation needs to make? a) COGS- $125; overhead- $125 b) overhead- $125; COGS- $125 c) COGS- $2,325; overhead- $2,325 d) overhead- $2,325; COGS- $2,325

a) COGS- $125; overhead- $125 - actual OH = 2,450 - applied OH = 2,325 - applied overhead is less than actual overhead. This means that overhead was undersupplied by $125.

in a job order cost accounting system, the entry to record the flow of direct materials into production is to... a) debit WIP, credit materials b) debit materials, credit WIP c) debit OH, credit materials d) debit WIP, credit supplies

a) debit WIP, credit materials

At the end of the year, the overhead applied was $42,000,000. Actual overhead was $40,300,000. Closing over/under-applied overhead into the Cost of Goods Sold would cause net income to a) increase by $1,700,000 b) decrease by $1,700, 000 c) increase by $3,400, 000 d) decrease by $3,400,000

a) increase by $1,700,000 - applied OH was greater than actual OH. This means that the OH was over-applied by 1.7 million (EB -1.7 mil; 1.7 mil short)

The Thomlin Company forecasts that total overhead for the current year will be $15,500,000 with 250,000 total machine hours. Year to date, the actual overhead is $16,000,000 and the actual machine hours are 330,000 hours. The predetermined overhead rate based on machine hours is a) $48/ machine hour b) $62/ machine hour c) $45/ machine hour d) $50/ machine hour

b) $62/ machine hour - cost driver = machine hours - budgeted OH/ budgeted cost driver units (15,500,000/ 250,000) = $62

applied overhead

predetermined overhead rate * actual cost driver

job order costing

provides product costs for each quantity of product that is manufactured.

UNIT contribution margin

sales price per unit - VC per unit useful for analyzing the profit potential of the proposed decision. most useful when a change in sales volume is measured in sales units.

break even point (BEP)

the volume of activity where the organization's revenues and expenses are equal

BEP units

total FC/ CM per unit

CM ratio

CM/ sales (sales - VC)/ sales the percentage of each sales dollar available to cover fixed costs and to provide income from operations (SG&A)

TC per unit

FC per unit + VC/ units FC per unit = FC total/ # or units

Thomlin Company forecasts that total factory overhead for the current year will be $15,000,000 with 300,000 total machine hours. Year to date, the actual overhead is $16,000,000, and the actual machine hours are 330,000 hours. If Thomlin Company uses a predetermined factory overhead rate based on machine hours for applying overhead, as of this point in time (year to date), the overhead is a) $1,000,000 overapplied b) $1,000,000 underapplied c) $500,000 overapplied d) $500,000 underapplied

c) $500,000 over applied - predetermined OH rate; $15,000,000/ 300,000 = $50/hr - apply rate to actual hours; $50 * 330,000 = 16,500,000 - ending balance is negative 500,000 (over applied)

which of the following costs are not included in the finished goods inventory? a) direct labor b) factory overhead c) chief financial officer's salary d) direct materials

c) chef financial officer's salary

the entrance to record the flow of direct labor costs into production is a job order cost accounting system is to... a) debit OH, credit WIP b) debit FG, credit wages payable c) debit WIP, credit wages payable d) debit OH, credit wages payable

c) debit WIP, credit wages payable

recording jobs COMPLETED would include a credit to... a) factory overhead b) finished goods c) work in process d) cost of goods sold

c) work in process

per unit FC

change in proportion to changes in the activity base

total VC

change in proportion to changes in the activity base. more units = more expense in total

mixed costs

costs that contain both a variable- and a fixed-cost element and change in total but not proportionately with changes in the activity level.

total FC

do NOT change with changes in the activity base

per unit VC

do NOT change with changes in the activity base. more units = no change in expense per unit

total costs

equal fixed costs and variable costs

safety margin (margin of safety)

gives management a feel for how close protected operations are to the breakeven point. sales revenue - break-even sales revenue= safety margin

applied overhead

manufacturing overhead is applied to product costs based on a predetermined rate - an estimate of cost consumed over some level of activity known as the volume-based cost driver.