exam 1 review

Trends in managerial accounting

- Customer orientation - E-commerce - lean practices - global economy - service economy - value chain

total fixed costs

. Fixed costs do not change with changes in the volume of activity (within a range of activity known as an activity's relevant range). For example, straight-line depreciation on equipment is a fixed cost fixed per unit DOES change

Trends in managerial accounting multiple choice

1. Customer orientation -business strategy in the lean business model that requires management and employees to focus on the changing wants and needs of its customers. 2. Global economy - economic interdependence established between the most influential countries that drives the worldwide economic environment. 3. E-commerce - buying and selling of goods and services over the internet 4. Service economy - where the primary economic activity is the provision of services rather than the production of goods 5. Lean practices- FOCUS on eliminating waste and producing only to meet customer demand. Adopting the lean practices means that all systems and procedures must be realigned. 6. Value chain - The value chain is the process of business functions that add value to the customer user of a particular product.

departmental rate method

1.Assign overhead costs to departmental cost pools. 2.Select an allocation base for each department. 3.Compute overhead allocation rates for each department. 4.Use departmental overhead rates to assign overhead costs to cost objects (products). The departmental overhead rate method uses several departments and several overhead rates. This allows each department to have its own overhead rate and its own allocation base.

Job cost sheet

A major aim of a job order costing system is to determine the cost of producing each job or job lot. In the case of a job lot, the system also computes the cost per unit. The accounting system must include separate records for each job to accomplish this. A job cost sheet is a separate record maintained for each job. This job cost sheet identifies the customer, the job number assigned, the product, and key dates. Only product costs are recorded on job cost sheets.

numerical example of 15-5

A manufacturing company used $400 of indirect materials and $2,000 of indirect labor during the month. The company also incurred $1,200 of depreciation on factory equipment, $500 of depreciation on office equipment, and $300 of factory utilities. add them up. total is 3900 journal entry: debit factory overhead-3900 credit raw materials inventory-400 credit factory wages payable-200 credit accumulated depreciation-1200 credit utilities payable-300

4) Managerial accounting information: A) Is used mainly by external users. B) Involves gathering information about costs for planning and control decisions. C) Is generally the only accounting information available to managers. D) Can be used for control purposes but not for planning purposes .E) Has little to do with controlling costs.

B) Involves gathering information about costs for planning and control decisions.

5) Cost accounting systems used by manufacturing companies are based on the: A) Periodic inventory system. B) Perpetual inventory system. C) Finished goods inventories. D) Weighted average inventories. E) LIFO inventory system.

B) Perpetual inventory system.

batch level activities

Batch-level activities are performed only on each batch or group of units. For example, machine setup is needed only for each batch regardless of the units in that batch, and customer order processing must be performed for each order regardless of the number of units ordered. Batch-level costs do not vary with the number of units, but instead with the number of batches.

K Company estimates that overhead costs for the next year will be $2,900,000 for indirect labor and $800,000 for factory utilities. The company uses direct labor hours as its overhead allocation base. If 80,000 direct labor hours are planned for this next year, how much overhead would be assigned to a product requiring 4 direct labor hours? A) $46.25B) $36.25C) $185.00D) $145.00E) None of the choices

C) $185.00 $2,900,000 + $800,000)/80,000 direct labor hours = $46.25 per direct labor hour × 4 direct labor hours = $185.

Indirect costs

Costs that cannot be traced to a single cost object. Example:maintenance expenditure benefiting two or more departments

direct costs

Costs traceable to a single cost object. Examples: material and labor cost for a product.

direct labor

Direct labor is production or services labor that is assigned to a specific product, cost center, or work order. Direct labor includes all employees responsible for producing a company's products or services. Some examples of direct labor include quality control engineers, assembly line workers, production managers and delivery truck drivers.

what is job costing system

Each customized product is manufactured separately Many companies produce products individually designed to meet the needs of a specific customer. Each customized product is manufactured separately and its production is called job order production.

facility level activities

Facility-level activities are performed to sustain facility capacity as a whole and are not caused by any specific product. For example, factory maintenance costs are incurred to keep the plant clean and safe no matter what is being produced, and so is paying rent on a factory building. Facility-level costs do not vary with what is manufactured, how many batches are produced, or the output quantity.

what is factory overhead and some examples

Factory overhead consists of all manufacturing costs that are not direct materials or direct labor and are not separately traced to finished goods Indirect labor - maintenance. Indirect material - cleaning supplies. Factory utility costs. Supervisory costs.

Managerial accounting

Managerial accounting provides financial and nonfinancial information for managers of anorganization and other decision makers.

Product-level activities

Product-level activities are performed on each product line and are not affected by either numbers of units or batches. For example, product design is needed only for each product line. Product-level costs do not vary with the number of units or batches produced.

cost object under departmental method

Products

Cost accounting systems accumulate manufacturing costs and then assign them to products and services.

TRUE

Managerial accounting is an activity that helps managers determine costs of products and services, plan future activities, and compare actual to planned results. T/F

TRUE

Over recent decades, overhead costs have steadily increased while direct labor costs have decreased as a percentage of total manufacturing costs

TRUE

Activity Based Costing

The basic principle underlying activity-based costing is that activities, which are tasks, operations, or procedures, are what cause costs to be incurred. An activity cost pool is a collection of costs that are related to the same or similar activity. Pooling costs to determine an activity overhead (pool) rate for all costs incurred by the same activity reduces the number of cost assignments required. 1.Identify activities and the overhead costs they cause. 2.Trace overhead costs to cost pools. 3.Determine activity rates. Use the activity overhead rates to assign overhead costs to cost objects (products

what is the predetermined overhead rate

To illustrate, Road Warriors applies (also termed allocates, assigns, or charges) overhead by linking it to direct labor costs. At the start of the current year, management estimates total direct labor costs of $125,000 and total overhead costs of $200,000. The predetermined overhead rate = $200,000 / $125,000 = 160% of direct labor cost. Road Warriors used $4,200 of direct labor in March. The predetermined overhead cost = $4,200 x 1.60 = $6,720.

unit-level activities

Unit-level activities are performed on each product unit; for example, providing electricity to power machinery in the machining department is needed to produce each unit of product.

underapplied overhead

When less overhead is applied than is actually incurred, the remaining debit balance in the Factory Overhead account is called underapplied overhead. When overhead is underapplied, it means that individual jobs have not been charged enough overhead during the year, and cost of goods sold for the year is too low.

materials recquisition

When materials are needed in production, a production manager prepares a materials requisition and sends it to the materials manager. •Requisitions are often accumulated and recorded in one journal entry.

overapplied overhead

When more overhead is applied than is actually incurred, the resulting credit balance in the Factory Overhead account is called overapplied overhead. When overhead is overapplied, it means that jobs have been charged too much overhead during the year, and cost of goods sold is too high

Need to know 15-1 A manufacturer's job cost sheet reports direct materials of $1,200 and direct labor of $250 for printing 200 T-shirts for a bikers' reunion. Estimated overhead is computed as 140% of direct labor costs.

Work in process inventory: DM USED- 1200 DL USED- 250 FACTORY OVERHEAD-350 ------------------------------ total: 1800 1. What is the estimated overhead cost for this job? $250 Direct labor x 140% = $350 2. What is the total cost per T-shirt for this job? $1,800 total cost of job / 200 T-shirts = $9 per shirt journal entry: debit finished goods inventory 1800 and credit work in process inventory 1800

labor time ticket

accumulates labor data (time, pay rate, total labor cost)

numerical example on finding factory overhead cost

add anything that is is indirect and not part of direct materials&labor. essentially, u are adding indirect labor, factory supervision, utilities, any taxes, insurance, depreciation and amoritzation expenses, repairs, factory supplies used

numerical example on how to do work in process to finished goods

add dm+dl+oh costs then journal entry- debit finished goods inventory w whatever total u get ^ and credit work in process w whatever total u get

Conversion costs

are costs incurred in the process of converting raw materials to finished goods, which includes both direct labor costs and manufacturing overhead costs.

product costs

are those production costs necessary to create a product and consist of: direct materials, direct labor, and factory overhead. Product costs are capitalized as inventory during and after completion of the products; they become cost of goods sold when those products are sold.

Cost of Goods Sold for a Manufacturer numerical example

beginning finished goods inventory+cost of goods manufactured - ending finished goods inventory

Cost of Goods Sold for a Merchandiser numerical example

beginning merchandise inventory+cost of merchandise purchased - ending merchandise inventory

total variable costs

change in proportion to changes in the volume of activity. Sales commissions computed as a percent of sales revenue are variable costs. variable per unit does NOT change

prime costs

costs directly associated with the manufacture of finished goods, which includes both direct material and direct labor costs

how to find job cost on job cost sheet. basically, know how to do 15-1

direct material+direct labor+overhead=total job costs

period costs

non-production costs and are usually more associated with activities linked to a time period than with completed products. examples of period costs include : salaries of the sales staff, wages of maintenance workers, advertising expenses, and depreciation on office furniture and equipment. Period costs and are expensed in the period when incurred either as selling expenses or as general and administrative expenses.

disadvantages of departmental method

•Assumes that products are similar in volume, complexity, batch size •Assumes that departmental overhead costs are proportional to the allocation base •Can distort product costs

disadvantages of activity based costing

•Costs to implement and maintain •Some product cost distortion remains •Uncertainty with decisions remains

advantages of plantwide overhead rate method

•Information is readily available •Easy to implement •Consistent with GAAP and can be used for external reporting

advantages of departmental method

•More accurate overhead allocations •More refined than the plantwide overhead rate method

advantages of activity based costing

•More accurate overhead cost allocation •More effective overhead cost control •Better production /pricing decisions •Other Uses - ABC can be used to: •Allocate the S&A costs expensed by GAAP activities •Determine profitability of market segments •Costs of Quality

single plant-wide overhead rate

•Under this method, total budgeted overhead costs are divided by the chosen allocation base (e.g., total direct labor hours) to arrive at a single plantwide overhead rate. •This rate then is applied to assign overhead costs to all products based on their actual usage of the allocation base.

disadvantages of plantwide overhead rate method

•With many different products, assumptions may not be reasonable. •Overhead costs may not bear a relationship with direct labor hours •All products may not use overhead costs in the same proportion