Exam One 201
Cost of Good Sold (COGS)
= Beginning Merchandise Inventory + Purchases - Ending Merchandise Inventory
administrative costs
All executive, organization, and clerical costs. Administrative costs can be either direct or indirect costs.
subsidiary ledger
All of a company's job cost sheets collectively form a
$25,000
Audio Corporation purchased $20,000 of DVDs during the current year. The company had DVD inventory of $15,000 at the beginning of the year. An end of the year audit revealed that the company had DVD inventory of $10,000. The amount that would be reported as cost of goods sold in the income statement for the current year is
prime costs
Cost of direct materials and direct labor costs
selling costs
Costs necessary to secure the order and deliver the product. Selling costs can be with direct or indirect costs. include all costs that are incurred to secure customer orders and get the finished product to the customer.
Direct Costs
Costs that can be easily and conveniently traced to a unit of product or other cost object ex. direct material and direct labor - A regional sale's manager's salary would be a direct costs of the regional office in which the sales manager works
Indirect Costs
Costs that cannot be easily and conveniently traced to a unit of product or other cost object ex. manufacturing overhead
$40
Davidson Company has a product with a selling price per unit of $100, the unit variable cost is $60, and the total monthly fixed costs are $30,000. If the company sells 1,000 units, how much is Davidson's contribution margin per unit?
Conversion Costs
Direct Labor + Manufacturing Overhead
FALSE - applied based on estimate, which will not equal the actual
FALSE - applied based on estimate, which will not equal the actual TRUE OR FALSE: The amount of overhead applied to all jobs during a period will be equal to the actual amount of overhead costs incurred during the period
When a manufacturer sells its finished goods to customers, the costs are transferred from
Finished Goods to Cost of Good Sold
$37.09
Gilchrist Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming year. At the beginning of the most recently completed year, the Corporation estimated the machine-hours for the upcoming year at 79,000 machine-hours. The estimated variable manufacturing overhead was $7.38 per machine-hour and the estimated total fixed manufacturing overhead was $2,347,090. The predetermined overhead rate for the recently completed year was closest to:
Predetermined overhead rate = Estimated manufacturing overhead ÷ Estimated machine-hours
In a job-order costing system that is based on machine-hours, which of the following formulas is correct?
$17,500
In a small manufacturing facility, one welder is needed for every 200 hours of machine-hours or fewer in a month. The welder is paid a monthly salary of $2,500. If the total monthly requirement is 1,300 machine-hours, the total salaried employee expense is ________.
total fixed manufacturing overhead cost
In the cost formula (Y = a + bX) that is used to estimate the total manufacturing overhead cost for a given period, the letter "a" refers to the estimated ________.
manufacturing overhead
Includes indirect material that cannot be easily and conveniently traced to a unit of product Includes indirect labor costs that cannot be easily and conveniently traced to a unit of product ex. Depreciation of manufacturing equipment; costs such as cleaning supplies, taxes, insurance, and janitor wages
common costs
Indirect costs incurred to support a number of cost objects These costs cannot be traced to any individual cost object A type of indirect cost incurred to benefit more than one cost object
Which of the following is true of the contribution approach?
It separates costs into fixed and variable categories.
administrative
Manufacturing costs include all of the following except ________.
Assigning manufacturing overhead to a specific job is complicated by all of the below except:
Manufacturing overhead is incurred only to support some jobs.
a sunk cost
Mark is an engineer who has designed a telecommunications device. He is convinced that there is a big potential market for the device. Accordingly, he has decided to quit his present job and start a company to manufacture and market the device. Mark purchased a machine two years ago to make experimental boards. The machine will be used to manufacture the new board. The cost of this machine is
direct materials
Materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product are called ________.
manufacturing overhead
Materials used in a factory that are not an integral part of the final product, such as cleaning supplies, should be classified as:
$530,400
Salomon Marketing, Inc., a merchandising company, reported sales of $1,555,500 and cost of goods sold of $1,025,100 for December. The company's total variable selling expense was $96,900; its total fixed selling expense was $34,300; its total variable administrative expense was $71,400; and its total fixed administrative expense was $100,100. The cost of goods sold in this company is a variable cost. What is the gross margin for December?
$4,000
Spartan Corporation estimates that it will incur $200,000 of total manufacturing overhead cost at an estimated activity level of 10,000 direct labor-hours. What is the amount of manufacturing overhead that would be applied to a job that required 200 direct labor-hours?
TRUE (we use estimates)
TRUE (we use estimates) TRUE OR FALSE: Actual overhead costs are not assigned to jobs in a job costing system
False (causes OH)
TRUE OR FALSE: A cost drive is factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes direct costs
TRUE (even though total variable costs change as the activity level changes)
TRUE OR FALSE: A variable cost per unit is constant on a per unit basis
TRUE
TRUE OR FALSE: Actual overhead costs are not assigned to jobs in a job costing system
TRUE
TRUE OR FALSE: Although the traditional format income statement is useful for external reporting purposes it has serious limitations when it comes to internal reporting purposes since it does not distinct between fixed and variable costs
TRUE
TRUE OR FALSE: Costs involved in making a product are product costs. Costs involved in selling a product are period costs.
TRUE
TRUE OR FALSE: If expressed on a per unit basis, the average fixed cost per unit varies inversely with changes in activity
FALSE
TRUE OR FALSE: If the allocation base in the predetermined overhead rate does not drive overhead costs, it will nevertheless provide reasonably accurate unit product costs because of the averaging process
FALSE indirect labor does not come from an employee's time ticket, if it did it would be direct
TRUE OR FALSE: In a Job-order cost system, indirect labor is assigned to a job using information from the employee time ticket
TRUE
TRUE OR FALSE: In a contribution format income statement for a merchandising company, cost of good sold is a variable cost that is included in the variable expenses of the income statement
TRUE
TRUE OR FALSE: In a traditional format income statement the gross margin is sales - cost of good sold
FALSE - nonmanufacturing costs are period costs)
TRUE OR FALSE: In absorption costing, nonmanufacturing costs are assigned to units of product
FALSE
TRUE OR FALSE: Job cost sheets contain entries for actual direct material, actual direct labor, and actual manufacturing overhead costs incurred in completing a job
TRUE
TRUE OR FALSE: Opportunity Cost at a manufacturing are not part of MOH
TRUE
TRUE OR FALSE: Period costs do not flow through the inventory accounts. Period costs are expensed when incurred. Inventoriable costs are product costs that attach to the product and are expensed when the product is sold
FALSE
TRUE OR FALSE: The adjustment for underapplied overhead increases net operating income
TRUE
TRUE OR FALSE: The fact that one department may be labor intensive while another department is machine intensive explains in part why multiple predetermined overhead rates are often used in larger companies.
TRUE
TRUE OR FALSE: When a company applies less overhead to production than it actually incurs, it creates what is known as underapplied overhead
TRUE
TRUE OR FALSE: When a company applies less overhead to production than it actually incurs, it creates what is known as underapplied overhead.
the cost of goods sold on the income statement
The Job Cost Sheets for products/jobs that have been sold provide the underlying support
matching principle
The accrual concept that costs incurred to generate a revenue are expensed in the same period the revenue
bill of material
The direct materials required to manufacture each unit of product are listed on a ________.
Cost of Goods Sold on the income statement
The job costs sheets provide an underlying set of financial records that explain what specific jobs comprise the amounts reported in
Work-in-Process and Finished Goods on the balance sheet
The job costs sheets provide an underlying set of financial records that explain what specific jobs comprise the amounts reported in
$10.00 per machine hour
The management of Blue Ocean Company estimates that 50,000 machine-hours will be required to support the production planned for the year. It also estimates $300,000 of total fixed manufacturing overhead cost for the coming year and $4 of variable manufacturing overhead cost per machine-hour. What is the predetermined overhead rate?
cost structure
The relative proportion of variable, fixed, and mixed costs in a company
Marginal Revenue
The revenue from selling one additional unit
Cost of goods sold and selling and administrative expenses.
The traditional income statement uses which of the following cost categories?
overapplied overhead
When it applies more overhead to production than it actually incurs, it results in
Balance Sheet
Where are The Job Cost Sheets for Work-in Process and Finished Goods are found on? (do not income statement until after it is sold and the recognized as CoGS)
$124
Wilson Products uses a plantwide predetermined overhead rate of $10 per direct labor-hour. Direct material and direct labor associated with Job X23 are $4,000 and $1,200 respectively. If Job X23 used 100 direct labor-hours to produce 50 audio controllers, what is this job's unit product cost (per audio controller)?
$6,200
Wilson Products uses a plantwide predetermined overhead rate of $10 per direct labor-hour. Direct material and direct labor associated with Job X23 are $4,000 and $1,200 respectively. If Job X23 used 100 direct labor-hours, what is the total cost assigned to this job?
y = a + bX
Y = Total Mixed Cost a = Total Fixed Cost b = Variable Cost Per Unit of Activity X = Level of Activity
fixed costs
a cost that remains constant, in total, regardless of changes in the level of the activity remains fixed in total within the relevant range of activity (not affected by changes in activity)
variable cost
a cost that varies, in total, in direct proportion to changes in the level of activity ex. cost of goods sold for a merchandising company, direct materials, direct labor, variable elements of manufacturing overhead, such as indirect materials, supplies, and power, and variable elements of selling and administrative expenses, such as commissions and shipping costs
Depreciation on a personal computer used in the marketing department of a manufacturing company would be classified as:
a period cost that is fixed with respect to the company's output.
Job-order costing system
accurately trace direct materials and direct labor costs to jobs.
product costs
aka inventoriable costs all the costs that are involved in acquiring or making a product "attach" to a unit of product as it is purchased or manufactured
Manufacturing overhead includes:
all manufacturing costs except direct labor and direct materials.
cost object
anything for which cost data are desired—including products, customers, and organizational subunits costs may be direct or indirect, depending on the cost object
direct labor
common to both prime cost and conversion cost.
Managerial Accounting
concerned with providing information to managers within an organization so that they can formulate plans, control operation, and make decisions
Financial Accounting
concerned with reporting financial information to external parties, such as stockholders, creditors, regulators
finished good costs
consists of completed units of product that have not yet been sold to customers
direct labor
consists of labor costs that can be easily traced to individual units of product. (aka touch labor) ex. wages paid to automobile assembly workers
work in process
consists of unit of product that are only partially complete and will require further work before they are ready for sale to the customer (convert direct materials into finished products)
Mixed Costs
contains both variable and fixed elements
allocation base
cost driver that causes overhead
period costs
costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued (all of the costs that are not product costs) ex. sales commission, selling and administrative expenses
adjustment for overapplied overhead
decreases cost of goods sold and increases net operating income.
differential revenue
difference in revenues between any two alternatives
manufacturing companies product costs
direct materials, direct labor, and manufacturing overhead. (include raw materials, work in process, finished good costs)
period costs are
expensed in the period in which they are incurred.
Multiple predetermined overhead rates
if more than one overhead cost driver can be identified, job cost accuracy is improved companies can use this to improve job cost accuracy
raw material
includes any materials that go into the final product
adjustment for underapplied overhead
increases cost of goods sold and decreases net operating income.
sunk cost
is a cost that has already been incurred and that cannot be changed by any decision made now or in the future. And because only differential costs are relevant in a decision, this cost should always be ignored ALWAYS IRRELEVANT
Contribution margin
is the amount remaining from sales revenues after all variable expenses have been deducted **sales less variable production, variable selling and variable expenses
opportunity cost
is the potential benefit that is given up when one alternative is selected over another. Not found in accounting records but must be considered in every decision.
committed fixed costs
long-term, cannot be significantly reduced in the short term
Common activity bases
machine hours, unit sold, and direct labor hours
discretionary fixed costs
may be altered in the short-term by current managerial decisions
Relevant Range
range of activity within which the assumption that cost behavior is strictly linear is reasonably valid level of activity where fixed costs remain fixed
when direct materials are used in production, their costs are transferred from
raw materials to work in process
Direct Material
refers to raw materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product ex. a laptop computer manufacturer would consider the computer's processor chip to be a direct material; radio installed in an automobile
Contribution Margin is:
sales less variable production, variable selling, and variable administrative expenses
nonmanufacturing costs
selling costs and administrative costs ex. company's president salary and sales commission, property tax
If a firm increases its activity level,
some costs will change, others will remain the same.
The Job Cost Sheets for Work-in-Process and Finished Goods are found on
the Balance Sheet
The Job Cost Sheets for products/jobs that have been sold provide the underlying support for
the Cost of Goods Sold on the Income Statement.
Differential cost
the difference in cost between two alternatives, aka incremental cost can be either fixed or variable relevant in making business decisions
POHR
total estimated overhead / total estimated allocation base
underapplied overhead
when a company applies less overhead to production than it actually incurs, it creates what is known as
Once units of products are completed, their costs are transferred from
work in process to Finished Goods