ACC Exam 1- 1,2,3

Manufacturing overhead costs:

-consist of many different items -are indirect costs

Categories of manufacturing costs include

-direct materials -direct labor - Manufacturing overhead

break-even point in sales dollars

= Fixed cost/CM%

Allocation base

A measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects.

Direct Labor

Consists of labor costs that can be easily traced to individual units of product. (you can quantify and is the effort to make or assemble a finished good)

The formula for applying overhead to a specific job is:

PDOH x Amount of allocation base incurred by job

Direct Materials

Raw materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product. (you can quantify, and finished product is NO good WITHOUT the material)

Costs assigned to units of product in absorption costing include _________ manufacturing costs.

both variable and fixed

The difference between direct labor and indirect labor is that direct labor:

can be easily traced to jobs, while indirect labor cannot

Fixed costs

is a cost that remains constant in total regardless of changes in the level of activity

Compared to a plantwide overhead rate system, a multiple predetermined overhead rate system is:

more complex, but more accurate

Indirect Material

refers to raw materials such as the glue used to assemble an Ethan Allen chair (vs. direct material, the amount of material is small or hard to quantify)

Variable expense ratio

variable expenses/sales

Variable cost

varies, in total, in direct proportion to changes in a level of activity. The activity referred to in the definition above is whatever causes the incurrence of the cost - for our purposes in this course, the activity will most often be the level of production

Pre-determined overhead rate

Estimated Manufacturing OH $/Est total amount of the allocation base (hrs)

A multiple predetermined overhead rate system is more accurate than a plantwide overhead rate system because it:

reflects differences in how overhead costs are incurred within departments

Companies that make many different products each period use

Job-order costing

Which of the following would be considered direct materials in a service firm that uses job-order costing? Multiple choice question. Beds in a hospital Scissors at a hair salon Tools in an auto repair shop Paperwork at a law firm

Paperwork at a law firm

Which of the following would not be considered a direct labor cost in a service firm that uses job-order costing?

The salary of the manager at a hair salon

Manufacturing Overhead

consists of many different types of costs contains fixed costs is an indirect cost

Bills of Material

lists quantity and type of direct materials

Product Cost vs. Period Cost

1) Product cost is associated with manufacturing costs 2) period cost is associated with non manufacturing costs.

3 Types of Manufacturing costs

1. Direct Materials 2. Direct Labor 3. Manufacturing Overhead

break-even point in unit sales

=Fixed Cost/ unit CM

Direct Cost

A cost that can be easily and conveniently traced to a specified cost object.

Why do companies use a predetermined overhead rate rather than an actual overhead rate?

An actual overhead rate is not known until the end of the period.

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.

Period cost

Non-manufacturing costs are more generally for financial accounting purposes (salaries of personnel who work in the finished goods warehouse, materials used for boxing products for shipment overseas (units are not normally boxed), advertising costs)

Which of the following would not be considered a job in a service firm that uses job-order costing? A patient in a hospital A repair job at an auto repair shop A client at a law firm The tax department in an accounting firm

The tax department in an accounting firm

True or false: One reason to use a predetermined overhead rate is to eliminate the effect of seasonal factors.

True

Indirect Labor

a. which refers to employees such as janitors, maintenance workers, night security guards, and supervisors who play an essential role in running a manufacturing facility. (functions are necessary to run a plant but these roles don't work directly on producing products)

When a company creates overhead rates based on the actions it performs, what approach it is employing?

activity - based costing

Widely used allocation bases in manufacturing are:

direct labor hours units of product direct labor cost machine hours

Typical cost drivers include:

flight-hours machine-hours computer time

Examples Job - order costing is used for:

service organizations like law firms, hospitals and repair shops

A bill of materials contains the:

-type of each direct material needed to complete a unit of product -quantity of each direct material needed to complete a unit of product

What effect does an increase on activity level effect on unit fixed costs?

As the level of activity increase, the fixed cost per unit decreases

Contribution Margin Ratio

Contribution Margin / Sales

The total cost of a job includes:

-direct materials cost -direct labor cost -applied manufacturing overhead

A job cost sheet contains

-manufacturing overhead costs charged to the job -labor costs charged to the job -materials costs charged to the job

Cost driver

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

manufacturing overhead

includes all manufacturing costs except direct materials and direct labor

The predetermined overhead rate is multiplied by the actual allocation base incurred by a job to find:

overhead applied to the job

CVP analysis focuses on how profits are affected by:

selling price sales volume unit variable cost mix of products sold total fixed costs