Accounting 202 Final Exam

What is a continuous budget?

A continuous budget is a 12-month budget that rolls forward one month (or quarter) as the current month (or Quarter) is completed.

What is the formula for Conversion Cost?

Direct Labor + Manufacturing Overhead

Labor Efficiency Variance Formula

LEV = (AH x SR) - (SH x SR) = SR (AH - SH)

What is an operating budget?

Operating Budgets ordinarily cover a one-year period corresponding to a company's fiscal year. Many companies divide their annual budgets into four quarters.

Using the following information, calculate ALLOCATED overhead Estimated Fixed Overhead $500,000 Estimated Variable Overhead $4.00 per DLH Estimated DLH 5,000 Actual DLH 4,500

POHR = (500,000 + (4x5,000)/5,000 = $104 per DLH Allocated OH = 104 x 4,500 = $468,000

Write a formula for POHR.

POHR = Budgeted Total Manufacturing Overhead/ Budgeted Activity Driver

Who is responsible for the materials quantity variance?

The Production Manager

Who is responsible for the Materials Price Variance?

The Purchasing Manager

Price Variance

The difference between actual price and standard price

The number of units to be produced in a period can be determined by adding the expected sales to the desired ending inventory and then deducing the Beginning Inventory.

True. Remember, start with expected sales plus desired ending inventroy, then subtract the Beginning Inventory to get the number of units to be produced.

Which of the following costs at a manufacturing company would be treated as a product cost under variable costing? a. Direct Material Cost b. Property taxes on the factory building c. Sales magaer's salary d. Sales Commissions

a. Direct Material Cost

Which of the following is a variable cost? a. Direct materials b. factory rent c. Factory depreciation d. None of the above

a. Direct materials

Which of the following statements is NOT correct concerning the cash budget? a. It is not necessary to prepare any other budgets before preparing the cash budget. b. The cash budget should be prepared before the budgeted income statement. c. The cash budget should be prepared before the budgeted balance sheet. d. The cash budget builds on earlier budgets and schedules as well as additional data.

a. It is not necessary to prepare any other budgets before preparing the cash budget.

Which is an example of a direct cost in a factory? a. Wages paid to workers working on the assembly line b. Supervisor Salary c. Factory Rent d. All of the above

a. Wages paid to workers working on the assembly line

Using the ABC system, how much total MOH would be assigned to product T05P? Machining Machine Hours $180,000 9,000 MH's Machine setups # of setups $125,000 250 setups Product Design # of products $44,000 2 products General Factory DLH's $260,000 10,000 DLH's a. $156,000 b. $303,000 c. $147,000 d. $304,500

b. $303,000 Machining 180,000/9,000 = 20 MH x 4,000 = Machine setups 125,000/250 = 500 setups x 90 Product Setup 44,000/2 = 27,000 products x 1 General Factory 260,000/10,000 = 26 per DLH x 6 = $303,000

Elliot corporation makes and sells a single product. Last period the company labor rate variance was $14,400 U. During the period, the company worked 36,000 actual Direct Labor Hours at an actual cost of $338,400. The standard labor rate for the product in dollars per hour is: a. $9.40 b. $9.00 c. $8.50 d. $8.10

b. $9.00 $338,400 - 14,400 = 324,000 AH X SR = 324,000/36,000 = $9

Direct Costs: a. Are incurred to benefit a particular accounting period b. Are incurred to a specific decision c. Can be easily traced to a particular cost object

c. Can be easily traced to a particular cost object

Based on your answer for (If the selling price is $300 per unit, variable expenses are $100 per unit, fixed expenses are $20,000 and 100 units were sold; What is the Contribution Margin Ratio?), if sales go up by $600 (2 units), what will the increase to Contribution Margin be?

0.67 x 600 = $402

What are the characteristics of flexible budgets?

1. May be prepared for any activity level in the relevant range. 2. Show costs that should have been incurred at the actual level of activity, enabling "Apples to Aplles" cost comparison. 3. Help managers control costs. 4. Improve performance evaluation.

If your target profit is $10,000, what must your sales be?

10,000 = x * 200-20,000 200x=30,000 x=150 Units

The Contribution Margin Ratio is: Sales $180,000 Variable Exp. $108,000 ------------ CM $72,000 Fixed Exp. $62,400 ----------- Net Op. Income $9,600 a. 67% b. 40% c. 33% d. 60%

72,000 CM Ratio = -------------------- = 40% 180,000 b. 40%

Variable Versus Absorption Costing

Absorption Costing: Fixed Manufacturing costs must be assigned to products to properly match revenues and costs. Variable Costing: Fixed Manufacturing costs are capacity costs and will be incurred even if nothing is produced.

Difference between Activity and Activity Cost Pool

Activity: An event that causes the consumption of overhead resources. Activity Cost Pool: A "Cost Bucket" in which costs related to a single activity measure are accumulated.

What is an allocation base and why is it used?

An allocation base is the activity that drives the overhead costs, and is used to estimate overhead costs for the period.

If the selling price is $300 per unit, variable expenses are $100 per unit, fixed expenses are $20,000 and 100 units were sold; What is the Break-even point in units and in dollars?

BEP in Units = $20,000/$200 = 100 Units BEP in Dollars = 100 units x $300 = $30,000

If the selling price is $300 per unit, variable expenses are $100 per unit, fixed expenses are $20,000 and 100 units were sold; What is the Contribution Margin Ratio?

CM/ Unit = $200 CMR = $200/$300 = 0.67

Compute the total contribution margin and contribution margin per unit, if the selling price is $300 per unit, variable expenses are $100 per unit, fixed expenses are $20,000 and 100 units were sold.

CM/ Unit = $300-$100=$200 Total CM = $200 x 100 units = $20,000

Use journal entries to record the following b. $40,000 of Raw Materials were requisitioned for use in production. Out of the $40,000, $35,000 were direct materials, and $5,000 were indirect.

DR. WIP $35,000 MOH $5,000 Cr. RM Inventory $40,000

Use journal entries to record the following c. During production, $75,000 of direct labor and $20,000 of indirect labor were incurred.

DR. WIP $75,000 MOH $20,000 CR. Salaries Payable $95,000

Quantity Variance

Difference between actual quantity and standard quantity

What is the formula for Prime Costs?

Direct Labor + Direct Materials

Use journal entries to record the following g. $30,000 worth of goods were sold for $65,000 on account

Dr. COGS $30,000 A/R $65,000 Cr. FG $30,000 Sales Revenue $65,000

Use journal entries to record the following f. $70,000 worth of goods were completed.

Dr. FG Inventory $70,000 Cr. WIP $70,000

Use journal entries to record the following d. Incurred $20,000 bill for utilities

Dr. Utilities Expense $20,000 Cr. Accounts Payable $20,000

Use journal entries to record the following e. Incurred $30,000 in selling salaries.

Dr. Selling Expense $30,000 Cr. Salaries Payable $30,000

Use journal entries to record the following a. $45,000 of Raw Materials were purchased on account

Dr. RM Inventory 45,000 Cr. Accounts Payable 45,000

When activity based costing is used for internal decision making, the cost of idle capacity should be assigned to products.

False, it shouldn't be assigned.

How costs are treated under Activity-Based Costing

In ABC, non-manufacturing as well as manufacturing costs may be assigned to products, but only on a cause-and-effect basis. ABC systems can assign sales commissions, shipping costs, and warranty repair costs to specific products. Some manufacturing costs may be EXCLUDED from product costs. ABC EXCLUDES organization-sustaining costs and idle capacity costs from product costs.

What are the differences between product costs and period costs in both variable and absorption costing?

In Variable Costing: Product Costs - Include Direct Materials, Direct Labor, and Variable Manufacturing Overhead. Period Costs - Include Fixed Manufacturing Overhead, Variable selling and Administrative Expenses, and Fixed Selling and Administrative Expenses. In Absorption Costing: Product Costs - Include Direct Materials, Direct Labor, Variable Manufacturing Overhead, and Fixed Manufacturing Overhead. Period Costs - Includes Variable Selling and Administrative Expenses and Fixed Selling and Administrative Expenses.

Labor Rate Variance Formula

LRV = (AH x AR) - (AH x SR) = AH (AR - SR)

Materials Price Variance Formula

MPV = (AQ x AP) - (AQ X SP) = AQ (AP-SP)

Materials Quantity Variance Formula

MQV = (AQ x SP) - (SQ x SP) = SP (AQ-SQ)

What is the total amount of period cost for Marques Corp? Marketing Sal. $39,000 Prop Tax, Factory $8,000 Admin Travel $102,000 Sales Admissions $73,000 Indirect Labor $31,000 DM $197,000 Advertising $145,000 Depreciation of Eq. $39,000 DL $78,000 a. 359,000 b. 353,000 c. 275,000

Marketing Sal. $39,000 Admin Travel $102,000 Sales Admissions $73,000 Advertising $145,000 ------------ Period Cost $359,000 a. 359,000

The POHR per hour will be: DM $6,000 DL $20,000 Rent $15,000 Sales Salaries $25,000 Depreciation $18,000 Indirect Labor $12,000 Production Supervisor Sal. $15,000 Jameson Estimates that 20,000 DLH's will be worked during the year. a. $2.50 per hour b. $2.70 per hour c. $3.00 per hour d. $4.00 per hour

POHR = Estimated MOH / Estimated Allocation (15,000 + 18,000 + 12,000 + 15,000) ---------------------------------------- = $2.50 20,000 DLH's a. $2.50 per hour

What are the differences between price and quantity standards?

Price Standards: Specify how much should be paid for each unit of the input. Quantity Standards: Specify how much of an input should be used to make a product or service. Examples: Sears, Firestone, McDonald's, Hospitals, Construction, and manufacturing companies.

What is the total amount of product cost for Marques Corp? Marketing Sal. $39,000 Prop Tax, Factory $8,000 Admin Travel $102,000 Sales Admissions $73,000 Indirect Labor $31,000 DM $197,000 Advertising $145,000 Depreciation of Eq. $39,000 DL $78,000 a. 359,000 b. 353,000 c. 275,000

Product Costs: DM + DL + MOH DM $197,000 DL $78,000 Prop Tax, Factory $8,000 Indirect Labor $31,000 Depreciation of Eq. $39,000 -------------- Product Costs $353,000 b. 353,000

Summary of Key Insights (Chapter 6)

Relation Between Production and Sales: Units Produced = Units Sold Units Produced > Units Sold Units Produced < Units Sold Effect on Inventory No Change in Inventory Inventory Increases Invnetory Decreases Relation Between variable and absorption incomes Absorption = Variable Absorption > Variable Absorption < Variable

What is the difference between a revenue variance and a spending variance?

Revenue Variance: It is the difference between the actual revenue and the flexible budget revenue. Spending Variance: The difference between the actual cost and the flexible budget cost.

Saloman Marketing, Inc., a merchandising company, reported sales of $1,55,500 and cost of goods sold of $1,025,100 for December. The company's total variable selling expense was $96,900. It's 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. The contribution margin for December is: a. $530,400 b. $227,700 c. $1,252,800 d.$362,100

Sales-Variable = CM Sales $1,555,500 VC - $1,025,100 96,900 71,400 --------------------- CM = $362,100 d.$362,100

What are the five limitations of ABC?

Substantial Resources required to implement and maintain. Desire to fully allocate all costs to products. Does not Conform to GAAP. Two costing systems may be needed. Resistance to unfamiliar numbers and reports. Potential misinterpretation of unfamiliar numbers.

What is important to remember about Materials Variance?

The quantity variance is computed only on the quantity USED. The price variance is computed on the entire quantity PURCHASED.

Using the same numbers from the question, ()Based on your answer for (If the selling price is $300 per unit, variable expenses are $100 per unit, fixed expenses are $20,000 and 100 units were sold; What is the Contribution Margin Ratio?), if sales go up by $600 (2 units), what will the increase to Contribution Margin be?) what is the variable expense ratio?

VER = 100/$300 =0.34

Variable Manufacturing Overhead Efficiency Variance Formula

VMEV = (AH x SR) - (SH - SR) = SR (AH - SH)

Variable Manufacturing Overhead Rate Variance Formula

VMRV = (AH x AR) - (AH x SR) = AH (AR - SR)

Changes in Net Operating Income

Variable Costing income is ONLY affected by changes in unit sales. It is NOT affected by the number of units produced. As a general rule, when sales go up, net operating income goes up, and vice versa. Absorption costing income is influenced by changes in unit sales and units of production. Net operating income can be increased simply by producing more units even if those units are not sold.

An unfavorable materials quantity variance indicates that: a. Actual usage of materials exceed the standard materials for output. b. Standard material allowed for output exceeds the actual useage of material. c. Actual Material price exceeds standard price. d. Standard material price exceeeds actual price.

a. Actual usage of materials exceed the standard materials for output.

A cost that would be included in product costs under both absorption costing and variable costing is: a. Supervisory salaries b. Factory rent c. Variable Manufacturing Overhead d. Variable Sellign​ Expenses

a. Supervisory salaries (Fixed, not included in variable costing) b. Factory rent (Fixed, not included in variable costing) c. Variable Manufacturing Overhead d. Variable Sellign​ Expenses (Not part of calculating product costs). Therefore, the answer is C.

In a flexible budget, what will happen to fixed costs as the activity level increases? a. The fixed cost per unit will decrease b. The fixed cost per unit will remain unchanged c. The fixed cost per unit will increase d. Fixed costs are not included in a flexible budget

a. The fixed cost per unit will decrease More units produced = Fixed cost is more spread out amongst units 1,000 / 200 = 5 vs 1,000/ 500 = 2

When materials are purchased in a process costing system, a work in process account is debited with the cost of materials: a. True b. False

b. False Dr. Raw Materials XXX Cr. Cash XXX

The following Journal Entry would be made in a processing costing system when units that have been completed in the final processing department are transferred to the finished goods warehouse: Dr. Finished Goods Cr. Raw Materials a. True b. False.

b. False. It would be: Dr. Finished Goods XXX Cr. WIP XXX

What is the main difference between Absorption costing and Variable Costing? a. Fixed costs manufacturing overhead are treated as product costs under absorption costing, but not variable costing. b. Fixed costs manufacturing overhead are treated as period costs under absorption costing, but not variable costing. c. Variable costs are treated as product costs under variable costing, but not absorption costing.

b. Fixed costs manufacturing overhead are treated as period costs under absorption costing, but not variable costing.

Which of the following is a situatuation in which job-order costing will be used? a. Many Identical (homogenous) units are produced. b. Many different (heterogenous) c. Production costs do not vary from period to period d. None of the above

b. Many different (heterogenous)

Hamitor Framing's cost formula for its supplies cost is $1,640 per month plus $9 per frame. For the month of August, the company planned for activity of 572 frames, but the actual level was 573 frames. The actual supplies cost for the month was $7,080. The supplies cost in the planning budget for August would be closest to: a. $7,080 b. $7,068 c. $6,788 d. $6,797

c. $6,788 1,640 + (9 x 572) = $6,788

When MOH is applied to production, it is added to: a. COGS account b. Raw Materials Accounts c. WIP Account d. Finished Goods Inventory Account

c. WIP Account