Accounting 211

1) a process order cost system 2) job order cost system

Cost Accounting two types: 1) _______ order cost system 2) ____ order cost system

OVERapplied

Credit balance in manufacturing overhead → overhead is __________

A credit to Raw Material Inventory

J&L, Corp. uses a job order cost system in their manufacturing process. When J&L requisitions raw materials for a particular job, the journal entry will include:

job order cost system

A cost accounting system in which costs are assigned to each job or batch. - Important feature: each job has its own distinguishing characteristics - More precise in assignment of costs to projects than process costing

Predetermined Overhead Rate

A rate used to charge manufacturing overhead cost to jobs that is established in advance for each period. It is computed by dividing the estimated total manufacturing overhead cost for the period by the estimated total amount of the allocation base for the period.

Facility-level activities

Activities required to support or sustain an entire production process.

Product-level activities

Activities that relate to specific products that must be carried out regardless of how many units are produced and sold or batches run. performed every time a company produces a new type of product

- Indirect labor: variable - Property taxes: fixed - Direct labor: variable - Direct materials: variable - Depreciation: fixed - Utilities: mixed - Maintenance: mixed - Insurance: fixed - Rent: fixed - Advertising: fixed

Classify each cost as variable, fixed, or mixed. - Indirect labor - Property taxes - Direct labor - Direct materials - Depreciation - Utilities - Maintenance - Insurance - Rent - Advertising

- wood used for production: *variable* - fuel used in delivery trucks: *variable* - straight-line depreciation on factory: *fixed* - screws used in production: *variable* - sales staff salaries: *fixed* - sales commissions: *variable* - property taxes: *fixed* - insurance on buildings: *fixed* - hourly wages of craftsmen: *variable* - salaries of factory supervisors: *fixed* - utilities expense: *mixed* - telephone bill: *mixed*

Classify each cost as variable, fixed, or mixed. - wood used for production - fuel used in delivery trucks - straight-line depreciation on factory - screws used in production - sales staff salaries - sales commissions - property taxes - insurance on buildings - hourly wages of craftsmen - salaries of factory supervisors - utilities expense - telephone bill

Non-value Non-value Non-value Value-add

Classify following costs as value or non-value added: - Storage of finished goods inventory: _________ - Moving Raw Materials from the warehouse to the manufacturing facility: ____________ - Fixing defective goods: ________ - Providing investment advice to a client: ________________

activity cost pool

Examples of ___________: - Machine setup, machining, packing, ordering materials, employee training, computing, travel, facility rental

Cost drivers

Examples of ___________: - Number of setups, machine hours, orders, number of inspections, direct labor dollars, number of minutes, per expense reports

raw materials, Work in Process Inventory Finished Goods Inventory Cost of Goods Sold

Flow of costs in job order costing: 1) Costs must first be accumulated; most commonly ______________, labor and manufacturing overhead are accumulated. 2) As a job is started, manufacturing costs are assigned to ______________________ 3) Once completed, the finished cost of a product is moved into _________________ 4) As products are sold, their related cost is moved out of Finished Goods Inventory (balance sheet) into _______________ (Income Statement)

The year-end adjusting journal entry will include a credit to cost of goods sold

If manufacturing overhead is overapplied:

- Freight-in on raw materials: *Included* - Freight incurred on shipping finished goods to customers: *Excluded* - Depreciation on a building that houses administrative offices: *Excluded* - Property taxes on corporate headquarters: *Excluded* - Depreciation on manufacturing equipment: *Included*

Indicate whether the following costs would be included or excluded from Manufacturing Costs in a job order costing system: - Freight-in on raw materials: _________ - Freight incurred on shipping finished goods to customers: _________ - Depreciation on a building that houses administrative offices: ________ - Property taxes on corporate headquarters: __________ - Depreciation on manufacturing equipment: ____________

Activity Activity cost pool Cost driver

______: an event, action, transaction, or work sequence that incurs costs when producing a product or performing a service ___________: overhead cost attributed to a distinct activity (ex: ordering materials or setting up machines) _________: any factor or activity that has a direct cause-effect relationship with the resources consumed

Period manufacturing inventory sold

________ costs are non-manufacturing costs that are recorded as an expense in the time-period in which they are incurred. Product, or __________ costs, are costs integral to producing a product. Product costs become part of ________ and are expensed as cost of goods sold once the product is _________.

managerial costs

activities and processes that convert raw materials into finished goods

Non-Value-Added Activities

adds costs to or increases time spent on a product/service without increasing its perceived value, such as: - Manufacturing company: storage of inventory, moving inventory, inspections, fixing defective goods, machine repair - Service company: taking appointments, reception, bookkeeping & billing, traveling, ordering supplies, advertising

Activity Based Costing

allocates overhead to multiple activity cost pools and then assigns the activity cost pools to products & services by means of cost drivers

1. c 2. c 3. a 4. c 5. b 6. d 7. a 8. b 9. c 10. c

categorize as, (a) direct materials, (b) direct labor, (c) manufacturing overhead or (d) period costs. 1. Property taxes on the factory building. 2. Production superintendents' salaries. 3. Memory boards and chips used in assembling computers. 4. Depreciation on the factory equipment. 5. Salaries for assembly-line quality control inspectors. 6. Sales commissions paid to sell laptop computers. 7. Electrical components used in assembling computers. 8. Wages of workers assembling laptop computers. 9. Welding materials used on factory assembly lines. 10. Salaries for the night security guards for the factory building.

variable costs

cost that vary in total directly & proportionately with changes in the activity level - Ex: if activity level increases 10%, total variable increase 10% - Remain the same per unit at every level of activity

fixed costs

costs that remain the same in total regardless of changes in the activity level within a relevant range - Fixed cost per unit varies inversely with activity: as volume increases, unit cost declines, vice versa - Ex: property taxes, insurance, rent, supervisory salaries, depreciation on building & equipment

Generating a purchase order for handle bars used in their mountain bikes: *batch* First-shift factory supervisor's salary: *Facility* The salary of the design engineer who developed the newest model of road bike: *Product* Employee health insurance: *Facility*

determine unit, batch, facility or product-level activities: - Generating a purchase order for handle bars used in their mountain bikes: ___________ - First-shift factory supervisor's salary: ____________ - The salary of the design engineer who developed the newest model of road bike: ________ - Employee health insurance: ____________

- Machining parts = unit-level - Product design = product-level - Plant maintenance = facility-level - Machine setup = batch-level - Assembling parts = unit-level - Purchasing raw materials = batch-level - Property taxes = facility-level - Painting garden tools = unit-level

determine unit, batch, facility or product-level activities: - Machining parts - Product design - Plant maintenance - Machine setup - Assembling parts - Purchasing raw materials - Property taxes - Painting garden tools

Batch-level activities

performed every time a company produces another batch of a product

Managerial Accounting

the internal use of accounting statements by managers in planning and directing the organization's activities - Internal reports: as frequently as needed - Reports are for special-purpose for specific decisions - No independent audits

Relevant Range

throughout the range of possible levels of activity, a straight-line relationship usually does not exist for either variable costs or fixed costs - Relationship is often curvilinear

(Fixed Costs + Target Net Income) / (Contribution Margin Ratio) = Sales in Dollars

Target Net Income equation

Contribution Margin

The amount remaining from sales revenues after all variable expenses have been deducted.

Unit-level activities

activities performed for each unit of production

CVP income statement

classifies costs as variable or fixed and computes a contribution margin A statement for internal use

Mixed Costs

costs that have both a variable element and a fixed element - Change in total but not proportionately with changes in activity level

Margin of Safety

difference between actual or expected sales and sales at the break-even point

cost behavior analysis

how specific costs respond to changes in the level of business activity

value-added activities

increase the perceived value of a product/service to customers, such as: - Manufacturing company: engineering design, machining, assembly, painting - Service company: performing surgery, legal research, delivering packages

Activity-based management (ABM)

management tool that focuses on reducing costs & improving processes and decision-making

break-even point

point where total revenues = total costs (both fixed & variable)

Manufacturing Overhead

- Costs indirectly associated with manufacturing the finished product - All manufacturing costs except direct materials and direct labor - Also called factory overhead, indirect manufacturing costs, or burden

UNDERapplied

Debit balance in manufacturing overhead → overhead is __________

margin of safety dollars / actual (expected) sales

Margin of Safety ratio

Actual (expected) sales - break-even sales

Margin of safety in dollars

II, III, & IV

Which of the following statements is/are true: I: ABC costing offers a more detailed method to allocate product costs such as direct materials, labor and manufacturing overhead. II: Inaccurate product costing can lead to bad business decisions, such as over or under-pricing a product. III: Service companies, like a health care organization or a bank can benefit from using ABC to allocate overhead costs to the services they provide. IV: Overhead costs are applied to products and services based on estimates of what the total costs will be for an accounting period.

Credit to Sales Revenue of $45,000

Wonder Woman, Inc. sold $25,000 of finished products on account for $45,000 during the month of August. The journal entry to record the sale includes:

overhead costs

The costs not directly related to the production or selling of goods. represents a very large portion of the total cost of many products

High-Low Method

The difference in costs between high & low levels represents variable cost since only variable-cost element can change as activity levels change

Job Order Cost Flow

The flow of costs parallels the physical flow of the materials as they are converted into finished goods

Cost-volume-profit (CVP) analysis

The study of the effects of changes in costs and volume on a company's profits. - Important in profit planning, critical in management decisions

Contribution Margin Ratio

Unit Contribution Margin / Unit Selling Price

Unit Contribution Margin

Unit Selling Price - Unit Variable Costs

numerous, significant

When to Use ABC: - Product lines differ in volume & manufacturing complexity. - Product lines are _____ & diverse. - Overhead costs constitute a ______ portion of total costs. - Manufacturing process or the number of products has changed significantly. - Production or marketing managers are ignoring data.

Advertising costs Depreciation on the administrative office building

Which of the following are period costs for a manufacturing company? Select all that apply. - Advertising costs - Utility bill for the construction facility - Factory supervisor's salary - Depreciation on the administrative office building - Depreciation on equipment used in the manufacturing process

II: Reports produced are intended for an internal audience, such as officers and managers III: Reports are generally detailed and prepared for special-purpose for decision making

Which of the following characteristics below are most closely aligned with managerial accounting versus financial accounting. I: Reports produced are subject to independent audits II: Reports produced are intended for an internal audience, such as officers and managers III: Reports are generally detailed and prepared for special-purpose for decision making IV: Reports are generally highly summarized and pertain to the business as a whole

II. Always use one predetermined rate to apply overhead

Which of the following statements are false for Service Firms? I. Use ABC to improve the costing of services rendered II. Always use one predetermined rate to apply overhead III. Tend to have a larger proportion of overhead costs that are company-wide costs and can not be traced to specific client jobs IV. Follow the same approach for ABC costing as manufacturing companies