Accounting CH 16

From which of the following accounts do costs flow to Work in Process inventory Account which leads to an increase in Work in Process Inventory Account?

Manufacturing Overhead, Materials Inventory, Direct Labor

Operating expenses associated with time periods, rather than with the production of inventory, are referred to as period costs

Most period costs are charged directly to expense accounts on the assumption that their benefit is recognized entirely in the period when the cost is incurred. Period costs include all selling expenses, general and administrative expenses, interest expense, and income tax expense. In

Alfie's Furnaces, Inc., assigns $400,000 of direct labor costs to production during the current period. Alfie's also pays employees $380,000 during the period. What are the two journal entries used to record these transactions? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

No Transaction General Journal Debit Credit 1 1 Direct labor 380,000 Cash 380,000 2 2 Work in process inventory 400,000 Direct labor 400,000

The depreciation of a raw materials warehouse is a

Product cost, conversion cost, manufacturing cost. (if completed item then it would be a period cost)

which of the following terms is synonymous with manufacturing costs?

Product costs

Which of the following costs would not be considered part of the manufacturing overhead of a chemical plant?

Salaries of employees who operate distilling equipment used in the production process

Manufacturing costs do not include:

Selling expenses related to goods manufactured during the period.

All of the following statements regarding management accounting's role in assigning decision-making authority are true except:

Since management accounting information is used for decision-making purposes, historical information is unnecessary.

Manufacturing Costs

The cost of manufacturing the goods that will be sold to customers. The basic types of manufacturing costs are direct materials, direct labor, and manufacturing overhead.

Which of the following costs would not be considered part of the manufacturing overhead of a furniture manufacturer?

The cost of wood used in furniture construction

Management accounting systems are designed to assist organizations in the performance of all of the following functions except:

The preparation of income tax returns

Which of the following is not a product cost?

The real estate tax of the showroom

All of the following are true regarding benchmark studies except:

The studies are shared with competitors

The set of linked activities and resources needed to create and deliver a product or service to the customer is referred to as:

The value chain

As direct labor costs are applied to production,

There are two separate and distinct aspects of accounting for direct labor costs. The first involves the payment of cash made to the direct workers at the end of each pay period. At each payroll date, the Direct Labor account is debited for the total direct labor payroll, and an offsetting credit is made to Cash. The second aspect involves the application of direct labor costs to the goods being produced. As direct labor employees contribute to the production process during the period

Manufacturing Overhead

a catchall classification, which includes all manufacturing costs other than the costs of direct materials and direct labor. Examples include factory utilities, supervisor salaries, equipment repairs, and depreciation on production machinery. (all manufacturing costs except direct materials and direct labor)

Cost of Goods Sold (COGS) =

beginning inventory + costs of Goods purchased - ending inventory

Finished Goods =

finished goods = (cost of goods manufactured - cost of goods sold) + previous finished goods inventory value

Product Costs

in a manufacturing environment represent resources consumed to create inventory. Thus, until items of inventory are sold, their related manufacturing costs are reported in the balance sheet as assets. As inventory items are sold, their related product costs are transferred from the balance sheet to the income statement as cost of goods sold.

Which of the following is/are considered a period cost?

interest expenses, selling expenses, and income tax expenses

finished goods inventory

manufactured items that are completed and ready for sale; considered a short-term asset since the expectation is that these items will be sold in less than a year. Once classified as finished goods, no additional costs are allocated to them; therefore, the costs of storing, marketing, or delivering finished goods are regarded as selling expenses and not manufacturing costs

Direct labor costs in a paint factory would include wages of employees who:

operate paint-mixing machines

Costs that are traceable to a particular unit and inventoriable are called:

product costs

A manufacturing company uses a perpetual inventory system. As materials are acquired by the company, which of the following occurs?

the costs of direct materials purchased are debited directly to the Materials Inventory account. As these materials are placed into production, their costs are transferred from the Materials Inventory account to the Work in Process Inventory account by debiting Work in Process Inventory and crediting Materials Inventory

Direct Materials

the raw materials and component parts used in production whose costs are directly traceable to the products manufactured.

Direct Labor

wages and other payroll costs of employees whose efforts are directly traceable to the products they manufacture.

During the year, Coronado Boat Yard has incurred manufacturing costs of $420,000 in building three large sailboats. At year-end, each boat is about 70 percent complete. How much of these manufacturing costs should be recognized as expenses in Coronado Boat Yard's income statement for the current year?

zero - Explanation: Coronado Boat Yard should not recognize any of the manufacturing costs on their year end income statement. These are product costs, and as a result, will not appear on the income statement until the boats are sold and the revenue is earned.

Hula's Heavyweights, Inc., is a company that manufactures forklifts. During the year, Hula's purchased $1,450,000 of direct materials and placed $1,500,000 worth of direct materials into production. Hula's beginning balance in the Materials Inventory account was $320,000. What is the ending balance in Hula's Materials Inventory account?

$270,000; Explanation: Starting with materials at $320,000 + $1,450,000 in materials purchased = 1,770,000 in materials total. 1,770,000 - 1,500,000 used materials = $270,000

During the current year, the cost of direct materials purchased by a manufacturing firm was $340,000, and the direct materials inventory increased by $65,000. What was the cost of direct materials used during the year?

$275,000; Explanation: Direct materials used = Direct materials purchased ($340,000) less the increase in the ending balance of direct materials ($65,000) = $275,000.

A company that assembles trucks produces 60 trucks during the current year and incurs $4.5 million of material, labor, and overhead costs. Fifty-three trucks were sold during the year and each is allocated the same amount of costs. How much of the $4.5 million assembly costs should appear on the company's income statement for the current year? (Enter your answers in dollars and not in millions of dollars.)

$3,975,000; Explanation: Product costs per truck: $4,500,000 ÷ 60 = $75,000 Costs recognized due to matching: 53 trucks sold × $75,000 = $3,975,000 The company should recognize $3,975,000 in product costs in the current year income statement.

A manufacturer produced 4000 golf carts in December. To do so, it incurred manufacturing costs of $2500 per unit. Of these units, 3000 were sold in December and the remaining 1000 were sold in January of the following year. What amount associated with December's manufacture costs of these carts should be included in the company's income statement for the period ending December 31?

$7.5 million (3000 units sold X $2500 per unit = $7.5 mil

The principal difference between managerial accounting and financial accounting is that managerial accounting information is:

Intended primarily for use by decision makers inside the business organization.

Management accounting systems must be designed to

1. Evaluate and reward management performance 2. compare actual outcomes to budgetary projections 3. make budgetary projections of future performance

Which of the following are a manufacturing company's product-related inventory accounts?

1. Materials Inventory 2. Finished Goods Inventory 3. Work in Process inventory

six general ledger accounts used by manufacturing companies to account for their production activities:

1. Materials Inventory, 2. Direct Labor, 3. Manufacturing Overhead, 4. Work in Process Inventory, 5. Finished Goods, and 6. Cost of Goods Sold

Which of the following manufacturing costs is/are included in a manufacturing company's cost of goods sold and inventory?

1. the cost of raw materials used in production 2. various costs associated with the operation of a manufacturing company's production facility 3. salaries and wages of production workers

perpetual inventory system

A detailed inventory system in which a company maintains the cost of each inventory item, and the records continuously show the inventory that should be on hand.

Value chain

A value chain is a set of activities and resources required to create and deliver goods and services to customers

The cost of the employee who computes total manufacturing costs would be considered:

Administrative Costs

Manufacturing overhead is best described as:

All manufacturing costs other than direct materials and direct labor

In comparison with a financial statement prepared in conformity with generally accepted accounting principles, a managerial accounting report is more likely to:

Be tailored to the specific needs of an individual decision maker.

Which of the following should not be classified as a manufacturing cost?

Commissions paid to salespeople

In an aircraft factory, the inventory of direct materials would not include:

Completed aircraft, available for sale

Which of the following is not a period cost?

Depreciation on factory equipment

The cost of the employee who installs the leather on the seats of a new automobile would be considered:

Direct Labor

Prime Cost

Direct Materials + Direct Labor consumed in the production of goods and services

In comparison with a financial statement prepared in conformity with generally accepted accounting principles, a managerial accounting report is less likely to:

Focus upon the entire organization as the accounting entity

The assets over which individual managers have decision making authority

In most corporations, the assets over which managers have decision-making authority belong to the corporations for whom they work, as do the returns on investment in those assets. To ascertain whether investments in assets are earning sufficient returns, corporations monitor the outcomes of managerial decisions (produce returns that belong to the corporation and produce returns that are used to evaluate the performance of those managers)

Which of the following is not a characteristic of managerial accounting?

Information must be developed in conformity with generally accepted accounting principles or with income tax regulations.