Accounting Practice for Test 2
Which of the following would be an irrelevant cost?
Costs that have already been incurred.
These managers need to know how much a product costs in order to help establish a reasonable selling price.
Marketing managers
These managers make decisions about how and when products and services are produced or provided.
Operations/Production managers
A(n) ____ decides whether a company should borrow money or issue stock as a way to raise capital.
finance manager
Manufacturing Overhead (MOH)
-INDIRECT MATERIALS such as welding material, glue, screws, etc. -INDIRECT LABOR such as supervisors, factory maintenance workers and factory janitors -other factory costs
Period Costs
-generally are nonmanufacturing costs -expensed in the period inccured
Examples of nonmanufacturing costs
-insurance expense -taxes -Rent Expense -Advertising Costs
Product Costs
-inventoriable costs -Direct materials, direct labor, overhead costs -stay with product until the product is sold -included in one of three inventory accounts
(blank) allocates overhead to products on the basis of the activities that cause overhead costs to be incurred. (blank) results in more accurate product costing.
ABC; ABC
Cost
Cash or cash equivalent given up in order to conduct an activity, such as cash paid for direct labor cost
The costs attached to products that are completed in the current year and transferred to finished goods are called:
Cost of goods manufactured
Direct Labor DL
Direct Labor is the cost (including fringe benefits) of all EMPLOYEES WHO WORK DIRECTLY on the product being made or service being provided
Predetermined overhead rate=
Estimated Annual Overhead (fraction bar) Estimated Cost Driver
The formula for calculating the predetermined overhead rate for a cost pool is:
Estimated overhead for the cost pool +PLUS+ estimated units of the cost driver
These managers make decisions about how to raise capital as well as where and how it is invested.
Finance Managers
Which of the following statements is true?
Financial accounting is less flexible than managerial accounting.
Time
How long it takes to complete an activity, such as direct labor hours
These managers support other managers by recruiting and staffing, designing compensation and benefit packages, and providing training and development opportunities for employees.
Human resource managers
Which of the following statements is true regarding activity-based costing (ABC)?
It is based on the concept that activities drive overhead costs.
Which of the following is true regarding managerial accounting?
It often emphasizes segments rather than the organization as a whole.
Auto repair shop (miscellaneous auto repairs)
Job costing
Hybrid costing system. Make products in batches - large numbers of products that are standardized within a batch.
Operations costing
Which of the following statements about manufacturing in a traditional environment is true?
Partially completed inventory is accumulated in a work in process inventory account
Applied over head=
Predetermined overhead rate times actual Units of the cost driver
A costing system accumulating and tracking costs for each process performed, then assigns these costs equally to each unit produced. Used to forecast demand and "push" a product through manufacturing process.
Process costing
Which of the following statements is true regarding lean production and just-in-time (JIT) manufacturing systems?
The factory is often restructured where dissimilar machines are grouped together.
Which of the following statements is true regarding sunk costs?
They are unavoidable
Which of the following statements is true regarding manufacturing costs?
They will appear on the balance sheet as an inventory cost until the product is sold.
Volume
Units of work completed, such as manufactured units, orders processed, machine setups
Which of the following is not true regarding predetermined overhead rates?
With their use, it is no longer necessary to be able to identify a cost driver.
Lean production
a system focused on eliminating waste associated with holding more inventory than required, making more product than is needed, overprocessing a product, moving products (and people) further than required, and waiting.
Non manufacturing Costs (period costs)
are NOT DIRECTLY incurred in the production of products. Typically are selling, General and Administrative costs. "expensed" on the income statement
Relevant costs can be...
avoidable OR eliminated by choosing another alternative
Machine operators must calibrate production equipment whenever production is started on a new order.
batch level
Purchase orders are generated for raw materials purchases from suppliers. Hendee orders raw materials as needed to fill customer orders and maintains a very small amount of raw materials inventory.
batch level
Direct Costs
conveniently traceable
Relevant costs are costs that:
differ between alternatives
A new facility was built to house all design engineers in one central location. This new facility will be depreciated over 20 years
facility level
Accounting personnel were billed for, and paid, property taxes on the manufacturing facility.
facility level
Maintenance personnel regularly inspect the manufacturing facility's heating and cooling systems to ensure adequate conditions within the manufacturing environment.
facility level
Companies generally allocate overhead equally to all products produced during a given period.
false
In traditional manufacturing environments, most overhead costs are directly related to production activities.
false
Overhead costs cause cost drivers.
false
Overhead rates are calculated by multiplying manufacturing overhead costs by the volume of cost pool activity.
false
Which of the following is an advantage of lean production and just-in-time (JIT) manufacturing systems?
improved product quality and reduced processing time
Mary Ann is trying to decide whether to fly to Florida or New York. The cost of her ticket will be the same either way. The cost of the ticket is an example of:
irrelevant cost
Companies manufacture customized products or provide customized services to clients. Accumulate, track and assign costs for each job. Jobs are simply the individual units of a product. Used in situations when a customer initiates an order, "pulling" the product or service through the process.
job costing
Companies that need to track production costs for individual projects because of their custom nature most likely use this costing system.
job costing
Construction contractor (custom-built homes)
job costing
Graphic design studio (logo design)
job costing
Physical therapy clinic (mobility therapy)
job costing
This costing technique is often used when customers initiate orders, which "pull" the product or service through the manufacturing process.
job costing
Process costing is used to account for
large numbers of similar products that are produced in a continuous manufacturing environment
Traditional overhead allocation methods as opposed to activity-based allocation methods work best when:
most costs are unit level costs
indirect costs
not conveniently traceable
A large automobile manufacturer that produces cars that are mostly built with standard features, but that allows customers to select some custom features, likely uses this costing system.
operations costing
This costing technique is used by companies that produce goods in large batches with products that are standardized within a batch.
operations costing
Which of the following statements about decision-making is true?
opportunity cost should be considered.
As companies experience a shift from labor-intensive operations to automated operations, which of the following costs becomes more difficult to trace to products?
overhead costs
Dairy (whole milk)
process costing
Local bakery (wheat bread)
process costing
Oil refinery (motor oil)
process costing
This costing technique does not attempt to assign costs to specific individual units, but assigns costs equally to units as they pass through the production processes.
process costing
This costing technique is generally used by companies that forecast demand and "push" a product through the manufacturing process.
process costing
Engineers conduct research and development activities aimed at identifying new technologies for data transmission.
product level
Hendee launched a Web site to auction excess cable to interested parties.
product level
Hendee recently hired several new engineers to begin work on the development of a new product line.
product level
Just-in-time (JIT) manufacturing
the philosophy of having raw materials arrive just in time to be used in production and for finished goods inventory to be completed just in time to be shipped to customers
A "good" allocation base is one that drives the incurrence of overhead costs.
true
Companies that are labor intensive are likely to allocate overhead costs such as utilities expense on the basis of direct labor hours.
true
More overhead costs in a just-in-time environment are direct in nature as opposed to indirect.
true
Hendee conducts continuous quality inspections during the production process. All cable is 100 percent guaranteed to be free of defects.
unit level
Direct Materials (DM)
various materials that can be DIRECTLY and CONVENIENTLY traced to a prduct