Accounting

Raw materials

any materials used to go into the final product and finished product can be used as a raw material for a differing product

Absorption Costing

assigns all 3 factors(direct material, direct labor, and both fixed and variable manufacturing overhead) to inventory

Absorption costing

assigns all 3 factors(direct material, direct labor, and both fixed and variable manufacturing overhead) to inventory

Underapplied or overapplied can be exposed by closing is to cost of goods sold, work in process, or finished goods sold

closing to cost of goods is simpler, allocating is more accurate

Managerial Accounting

concerned with providing information to managers within an organization so that they can formulate plans, control operations, and make decisions.

financial Accounting

concerned with reporting financial information to external parties, such as stockholders, creditors, and regulators.

Batch-level activities

consist of tasks that are performed each time a batch is processed, such as processing purchase orders, setting up equipment, packing shipments to customers, and handling material.

Direct Labor (touch labor)

consists of labor costs that can be easily traced to individual units of product.

Activity cost pool

cost bucket" in which costs related to a particular activity measure are accumulated.

COGS Available for Sale formula

cost of goods manufactured + beginning finished inventory

Traditional Income Statement

cost of goods sold and selling and administrative expenses. Sales Revenue- Cost of Goods Sold = Gross Margin - Selling & General and Administrative Expenses = Net Income from Operations

differential cost/revenue

costs and revenues that differ among alternatives of incremental costs(an increase in cost from one alternative to another and decremental costs(decreases in a cost)

During March, Zea Inc. transferred $61,000 from Work in Process to Finished Goods and recorded a Cost of Goods Sold of $67,000. The journal entries to record these transactions would include a: credit to Cost of Goods Sold of $67,000. debit to Finished Goods of $67,000. credit to Work in Process of $61,000. Correct credit to Finished Goods of $61,000.

credit to Work in Process of $61,000.

True or False: Period costs flow from finished goods to cost of goods sold?

false

Net operating Income

gross margin - selling and administrative expenses

Activity based costs shift from what volume to what volume?

high volume to low volume

Common Cost

incurred to support a number of cost objects but cannot be traced to them individually. A common cost is a type of indirect cost.

The cost of lubricants used to grease a production machine in a manufacturing company is an example of a(n):

indirect material cost

direct cost

is a cost that can be easily and conveniently traced to a specified cost object. Ex: salary of sales manager in Tokoyo office

fixed cost

is a cost that remains constant, in total, regardless of changes in the level of activity but decreases as activity rises. Manufacturing overhead usually includes various fixed costs such as depreciation, insurance, property taxes, rent, and supervisory salaries.

cost driver

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

Activity Based Costing

is a technique that attempts to assign overhead costs more accurately to products than the simpler methods discussed thus far.

Activity Rate

is an overhead rate in an activity-based costing system. total cost / total activity

Cost object

is anything for which cost data are desired—including products, customers, and organizational subunits.

when $/$ = %

just something to know

activity base

measure of whatever causes the incurrence of a variable cost. An activity base is sometimes referred to as a cost driver. Some of the most common activity bases are direct labor-hours, machine-hours, units produced, and units sold.

departmental overhead rate

more accurate as it uses multiple predetermined overhead rates

under applied overhead

on income statement reflects a increase of COGS and a decrease of net operating income (Debit in the manufacturing overhead account and credit COGS)

over applied overhead

on income statement, reflects a decreases cost of goods sold and increases net operating income(debit COGS and credit of Manufacturing overhead account)

usually, traditional costing __ high-volume products and __ low-volume products

overcosts;undercosts

Within an abc unit, product costs will most likely be.... understand overstated less accurate

overstated

Relevant Range

range of activity within which the assumption that cost behavior is strictly linear is reasonably valid.

Matching Principle

recognize expenses in the same period as the revenues they help to generate

Indirect Labor

refers to employees, such as janitors, supervisors, materials handlers, maintenance workers, and night security guards, that play an essential role in running a manufacturing facility

Direct Materials

refers to raw materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product

Gross Margin

sales - cogs

Period Costs

selling and administrative costs recorded on the income statement in the period they incurred

job order costing

single or group costs are traced and allocated to jobs and then the costs of the job are divided by the number of units in the job to arrive at an average cost per unit. This average cost per unit is also referred to as the unit product cost.

Prime costs

sum of DM + DL

COGS manufactured

sum of all amounts transferred from work in process to finished goods during a period, is a credit

Time ticket

through computerized systems: hour-by-hour summary of the employee's activities throughout the day.

mixed cost

variable + fixed costs

when asked about fixed and variable with changing activity on chapter 1 practice problems...

variable x new activity level variable / original activity level

Journal entry applying manufacturing overhead

Debit - Work in Process Credit - Manufacturing Overhead

Liabilities + Equity (Revenues + Gains)

Debit = Decrease Credit = Increase

Manufacturing costs:

1. DM, 2. DL, 3.MOH Applied

Product costs

1. DM, 2. DL, 3.MOH, (Raw Materials, Work in Process, and Finished Goods— once sold: they are recorded in cost of goods sold on the income statement.)

Assets and Equity(expenses and losses) on a journal entry

Debit = increase Credit = Decrease

Activity based costing improves accuracy of product costs in what 3 ways?

1. increases the number of cost pools used to accumulate overhead costs. 2. the activity cost pools are more homogeneous than departmental cost pools because they pertain to a single activity 3. uses a variety of activity measures to assign overhead costs to products

Non-manufacturing costs

1. selling costs 2. administrative costs (general management such as public relations, general accounting, can be direct or indirect)

normal costing

A costing system in which overhead costs are applied to a job by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job.

bill of materials

A document that shows the quantity of each type of direct material required to make a product.

activity based management

A management approach that focuses on managing activities as a way of eliminating waste and reducing delays and defects. involves focusing on activities to eliminate waste, decrease processing time, and reduce defects.

Allocation base

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

A. Cost of Goods Manufactured (work in process) B. Cost of Goods sold (finished goods) C. Unadjusted COGS D. Adjusted COGS

A. total manufacturing costs + beginning work in process inventory - ending work in process inventory B. Beginning finished goods + Cost of goods manufactured - ending finished goods C. Beginning finished goods inventory + cost of goods manufactured - ending finished goods D. Beginning finished goods inventory + cost of goods sold - ending inventory - manufacturing overhead overapplied

Contribution Approach to Income Statement

An income statement format that organizes costs by their behavior. Costs are separated into variable and fixed categories rather than being separated into product and period costs for external reporting purposes.

overapplied and underapplied overhead concept

Basically, the method of applying overhead to jobs using a predetermined overhead rate assumes that actual overhead costs will be proportional to the actual amount of the allocation base incurred during the period.

All the jobs in process at the end of the month were completed (journal entry?)

Debit - Finished goods Credit - Work in Proc ess

Journal entry of Manufacturing Overhead Depreciation

Debit - Manufacturing Overhead Credit - Accumulated Depreciation

Raw materials Overhead journal entry?

Debit - Raw Materials Credit - Accounts Payable

Manufacturing Overhead applied to production using a companies pre-determined overhead rate (journal entry?)

Debit - Work in Process Credit - MOH

Closed to COGS (journal entry?)

COGS (Work in Process, Finished Goods) - D Manufactuing Overhead - C

Income Statement

COGS + Selling and administrative expenses

The amount transferred from work in process to finished goods is

COGS manufactured

Conversion Costs

DL + MOH

total cost of job (presented in a job cost sheet)

DM + DL + MOH applied

Unit Product Cost

DM + DL + Overhead cost per unit

Variable Expenses

DM + DL + VMOH + Sales commission + variable administrative costs

Variable Costs

DM, DL, variable elements of MOH, variable elements of selling and administrative costs (increase and decrease in proportion to activity level but remain constant in changed on a per unit basis)

All completed jobs were shipped to customers (journal entry?)

Debit - COGS Credit - Finished Goods

Journal entry of Cost of goods manufactured

Debit - FInished goods Credit - Work in Process

During March, Pendergraph Corporation incurred $66,000 of actual Manufacturing Overhead costs. During the same period, the Manufacturing Overhead applied to Work in Process was $68,000

Debit Manufacturing Overhead 66,000 Credit Accounts Payabable, Cash 66,000

Record unpaid wages of employees

Debit Work in Process Credit Wages Payable

journal entry for direct labor costs?

Debit Work in Process and Credit Manufacturing Overhead

Transferring completed jobs from work in Process to Finished Goods ON EXAM

Debit finished goods and credit work in process

Raw materials purchased

End inventory + purchases - beginning inventory

activity rate formula

Estimated overhead cost/total expected activity

Facility-level

Facility-level costs include items such as factory management salaries, insurance, property taxes, and building depreciation.

T or F: If a job is not completed at year end, then no manufacturing overhead cost would be applied to that job when a predetermined overhead rate is used.

False

T or F: In a job-order cost system, indirect labor is assigned to a job using information from the employee time ticket.

False

T or F: Job cost sheets contain entries for actual direct material, actual direct labor, and actual manufacturing overhead cost incurred in completing a job.

False

T or F: The amount of overhead applied to a particular job equals the actual amount of overhead caused by the job.

False

T or F: Traditional cost systems undercost standard products and overcost specialty

False

Actual DL or MH

MOH applied / predetermined manufacturing overhead rate

Matthias Corporation has provided data concerning the Corporation's Manufacturing Overhead account for the month of May. Prior to the closing of the overapplied or underapplied balance to Cost of Goods Sold, the total of the debits to the Manufacturing Overhead account was $64,000 and the total of the credits to the account was $91,000. Which of the following statements is true?

Manufacturing overhead applied to Work in Process for the month was $91,000.

Normal costing vs job costing

Normal is when overhead costs are applied by multiplying pre-determined rate by actual amount of allocation job - many jobs and services are performed, records DM,DL, and MOH applied

MOH applied

PDOR * Actual activity base

Apply Overhead (Normal cost system)

Pre-determined Rate x Actual Use of Cost Driver

Unit-level activities

Processing units on machines Processing units by hand Consuming factory supplies Machine-hours Direct labor-hours Units produced

Product-level activities

Product-level activities include maintaining inventories of parts for a product, issuing engineering change notices to modify a product to meet a customer's specifications, and developing special test routines when a product is first placed into production.

Variable expenses on income statement (from ch.1 practice problems)

Sales - (COGS + Variable selling( # variable cost per books x books) + variable administrative (% of sales))

Contribution Margin

Sales - Variable Expenses

Total Manufacturing Costs vs. Actual Manufacturing Costs

Total = direct materials(raw) +DL + MOH applied Actual = indirect labor + depreciation, insurance, and utiltilities

Overhead cost per unit

Total Cost assigned / Total units produced

unit product cost

Total product cost / number of units (is an average cost and should not be interpreted as the cost that would actually be incurred if another unit were produced)

T or F: Actual overhead costs are not assigned to jobs in a job costing system.

True

Total MOH

Variable MOH + Fixed MOH

manufacturing overhead is applied with a debit to.....

Work in Process

MOH, chapter 3:

Work in Process + Finished Goods + COGS

in a normal costing system work in process is debited for....

Work in Process and MOH applied

Applied Overhead Ch:3

Work in Process, Manufacturing Overhead, Finished Goods, and COGS

Y=a+ bX

Y = The total mixed cost a = The total fixed cost (the vertical intercept of the line) b = The variable cost per unit of activity (the slope of the line) X = The level of activity

Y=a+bX

Y = the estimated total MOH a = estimated total fixed MOH b = estimated variable MOH allocation base

indirect cost

a cost that cannot be easily and conveniently traced to a specified cost object. EX: grease used in a machine or annual salary of a production manager (common cost)

Sunk cost

a cost that has already been committed and cannot be recovered, they should be ignored

job cost sheet

a form that records the materials, labor, and manufacturing overhead costs charged to a job(total and unite product costs)

Schedule of COGS

a schedule that contains three elements of product costs - direct materials, direct labor, and manufacturing overhead

plantwide overhead rate

a single predetermined overhead rate that is used throughout a plant

Benchmarking

a systematic approach to identifying the activities with the greatest room for improvement. It is based on comparing the performance in an organization with the performance of other in the same industry

Total Overhead Cost(ABC)

activity rate x specific product activity

in a normal costing system, manufacturing overhead is debited for....

actual overhead costs and the cost of indirect materials

Manufacturing Overhead

all manufacturing costs except direct materials and direct labor. Is allocated/applied to the job. Considered indirect materials and labor. Includes indirect costs of depreciation of manufacturing equipment and the utility costs, property taxes, and insurance premiums incurred to operate a manufacturing facility

subsidiary ledger

all of a companies job cost sheets are collected

Cost of goods available for sale

beginning inventory + cost of goods manufactured

COGS

beginning inventory + purchases - ending inventory

Cost of direct materials

beginning inventory + purchases - indirect materials - ending inventory

During March, Pendergraph Corporation incurred $71,000 of actual Manufacturing Overhead costs. During the same period, the Manufacturing Overhead applied to Work in Process was $73,000. The journal entry to record the incurrence of the actual Manufacturing Overhead costs would include a: Multiple Choice credit to Manufacturing Overhead of $71,000 credit to Work in Process of $73,000 debit to Work in Process of $73,000 debit to Manufacturing Overhead of $71,000

debit to Manufacturing Overhead of $71,000

During June, Buttrey Corporation incurred $78,000 of direct labor costs and $18,000 of indirect labor costs. The journal entry to record the accrual of these wages would include a:debit to Work in Process of $78,000. credit to Work in Process of $96,000. debit to Work in Process of $96,000. credit to Work in Process of $78,000.

debit to Work in Process of $78,000.

Predetermined Overhead Rate

estimated total manufacturing overhead cost/estimated total amount of the allocation base

Indirect Materials

ex: glue used to assemble a chair

An activity cost pool accumulates costs for ---- many activity measures exactly 1 multiple

exactly 1

Activity measure

expresses how much of the activity is carried out and it is used as the allocation base for assigning overhead costs to products and services.