Chapter 2 Practice
Find: @ 300k units A) Prime Cost per unit B) Contribution Margin per unit C) Gross Margin per unit D) Conversion Cost per unit E) Variable Cost per unit F) Full Absorption Cost per unit G) Variable production Cost per unit H) Full Cost per unit
A) $19 = Direct + Direct B) $16 = Sales price - Variable costs C) $13 = Sales price - Full Absorption D) $26 = Manu. Overhead fixed & variable + direct labor E) $35 = Variable costs F) $38 = Direct Labor & Material + Fixed & Variable overhead G) $29 = Variable cost per unit + Variable Marketing & Admin H) $47 = Fixed & Variable manufacturing & selling
The process of assigning indirect costs is called cost
Allocation
Calculate Ending finished goods inventory
Beg. Bal + Finished Goods balance + COGM - COGS
Calculate direct materials put into production
Beg. direct materials inventory + Purchases - Ending direct material inventory
Sales price - Variable costs per unit.
Contribution Margin
The way costs respond to changes in activity levels is called
Cost behavior
Beg. direct materials + Purchases - Ending balance + Direct Labor + Manufacturing Overhead + Beg. WIP - Ending WIP
Cost of Goods Manufactured
Beg. direct materials + Purchases - Ending balance + Direct Labor + Manufacturing Overhead + Beg. WIP - Ending WIP + Beg. Finished Goods - Ending Finished Goods
Cost of Goods sold
Any cost that can be directly (unambiguously) related to a cost object at reasonable cost.
Direct Cost
Labor that can be identified directly with the product at reasonable cost.
Direct Labor
Product costs that can be feasibly identified with units of production.
Direct Manufacturing costs
Materials that can be identified directly with the product at reasonable cost.
Direct Materials
Product costs that can be identified with units at a relatively low cost are ________ manufacturing costs and all other product costs are ________ manufacturing costs.
Direct, Indirect
The two types of product costs are, _________ manufacturing costs and _________ manufacturing costs
Direct, Indirect
T/F Efficiency in operations is measured by considering a retailer's cost of goods sold.
False
True or false: The excess of operating revenues over the operating costs incurred to generate those revenues is net income.
False
Common approaches for determining product costs
Full Absorption Variable Managerial
Sum of all costs of manufacturing and selling a unit or product (includes both fixed and variable costs).
Full Cost
All variable and fixed manufacturing costs; used to compute a product's inventory value under GAAP
Full absorption cost
the inventoriable cost for external financial statements & is required by GAAP
Full absorption costs
Revenue - Cost of goods sold on income statements. Per unit : Sales price - Full absorption cost per unit.
Gross Margin
Any cost that cannot be directly related to a cost object.
Indirect costs
All production costs except direct labor and direct materials.
Manufacturing Overhead
Costs required to obtain customer orders are _______ costs and costs required to manage the organization are __________ costs.
Marketing, Administration
The ________ requires that the costs incurred to generate a particular revenue should be recognized as expenses in the same period that the revenue is recognized.
Matching Principle
Excess of operating revenues over the operating costs necessary to generate those revenues.
Operating Profit
Forgone benefit from the best (forgone) alternative course of action.
Opportunity Cost
Past, present, or future cash outflow.
Outlay Cost
Costs recognized for financial reporting when incurred.
Period Cost
Nonmanufacturing costs are also called __________ costs and manufacturing costs are also called ___________ costs.
Period, Product
Companies with low overhead costs focus on managing ______ costs, whereas companies with high overhead costs focus on managing ______ costs.
Prime, Conversion
The sum of direct materials and direct labor equals __________ costs and the sum of direct labor and manufacturing overhead equals ___________ costs
Prime, Conversion
Costs assigned to the manufacture of products and recognized for financial reporting when sold.
Product Cost
How should the wages of a sheet metal worker in a fabrication plant be classified?
Product Cost
Costs assigned to units of production and expensed when the units are sold are ________ costs, where as _________ costs are expensed as incurred
Product, Period
T/F Distinguishing between manufacturing and nonmanufacturing costs can be difficult.
True
T/F For managerial purposes, managers often assign nonmanufacturing costs to products.
True
T/F Gross margin reflects the ability of a wholesaler to price products.
True
T/F Nonmanufacturing costs are expensed as incurred for financial accounting purposes.
True
T/F Retailers have an entire category of amounts that do not appear on service company income statements.
True
True or false: For a manufacturer, finished goods inventory is optional.
True
True or false: Whether a cost is direct or indirect depends on the cost object.
True
Product costs for unsold units are ______.
assigned to inventory under both absorption and variable costing
The amount available to cover fixed expense and earn a profit is the
contribution margin
Sum of direct labor and manufacturing overhead.
conversion costs
The difference between full cost and full absorption cost is
fixed and variable selling costs are included in full cost but not in full absorption cost
All product costs except direct costs.
indirect manufacturing costs
To calculate net income, operating profit is adjusted for ______.
interest expense, extraordinary items, other required regulatory adjustments
Any new costs incurred when adding a product are considered product costs under ___________ costing
managerial
Sum of direct materials and direct labor.
prime costs
Beginning work in process inventory plus total manufacturing costs equals ______.
resources put into production during the year
Direct materials and sales commissions are most likely _________ costs, whereas many manufacturing overhead costs such as rent and supervisor salaries are _________ costs
variable, fixed