unit 2
If the activity rate for the customer order cost pool is $250 per order and the total for this cost pool is $425,000, the total number of customer orders is ______.
1,700 425,000 / 250 = 1,700
Focusing on activities to eliminate waste, decrease processing time, and reduce defects is the basis of
activity-based management
A budgeted balance sheet is developed using data from the ______ of the budget period and data contained in the various schedules.
beginning
The amount of time required to perform an activity is measured by a(n)
duration driver
In process costing, manufacturing overhead costs are
generally applied using a predetermined overhead rate
In recent years, direct labor as a percentage of total cost began declining, which caused overhead to
increase
Usually, traditional costing ______ high-volume products and ______ low-volume products.
overcosts; undercosts
In activity-based costing, first-stage allocation assigns ___ costs to activity cost pools
overhead
A budget that is prepared with the full cooperation of managers at all levels is a self-imposed or
participative budget
In a manufacturing company, the ___ budget shows the number of units that must be manufactured to satisfy sales needs and provide for the desired ending inventory.
production
Within the relevant range of activity:
-fixed costs remain in total-costs and activity can be approximated by a straight line
Costs assigned and/or traced when computing product margin in a traditional cost system are:
-manufacturing overhead -direct material -direct labor
A dress manufacturer would consider the cost of relatively inexpensive items like thread to be part of
-manufacturing overhead -indirect materials
In activity-based costing, the consumption of overhead resources is caused by ______.
an activity
Materials that become an important component of the finished product whose cost can be easily and conveniently traced to the finished product are
direct materials
Equivalent units of production under the weighted-average method equal
equivalent units in ending work in process plus units transferred out
As the level of activity moves outside of the relevant range, ___ costs increase or decrease in discrete steps rather than an linear fashion.
fixed costs
In a manufacturing company, which budget is used as the basis for creating the direct materials budget, the direct labor budget, and the manufacturing overhead budget?
production
The direct labor budget is based directly on the ______ budget.
production
In large organizations, many smaller individual budgets submitted by department heads and other responsible people comprise the ______ budget.
selling and administrative
Some manufacturing costs may be excluded from product costs when using ______ costing.
activity-based costing
The receipts section of the cash budget lists
all cash inflows, except from financing
Activity-based costing only charges products for the cost of the capacity used because ______.
-it results in a more stable unit product cost -products are only assigned the costs of resources they actually use
Identifying the activities that will form the foundation for the system
-often involves interviewing employees -involves a great deal of judgment -can be time-consuming
Industries/products more suitable for process costing than job-order costing include: -paper towels -sunscreen -shipbuilding -flour
-paper towels -sunscreen -flour
The first major step when implementing an ABC system is
identify the activities
Cost objects include: -customers -anything for which revenue data is desired -anything for which cost data is desired -organizational subunits
-customers -anything for which cost data is desired -organizational subunits
Differences between job-order and process costing include that process costing: -assigns materials, labor and overhead costs to specific customer orders -is used for indistinguishable products -computes unit costs by job -accumulates costs by department
-is used for indistinguishable products -accumulates costs by department
Cost behavior:
-refers to how a cost will change as activity level changes -categorizes costs as fixed, mixed, and variable
Nonmanufacturing costs include: -sales commissions -assembly-line worker wages -insurance on plant equipment -company president's salary
-sales commissions -company president's salary
Organization-sustaining activities include _____
-setting up a computer network -preparing annual reports -heating a factory
Manufacturing costs include: -administrative costs -manufacturing overhead -direct labor -selling costs -direct materials
-manufacturing overhead -direct labor -direct materials
An activity base: -measures whatever causes costs to vary -is a measure of whatever causes fixed costs to occur -is sometimes called a cost driver -is part of the organization where major operations are planned and carried out
-measures whatever causes costs to vary -is sometimes called a cost driver
An activity-based costing system
-produces different numbers than a traditional system -is costly to maintain -requires substantial resources
An activity-based costing system ______.
-uses numerous overhead cost pools -may exclude some manufacturing costs from product costs
In activity-based costing, each cost pool accumulates costs that relate to a single ____ measure in the ABC system.
activity
Total cost of each activity divided by the total activity is the computation of ______.
activity rates
More accurate estimates and higher motivation are generally the result of using a(n) ______ budget.
participative
Costs that can be easily traced to individual products include ______.
-warranty repair costs -sales commission -shipping costs
ABC does not conform to GAAP because it
-includes some nonmanufacturing costs -excludes some manufacturing costs
A cost that contains both variable and fixed cost elements is a(n) ______ cost.
mixed cost
Compared to traditional systems, activity-based costing uses ______ cost pools and unique measures of activity.
more
An example of a transaction driver is the ______.
number of bills sent out to a customer
In situations where products have some common characteristics and some individual characteristics, ___ costing is used
operation costing
When products have both similar and individual characteristics, ______ costing is used.
operation costing
Activity-based costing uses activity rates to apply overhead costs to products in ______ stage allocation.
second
Activity rates are used to apply overhead costs to products and customers in the
second-stage allocation
An ABC system usually ______ a traditional cost system.
supplements
Why is top management support needed when ABC is implemented?
Leadership is instrumental in motivating employees to embrace ABC.
The first major step in implementing ABC is to identify the ___ that will form the foundation for the system
activities
A reason that activity-based costing is not often used for external reporting is
the ABC system may not conform to GAAP
A company can consider making investments or repay outstanding principal and interest when
the cash excess is greater than the minimum required cash balance
Period costs are always expensed on the income statement in the period in which
they are incurred
An example of a duration driver is the ______.
time spent preparing invoices
When unit costs are transferred from Department A to Department B, Department B will treat the costs as
transferred in
Once the break-even point has been reached, net operating income will increase by the amount of the _____ for each additional unit sold.
unit contribution margin
Power to run production equipment is a(n)
unit-level activity
Malcolm Company uses a weighted-average process costing system. All materials at Malcolm are added at the beginning of the production process. The equivalent units for materials at Malcolm would be the sum of:
units in beginning work in process and the units started
Within the relevant range, ___ costs remain constant on a per unit basis.
variable
Cost of goods sold for a merchandising company, direct materials and commissions are all examples of
variable costs
A processing department is an organization unit
where work is performed on a product, and materials, labor and overhead are added
Recording the transfer of partially completed products from one processing department to another, requires a journal entry that affects the ______ account of both processing departments.
work in process
A company's planned net profit that serves as a benchmark against which subsequent company performance can be measured is shown on the budgeted
income statement
A manufacturing cost that cannot be easily traced to a specific cost object is a(n)
indirect costs
Minor items such as nails and glue are usually considered to be
indirect materials
ABC is generally used for ______ reporting.
internal reporting
Direct materials and direct labor are both ______ costs.
manufacturing costs
Factory costs such as cleaning supplies, taxes, insurance, and janitor wages are classified as ______.
manufacturing overhead
All costs of production other than direct materials and direct labor are shown on the
manufacturing overhead budget
A number of separate, but interdependent, budgets that formally lay out the company's sales, production, and financial goals are contained in the
master budget
An integrated business plan that formally lays out the company's goals is called the ______ budget.
master budget
The accrual concept that costs incurred to generate a revenue are expensed in the same period the revenue is recognized is known as the
matching principle
Under activity-based costing, nonmanufacturing costs ______.
may be allocated to products based on cause
A company with adequate cash balances at the beginning and end of the year,
may still have cash deficiency issues during the year
The amount of goods for resale to be acquired from suppliers during the period is shown on the
merchandise purchases
Common activity bases include: -scrapped units -machine hours -units sold -direct labor hours
-machine hours -units sold -direct labor hours
A processing department transferred 2,000 units to the next department. Ending work in process in the department contained 100 units that were 40% complete with regard to materials and 25% complete with regard to conversion costs. Using the weighted-average method, the equivalent units of production for materials is ______.
2,040 2,000 + (100 x 40%) = 2,040
A company transferred 150 units to finished goods and has 215 units in ending work in process inventory that are 60% complete. Using weighted-average costing, the number of equivalent units is ______.
279 (150+(215x60%))
Match the costing method to the manner in which unit costs are calculated. FIFO method:
Bases costs solely on the costs and outputs from the current period.
On the cash budget, what is subtracted from total cash available to find the cash excess or deficiency?
Cash disbursements
Match the costing method to the manner in which unit costs are calculated. Weighted-average method:
Combines costs and outputs from the current and prior periods.
True or false: Control involves developing goals and preparing various budgets to achieve those goals.
False
True or false: For most companies a single, annual cash budget is sufficient.
False
True or false: In an activity-based costing system, it is best to combine activities that are not highly correlated.
False
True or false: Labor costs that can be specifically traced to a product are indirect labor costs.
False
True or false: Variable costs remain fixed in total within the relevant range of activity.
False
Sneaker Styles Company manufactures a wide variety of sneakers. Which of the following systems is most suitable for Sneaker Styles?
Operation costing
Which of the following help companies channel their resources into the most profitable growth opportunities?
Product and customer profitability reports
Which of the following is not a characteristic of operation costing? -Costs are accumulated by department -Costs are accumulated by operation -Products are processed in batches -Products are homogeneous
Products are homogeneous.
Contribution margin
Sales revenue minus variable expenses equals
Which of the following is needed to prepare a sales budget?
The budgeted number of units to be sold
Which of the following is not essential for the successful implementation of an ABC system?
Top managers must design the ABC system.
Equivalent units of production equals the number of units transferred to the next department (or finished goods) plus equivalent units in ending work in process under which method(s) of costing?
Weighted-average only
The journal entry to record direct materials costs in processing Department #1 is debit
Work in Process-Department #1 and credit Raw Materials
The journal entry to apply overhead cost to processing Department #1 is to debit
Work in process-Department #1 and credit Manufacturing overhead
Because it is needed for the schedule of expected cash collections, the annual master budget file includes the
balance sheet
The annual master budget file includes the ______ from last year because it is needed for the schedule of expected cash collections.
balance sheet
To prepare a budgeted balance sheet as of December 31, 2020, data is needed from the ______ December 31, 2019.
balance sheet as of
Budgets
communicate management's plan throughout the organization
Gathering feedback to ensure that the plan is being followed is referred to as
control
In activity based costing another term for activity measure is ______.
cost driver
n activity-based costing, another term for allocation base or activity measure is
cost driver
Any item for which cost data is desired is called a(n)
cost object
The ending finished goods inventory budget computes the ______ units.
cost of unsold units
When creating an Excel budget and performing what-if analysis, it is generally easiest to
create the budget with a budgeting assumption tab
A cost pool including costs to entertain clients and make sales calls is a(n) ______ activity.
customer-level
Activity-based costing uses more cost ___ than traditional costing.
pools
The final step in implementing ABC is ______.
prepare management reports
Each department has a separate Work in Process account when using ______ costing.
process
Process costing accumulates costs by
process
Industries that convert raw materials into homogeneous products typically use
process costing
Work is performed on products, and materials, labor, and overhead costs are added to products in a(n)
processing department
The first line of the direct labor budget consists of the budgeted units expected to be ______ during the period.
produced
Direct materials, direct labor, and manufacturing overhead are all ______ costs.
product costs
Inventoriable costs is another term for
product costs
Costs in beginning work in process inventory was $4,500 and $37,800 in costs were added during the period. If there are 7,050 equivalent units, the cost per equivalent unit under the weighted-average method is
$6 (4,500+37,800)/7,050
Conversion costs are
direct labor plus manufacturing overhead
Individual product costs calculated using ABC are not listed on ______ reports.
external
The cash budget includes four major sections: receipts, disbursements, the cash excess or deficiency, and
financing
In activity-based costing, the process of assigning overhead costs to activity cost pools is ______ stage allocation.
first
Operations costing is similar to process costing because
labor and overhead costs are accumulated by operation or department
Using budgeting assumptions when preparing the master budget,
makes it easier to answer "what-if" questions
A potential benefit that is forfeited or lost when one decision is chosen over another is called a(n)
opportunity cost
Activities that occur regardless of which customers are served, which products are produced or how many batches are run or units made are facility-level or
organization-sustaining activities
To calculate total sales on the sales budget, multiply budgeted sales in units by
sales price per unit
Product costs:
-"attach" to units of product as they are purchased for resale or produced -are also called inventoriable costs
A manager cannot complain that the budget was unrealistic and impossible to meet when a(n) _____ budget is in place
self-imposed
Many managers believe that being empowered to create their own self- _____ budgets is the most effective method of budget preparation
self-imposed
Budgeted expenses for areas other than manufacturing are shown on the ______ budget.
selling and administrative
Direct labor is also called
touch labor
Which costing system does not assign selling and administrative costs to products when computing product margin?
traditional
When using process costing, each processing department has a separate
work in process account
Costs per equivalent unit are used to value
both units in ending inventory and units transferred to the next department
A detailed plan for the future that is usually expressed in formal quantitative terms is
budget
A detailed plan for the future that is usually expressed in formal quantitative terms is a(n)
budget
When a manager creates a budget that is too easy to attain, ______ occurs.
budgetary slack
Which of the following budgets shows the company's planned profit and serves as a benchmark against which subsequent company performance can be measured?
budgeted income statement
Based on the following information, calculate net income for Dana's Dress Shop using the traditional format. Sales $360,000 Gross Margin $140,000 Contribution Margin $110,000 Total Selling & Administrative Exp. $60,000
$80,000 140,000 - 60,000 = 80,000
Sperling Company's master budget shows expected sales of 10,000 units and expected production of 11,000 units for the month of March. Each unit requires 1/2 hour of direct labor. The direct labor rate is $15.00 per hour. Calculate the expected total direct labor cost for the month of March.
$82,500 11,000 x 1/2 x 15 = 82,500
Which of the following are most likely fixed costs? -factory rent -administrative salaries -factory insurance -electricity to operate factory machines
-Factory rent -Administrative salaries -Factory insurance
Which of the following budgets are directly based on information from the sales budget?
-Production budget -Selling and administrative expense budget
Master budget schedules:
-are based on estimates and assumptions. -answer several key questions for a company
Opportunity costs:
-are benefits that are given up when selecting one alternative over another -should be considered in decision making
Indirect labor costs include: -administrative assistant salary -assembly-line supervisor salary -factory security guard wages -assembly-line worker wages
-assembly-line supervisor salary -factory security guard wages
Units in ___ work in process inventory + units started or transferred in = ____ Units in work in process inventory + units completed and transferred out.
-beginning -ending
Product costs flow through the inventory accounts until the goods are sold, at which time they are matched against sales on the
income statement
Unit-level activities are ______.
proportional to the number of units produced
Costs of unused or idle capacity are assigned to products when using a(n)
traditional costing system
Simple counts of the number of times an activity occurs are ___ drivers
transaction drivers
The equivalent units completed are valued the same as units ______ for purposes of determining the cost per unit.
transferred out
Costs transferred in from Department A to Department B
will always be 100% complete with respect to Department A
Activity-based costing is not used for external reporting because
-ABC does not comply with GAAP -it is difficult to make changes in the existing accounting system -external reports are less detailed than internal reports
What are some of the limitations of activity-based costing systems?
-ABC procedures produce numbers that do not match traditional costing. -ABC requires substantial resources. -Managers and employees may resist the change to ABC.
Which of the following are differences between the traditional and contribution format to income statements?
-Traditional income statements focus on cost classifications. Contribution format statements focus on cost behavior. -Compared to traditional statements, contribution format statements provide management with a tool to make decision making easier.
Similarities between job-order costing and process costing include the: -basic purpose to assign and compute product costs -way in which unit costs are calculated -manufacturing accounts used -flow of costs through the manufacturing accounts
-basic purpose to assign and compute product costs -manufacturing accounts used -flow of cost through the manufacturing accounts
Budgets:
-coordinate the activities of the entire organization by integrating the plans of its various parts -define goals and objectives that can serve as benchmarks for evaluating subsequent performance -and the budgeting process can uncover potential bottlenecks before they occur -force managers to think about and plan for the future
Characteristics of operation costing include:
-costs are accumulated by department -products are processed in batches
The correct journal entry to apply manufacturing costs to processing Department #1 is ___ Manufacturing overhead and ___ Work in process - Department #1
-credit -debit
The journal entry to record labor cost in the first department is ___ wage payable and ___ work in process - department #1
-credit -debit
Place the steps for implementing ABC in order.
1. Define activities, activity cost pools, and activity measures. 2. Assign overhead costs to activity cost pools. 3. Calculate activity rates. 4. Assign overhead costs to cost objects. 5. Prepare management reports.
A company has three processing departments: Mixing, Baking, and Packaging. The Baking Department transfers 500 units to the Packaging Department. How will the Packaging Department account for the costs of those 500 units?
Costs transferred in
Which of the following statements about processing costing is false? -Process costing accumulates costs by department -Process costing assigns departmental costs uniformly to all identical units that pass through the department during a period -Process costing systems compute unit costs by department -Process costing is used when a company produces a continuous flow of units that are distinguishable from one another
Process costing is used when a company produces a continuous flow of units that are distinguishable from one another
Conversion cost is composed of
direct labor and manufacturing overhead
The cost of beginning work in process inventory plus the costs added to production during the period equals the
total cost to be accounted for
Activities that could be combined into one batch-level activity are the number of ______
-customer orders received -shipped orders
Customer-level activities include _____
-mailing catalogs -sales calls
True or false: The flow of costs through manufacturing accounts is basically the same for job-order costing and process costing.
True
To calculate cost per equivalent unit using the weighted-average method, add the cost of ___ work in process inventory to costs added during the period and divide by equivalent units of production
beginning work in process inventory
How individual costs react to changes in activity level is referred to as cost
behavior
In a manufacturing company, the ___ budget is prepared right after the sales budget.
production
The most common reports prepared using ABC data are the product and customer
profitability reports
The assumption that cost behavior is strictly linear is reasonably valid within the
relevant range of activity
Because all other parts of the budget depend on it, if the ______ budget is inaccurate, the rest of the budget will be inaccurate.
sales
The first step in the budgeting process is preparing the ______ budget.
sales
Both the production and selling and administrative expense budgets are prepared using information directly from the
sales budget
The journal entry to record the transfer of partially completed products from processing Department #1 to processing Department #2 is to debit Work in Process Department ______.
#2 and credit Work in Process-Department #1
A company's products had sales of $750,000 and total costs of $360,000. If the net operating income for the company was $215,000, total overhead costs not assigned to products was
$175,000 750,000 - 360,000 = 390,000390,000 - 215,000 = 175,000
Methods to calculate departmental unit costs include
-FIFO -weighted-average
Number of partially completed units x Percentage completion =
Equivalent units
Equivalent units is computed using which of the following formulas?
Equivalent units = Number of partially completed units x Percentage completion
True or false: Traditional cost systems tend to undercost standard products and overcost specialty products.
False
True or false: A processing department needs to calculate a separate unit cost for each type of cost incurred.
True
True or false: Activity-based costing can be used for process improvement.
True
The journal entry to record material cost in the second department includes a ___ to work in process - Department #2
debit
Fantastic Furniture makes custom order couches. The material used to make a couch is a(n) ______ cost of the customer placing the order. Multiple choice question.
direct cost
Costs that can be easily and conveniently traced to a specific product are called ______ costs.
direct costs
Working hours required to satisfy the production budget are shown on the ______ budget.
direct labor
As the level of activity moves outside of the relevant range, fixed costs,
increase or decrease in discrete steps
A cost than contains both variable and fixed costs elements is called a(n)
semivariable cost
To reconcile ABC product margin to net income ____
subtract overhead costs not assigned to products
Break-even point is the level of sales at which
total revenue equals total costs
The cost of unsold units is computed on the ______ budget.
ending finished goods inventory
To report ending inventory, partially completed units are translated into
equivalent units
Required borrowings on a cash budget is calculated by
adding the desired ending cash balance to the amount of the cash deficiency
An activity cost pool accumulates costs for ______ activity measure(s).
exactly one
Within the relevant range of activity, ______ costs remain constant in total.
fixed costs
Canners Company uses weighted-average costing. Beginning work in process inventory had $3,650 of material costs. During the period, $5,000 of materials and $9,250 in conversion costs were added. If there are 250 equivalent units of production for materials, the cost per equivalent unit for materials is ______.
$34.60 $3,650 + $5,000) ÷ 250 = $34.60
Which of the following is a key difference between process and job-order costing? -Process costing accumulates costs by order, and job-order costing accumulates costs by department. -Job-order costing systems compute unit costs by department, and process costing systems compute unit costs by job. -Under process costing, it makes no sense to try to identify materials, labor and overhead costs with a particular customer order. -Job-order costing is used for indistinguishable products, and process costing is used for different jobs that have unique production requirements.
Under process costing, it makes no sense to try to identify materials, labor and overhead costs with a particular customer order.
Which of the following equations is correct? -Units in ending WIP + units started or transferred in = Units in beginning WIP + units completed and transferred out -Units in beginning WIP + units started or transferred in = Units completed and transferred out - units in ending WIP -Units in beginning WIP + units started or transferred in = Units in ending WIP + units completed and transferred out
Units in beginning WIP + units started or transferred in = Units in ending WIP + units completed and transferred out
Within the relevant range, which type of cost changes in total, in direct proportion to changes in activity level?
Variable
The journal entry to record direct labor costs in processing Department #1 is debit
Work in process-Department #1 and credit Salaries and wages payable
A characteristic essential for successful implementation of ABC is
a link to how people are evaluated and rewarded
Activity-based costing uses numerous ___ cost pools.
activity
True or false: In an automated environment, using traditional allocation bases based on volume may distort unit product costs.
True
True or false: Many of the schedules in a master budget are based on a variety of management estimates and assumptions.
True
In process costing, manufacturing overhead costs are distributed to each department ______.
according to the amount of the allocation base incurred in the department
In ABC, any event that causes consumption of overhead resources is a(n)
activity
A laptop computer manufacturer would consider the computer's processor chip to be a(n) ______ cost.
direct material
In a manufacturing company, the ______ budget details the raw materials that must be purchased to fulfill the production budget and provide for adequate inventories
direct materials
Madison Corporation's expected beginning cash balance is $35,000. Cash collections are budgeted at $50,000 and cash disbursements are estimated to be $80,000. The minimum required cash balance is $20,000 and the company can borrow as much as needed in increments of $10,000. Calculate the expected ending cash balance for the month.
$25,000 $35,000 + $50,000 - $80,000 = $5,000. Since they can borrow in increments of $10,000 they must borrow $20,000 to meet or exceed the minimum cash balance making the ending balance $25,000.
Which of the following statements about companies that use processing costing is false? -A processing department is an organizational unit where work is performed on a product and where materials, labor, or overhead costs are added to the product -Costs are accumulated by department -Raw materials are added only to the first processing department -A separate Work in Process account is maintained for each processing department
Raw materials are added only to the first processing department
Budgetary slack occurs when a manager submits a budget that is
too easy to attain
A company purchased a 12 month insurance policy on October 1 for $1,200. On the December 31 annual financial statements
$300 is reported as a expense and $900 is reported as an asset
The formula for the cost per equivalent unit using the weighted-average method is
(Cost of beginning work in process inventory + Cost added during the period) ÷ Equivalent units of production
Activity-based management is focused on
-reducing defects -eliminating waste
Which of the following statements are true? -The wages of assembly-line workers are period costs. -Sales commissions are period costs. -Period costs are expensed in the same period in which they are incurred. -Period costs are included as part of the cost of goods.
-Sales commissions are period costs. -Period costs are expensed in the same period in which they are incurred.
Selling and administrative costs are
direct or indirect costs
Operations costing is similar to job-order costing because
each batch is charged for its own specific materials
On a traditional income statement, cost of goods sold reports the ___ costs attached to merchandise sold during the period, while selling and administrative expenses report all ___ costs that have been expensed as incurred.
-product costs -period costs
Borrowing money is required whenever:
-there is a cash deficiency -the cash excess is less than the minimum required cash balance
An income statement focusing on product and period costs has been prepared using (a)n ___ format, while (a)n ___ format income statement makes a distinction between fixed and variable costs.
-traditional format -contribution format
