ACC 220 NCSU Final Exam

true about opportunity costs

Is the potential benefit that is given up when one alternative is selected over another; not usually found in accounting records; must be explicitly considered in every decision a manager makes

True of the contribution approach

It separates costs into fixed + variable categories

Assigning manufacturing overhead to a specific job is complicated by:

MO is an indirect cost that is impossible/difficult to trace to a particular job; Consists of both variable and fixed costs; The average cost of actual fixed mo expenses will vary depending on how many units are produced in a period.

Poorly trained workers could have an unfavorable effect on:

Materials quantity variance → not labor rate variance

Direct Materials

Materials that become an integral part of the finished product & whose costs can be conveniently traced to the finished product

Actual overhead costs are:

NOT assigned to jobs

not true abt processing costing

Used when a company produces a continuous flow of units that are distinguishable from one another

Used in activity-based absorption costing to assign overhead costs to products

multiple activity rates

Companies can improve job cost accuracy by using:

multiple predetermined overhead rates

If the degree of operating leverage is 4, then a 1% change in quantity sold should result in a 4 % change in:

net operating income

Residual income is the difference between:

net operating income and the product of average operating assets and the minimum rate of return

The production department should generally be responsible for materials price variances that resulted from:

rush orders arising from poor scheduling

A graph that is increasing:

scattergraph plot suggests a mixed cost relationship between direct labor-hours and manufacturing overhead.

Reason for the popularity of plantwide overhead rates to allocate overhead costs

simplicity

if a firm increases its activity level

some costs will change, other costs will remain the same. Total variable costs will increase while total fixed costs will remain constant.

Direct Labor

sometimes called "touch labor" bc workers usually touch the product while its being made.. Common to both prime cost and conversion cost.

Prime Cost

sum of direct materials cost and direct labor cost

Always an irrelevant cost

sunk cost

Operation costing:

system suitable for company that manufactures a wide variety of sneakers (products have some common characteristics + some individual characteristics)

In the equation Y-a +bX, X represents

the level of activity

When using least-squares regression, R^2 represents:

the measure of goodness of fit

If variable manufacturing overhead is applied on the basis of DLHs and the variable overhead rate variance is favorable, then:

the standard variable overhead rate exceeded the actual rate

Company uses a weighted-average process costing system, all materials are added at the beg of the production process. All equivalent units for materials at this company would be the sum of:

units in beg WIP process and the units started.

Least-squares regression method

used by managers to estimate the fixed + variable components of mixed costs by analyzing past records of cost + activity data.

job cost sheet

used to keep track of the materials, labor, + m.o. Costs charged to each job.

Within the relevant range, a difference between variable costs and fixed costs is:

variable costs per unit are constant and fixed costs per unit fluctuate

product cost

wages of a sheet metal worker in a fabrication plant should be classified as product costs

In the cost formula Y = a + bX that is used to estimate the total manufacturing overhead cost for a given period,

"a" refers to the estimated: total fixed manufacturing overhead cost, "b" = the est. variable m.o. per unit of the allocation base, "X"= estimated total amount of the allocation base, "Y"= estimated total m.o. Cost

Under an ABC system, overhead costs are allocated to the products using a two-stage process

. Allocate the overhead costs to individual activity pools. 2. We allocate the costs in the activity pools to the products using activity rates and activity measures.

Category used by the traditional income statement

Cost of goods sold and selling and administrative expenses

Activity measure:

In an activity-based costing system, the activity measure expresses how much of the activity is carried out and is used as the allocation base for assignment overhead costs.

A company is predicting that a price increase next year will not cause unit sales to decrease. What effect would this price increase have on the following items for next year? Contribution Margin ratio Break even point

Increase ; Decrease

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

Indirect Material Cost:

Raw materials

can include both direct and indirect materials

When companies incur selling & administrative costs, those costs:

do not flow through the three inventory accounts

materials ticket

each employee who works on the job uses a time ticket to record the time spent.

Property taxes are an example of a cost that would be considered to be:

facility-level

The direct materials required to manufacture each unit of product are listed on a

bill of materials

direct cost example

A branch manager's salary would be a direct cost of the branch.

indirect cost example

A branch manager's salary would be an indirect cost of selling a tour package.

common cost

A cost that is incurred to support a # of cost objects but cannot be traced to them individually

True statements

A factory supervisor's salary would be classified as an indirect cost w/ respect to a unit of product; A direct cost is a cost that can be easily traced to the particular cost object under consideration; A cost can be direct or indirect, the classification can change if the cost object changes.

. A criticism of return on investment (ROI):

A manager who takes over a business segment usually inherits many committed costs that they cannot control, but that influence the calculation of ROI.

Companies that use processing costing:

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. A separate Work in process account is maintained for each processing department.

True statements about processing costing:

Accumulates cost by department, Assigns departmental costs uniformly to all identical units that pass through the department during a period, Compute unit costs by department

A product-level activity

Administering parts inventories

Manufacturing overhead includes:

All manufacturing costs except direct labor and direct materials

True statements abt Manufacturing overhead costs:

All manufacturing costs other than direct materials & direct labor are classified as manufacturing overhead costs, are entered directly into the manufacturing overhead account, m.o. Costs are recorded w/ a debit to m.o. Account as they are incurrent

Part of the 4-level hierarchy used in an activity-based costing systems:

Batch-level activities; Facility-level activities; Product-level activities; Unit-level activities

A normal cost system applied overhead to jobs:

by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job.

Journal entry used to record direct labor costs in a company having two processing departments:

Debit Work in Process- Department A XXX Work in Process- Department B XXX Credit Salaries & wages payable XXX

When goods are sold:

Debit COGS and credit Finished goods

The journal entry to record applying overhead during the production process:

Debit WIP ; Credit Manufacturing overhead

Best describes the journal entry to record the withdrawal of raw materials from the storeroom for use as direct & indirect materials in production?

Debit work in process ( amount of direct materials used),, debit manufacturing overhead (amount of indirect materials used), credit raw materials.

Best describes the journal entry to record the use of direct & indirect labor in production?

Debit work in process debit manufacturing overhead , credit salaries and wages payable

Not true about manufacturing overhead costs:

Depreciation on factory equipment is recorded w/ a debit to depreciation expense.

Conversion Cost

Direct Labor + Manufacturing Overhead

Conversion costs include:

Direct labor cost and manufacturing overhead cost

Manufacturing costs include

Direct labor, direct materials, manufacturing overhead

The total activity in an activity cost pool (in activity-based costing) can be computed by

Dividing the total overhead cost in the activity cost pool by the activity cost pool's activity rate

Predetermined overhead rate =

Estimated total manufacturing costs / Estimated total units in the allocation base

not true

Raw material costs are added only to the first processing department

matching principle

Requires that the costs incurred to generate a particular revenue should be recognized as expenses in the same period that the revenue is recognized

Performance measures that will increase if inventory decreases and all else remains the same:

Return on investment ; Residual Income

Contribution margin =

Sales - variable expenses

under applied

Term used when a company applies less overhead to production than it actually incurs.

Facility-level costs cannot:

be traced on a cause and effect basis to individual products.

Activity-based costing True statements:

When designing an activity-based costing system, related activities are frequently combined to reduce the amount of detail and record-keeping cost. Activity-based costing involves a two-stage allocation process in which overhead costs are first assigned to activity cost pools and then allocated to products using activity measures

Excel depicts the least-squares regression results using the equation form:

Y = bx + a

The cost of electricity for running production equipment is classified as: Conversion Cost Period Cost

YES; NO

fixed cost

a cost which remains constant in total with changes in the level of activity

If the contribution margin is not sufficient to cover fixed expenses

a loss occurs

The number of units to be produced in a period can be determined by:

adding the expected sales to the desired ending inventory and then deducting the beg. Inventory

Budgeted Income statement is prepared :

after the sales budget

Direct labor budget is prepared:

after the sales budget

An activity measure is an:

allocation base that is used as the denominator for an activity cost pool. The costs accumulated in an activity cost pool are divided by the activity measure to obtain an activity rate.

Residual income should be used to evaluate:

an investment center rather than a cost or profit center

not true abt opportunity costs

an opportunity cost cannot be changed by any decision made now or in the future

Batch level activities:

are preformed each time a batch of goods is processed. The cost of a batch-level activity does not depend on the number of units in the batch.

Actual overhead costs are NOT

assigned to jobs in a job costing system

Cash collections in a schedule of cash collections typically consist of:

collections on sales made to customers in prior periods plus collections on sales made in the current period

Process costing most common in industries that

convert raw materials into homogeneous (uniform) products: bricks, soda, paper, on a continuous basis.

When computing the cost per equivalent unit, the weighted average method of process costing considers:

costs incurred during the current period + cost of beg WIP inventory

When manufacturing overhead is applied to work in process:

credit to manufacturing overhead, a debit to WIP

Occurs when a job has been completed & transferred to the finished goods warehouse:

credit to work in process, debit finished goods, credit WIP

Occurs when finished jobs are shipped to customers:

debit to cost of goods sold.

The adjustment for overapplied overhead:

decreases COGS and increases net operating income

Subsidiary ledger

formed when all of a company's job cost sheets are viewed collectively.

A $2 increase in a product's variable expense per unit accompanied by a $2 increase in its selling price per unit will:

have no effect on the break-even volume

materials requisition form

identifies the materials drawn from the storeroom that must be then charged to each job.

Manufacturing Overhead Costs

include items such as indirect materials, indirect labor, maintenance & repairs on production equipment, depreciation,and insurance on manufacturing facilities.

Product costs:

manufacturing overhead costs, raw materials, direct labor.. NOT: sales commissions → these are period costs.

Some investment opportunities that should be accepted from the viewpoint of the entire company may be rejected by a manager who is evaluated on the basis of:

return on investment

Departmental overhead rates may not correctly assign overhead costs due to

overreliance on volume as a basis for allocating overhead costs where products differ regarding the # of units produced, lot size, or complexity of production.

In process costing, a separate WIP account is kept for each:

processing department

Design + engineering changes are examples of:

product-level activities

nonmanufacturing costs

property taxes associated w/ a company's administrative facility

Indirect Materials

raw materials whose costs cannot be easily or conveniently traced to finished products.

Product-level activities:

relates to specific products + typically must be carried out regardless of how many batches are run/units of product are produced + sold.

Differential costs are always

relevant in making business decisions