ACC 222 Exam #1

T/F Cost behavior is the general term for describing whether and how a cost changes when the level of output changes.

True

T/F Cost of goods sold represents the cost of goods that were sold during the period and, therefore, transferred from finished goods inventory on the balance sheet to cost of goods sold on the income statement (i.e., as an inventory expense).

True

T/F The Cost of Goods Sold equals the Cost of Goods Manufactured plus the Beginning Finished Goods Inventory minus the Ending Finished Goods Inventory.

True

T/F The final step to estimating overhead using normal costing is to recognize and reconcile any difference between estimated overhead and actual overhead.

True

T/F Variable costing is useful for internal decision making.

True

T/F Using Carsen's suggested cost assignment method, Carsen received more pizza cost than Joseph because of size and product diversity.

True b/c Carsen weighs more and thus eats more (size diversity). Moreover, his weight class for wrestling allows and encourages him to eat more, while Joseph must keep his weight within a range (product diversity).

What is a fixed cost?

A cost that does not change in total as output changes is a fixed cost

T/F Assume at the beginning of this period, there was $45,000 worth of materials in Beginning Materials Inventory. $150,000 of raw material are purchased, and the Ending Materials Inventory contains $20,000 worth of materials. The Direct Materials Used in Production would be $125,000.

False b/c Beginning Materials Inventory + Purchases - Ending Materials Inventory = Direct Materials Used in Production

T/F Based on real experience, it is not possible to improve environmental performance while improving economic performance.

False b/c many companies, including the one in the clip have improved economic performance while also improving environmental performance.

T/F Of the three cost assignment approaches, the approach suggested by Kambry is the one that best reflects the resources consumed by each wrestler.

False b/c the allocation scheme proposed by Carsen best reflects the resources consumed

What is the three steps of overhead application?

The basics of overhead application can be described in three steps: (1) Calculate the predetermined overhead rate. (2) Apply overhead to production throughout the year. (3) Reconcile the difference between the total actual overhead incurred during the year and the total overhead applied to production.

T/F Direct Materials Used in Production equals Beginning Materials Inventory plus Purchases minus Ending Materials Inventory.

True

T/F Failing to recognize and predict semi-variable costs that increase at an increasing rate can lead to disastrous outcomes for businesses.

True

T/F Product costs are recorded in inventory as an asset on the balance sheet and then are recorded on the income statement in the form of cost of goods sold as inventory is sold.

True

T/F Some period costs are immediately recorded on the income statement as expenses as incurred, while other period costs are capitalized as assets and are recorded on the income statement as depreciation expense as the asset is used up or generates revenue over time.

True

T/F The Cost of Goods Manufactured equals the Total Manufacturing Cost for the Period plus the Beginning WIP (Work in Process Inventory) minus the Ending WIP.

True

T/F To allocate costs between business and personal use, first determine a base that is related to the cost of the asset, and then track usage to calculate business versus personal use.

True b/c for an automobile, "miles driven" would be an appropriate base to track business and personal use. For a mobile device, "time used" would be a base to track usage. At the end of the year, multiple the business use percentage by the cost to determine the expense for the business.

T/F If actual overhead is greater than applied overhead, then the variance is called underapplied overhead.

True b/c if actual overhead is less than applied overhead, then the variance is called overapplied overhead.

T/F A plantwide overhead rate is a single overhead rate calculated by using all estimated overhead for a factory divided by the estimated activity level across the entire factory.

True b/c sometimes one (plantwide) overhead rate isn't good enough for costing product. So companies will use multiple overhead rates to give more accurate costing information. A departmental overhead rate is estimated overhead for a department divided by the estimated activity level for that same department.

What is a product cost?

A product cost is any cost that is necessary in the production of a product. **necessary + production Examples of product costs include materials, labor, depreciation of equipment, utilities, and plant manager salaries.

What is a cost object?

A cost object is any item such as a product, customer, department, project, geographic region, plant, and so on, for which costs are measured and assigned. Determining cost objects is essential for all business and personal decisions

What is a normal cost system?

A normal cost system determines unit cost by adding actual direct materials, actual direct labor, and estimated overhead. Overhead can be estimated by approximating the year's actual overhead at the beginning of the year and then using a predetermined rate throughout the year to obtain the needed unit cost information.

What is a period cost?

A period cost is any cost that is not a product cost. Examples of period costs include research and design, development, distribution, and customer service, shipping. To capitalize a cost means to record it as an asset and allocate it to expense over time.

What is a semi variable cost?

A semi-variable cost is a cost that is variable in nature but whose rate of change is not constant. There are two types of semi-variable costs. The first type is one that in total increases at a decreasing rate as output (or volume) increases. The other type is one that in total increases at an increasing rate as output (or volume) increases.

what is a variable cost?

A variable cost, on the other hand, increases in total with an increase in output and decreases in total with a decrease in output.

What is absorption costs?

Absorption costs are the sum of variable costs and fixed overhead. Absorptions costs are always higher than variable costs due to the presence of the fixed overhead component.

What is total manufacturing cost?

Total Manufacturing Cost for the Period equals the Direct Materials Used in Production plus Direct Labor plus Manufacturing Overhead.

T/F A semi-variable cost is a cost that in total increases or decreases as output volume increases or decreases.

False

T/F Absorption costs are always lower than variable costs.

False

T/F Cost objects do not need to be considered for all business and personal decisions.

False

T/F If Jeanette's Good Times Diner paid for social media advertising based on how many "likes" their pages received each week, it would be a fixed cost because it is not related to the number of burgers sold each week.

False

T/F The cost of goods manufactured represents the total product cost of goods completed during the current period and transferred to work in process inventory.

False

T/F Using the normal cost system, unit cost is determined by adding the actual direct materials costs to estimated direct labor costs and estimated overhead costs and dividing by the total number of units produced.

False

T/F One disadvantage of the method of lead squares (regression) is that the cost formula may be different depending on which number is used from a given set of data.

False b/c the method of least squares (regression) is a statistical way to find the best-fitting line through a set of data points. One advantage of the method of least squares is that for a given set of data, it will always produce the same cost formula. Basically, the best-fitting line is the one in which the data points are closer to the line than to any other line.

T/F The high-low method is quick and inexpensive to perform, easy to explain to decision makers, and creates the most accurate estimates possible for variable costs and fixed costs.

False b/c while the high-low method is quick, inexpensive, and easy to explain, it uses only two data points (i.e., the high and low activity, or driver, points), even if more are available. This can lead to inaccurate estimates if either of the two data points is an outlier. The method of least squares (regression) is more accurate because it finds the best-fitting line through a set of data points.

T/F Costs for an asset must be allocated wholly to either business use or personal use.

False since one asset could be used for business use AND personal matters, the costs could be allocated between both. Automobiles or mobile devices are assets that could have both business and personal uses.

T/F Replacing a returned nonfunctioning product that is non-defective is an example of a nonvalue-added cost.

False. In this case, the product is not working but the cause is customer error. In this case, the objective is to increase customer satisfaction and brand loyalty and is a value-added cost.

T/F "Casual Factory" is a catchall department used for any overhead that cannot be assigned to the other departments.

False. Producing departments are directly responsible for creating the products or services sold to customers. Support departments provide essential services for producing departments, but they do not actually make the product or service being sold. Overhead that cannot easily be assigned to a producing or support department is assigned to a catchall department such as "General Factory."

T/F At Kicker, repairing a defective speaker, under warranty, is an example of a value-added cost.

False. Warranty work associated with a defective product is wasteful and a nonvalue-added cost. It is a cost that requires repeating work that should have been done correctly the first time.

What is the cost of goods manufactured?

The cost of goods manufactured represents the total product cost of goods completed during the current period and transferred to *finished goods* inventory. The only costs assigned to goods completed are the manufacturing costs of direct materials, direct labor, and manufacturing overhead.

What is the primary use of cost of goods sold?

The primary use for the statement of cost of goods sold is for external financial reporting. It is a critical input to the income statement.

T/F To reconcile the difference between actual overhead and applied overhead at the end of the year, the overhead variance is assigned to the Cost of Goods Sold.

True b/c this practice is justified on the basis of materiality. Since the overhead variance is usually relatively small, and all production costs should appear in cost of goods sold eventually, the method of disposition is not a critical matter. Thus, underapplied overhead would be added to Cost of Goods Sold, and overapplied overhead would be subtracted from Cost of Goods Sold.

T/F When providing cost estimates, it is essential to know the decision to which the cost object is related.

True b/c when asking for a cost estimate or providing one, an insightful dialogue must be had by all involved so everyone knows the exact decision to which the cost object is related. Then individual assumptions and estimates will not differ and useful follow-up questions can be asked.

T/F If ending inventory decreases, absorption costing income will be lower than variable costing income.

True because the units coming out of inventory include additional fixed overhead costs.

T/F If ending inventory increases, absorption costing income will be higher than variable costing income.

True because the units going into inventory include fixed overhead costs.

T/F The United Nations Division for Sustainable Development recommends the use of ABC to break out environmental costs from overhead.

True, and the same recommendation is also made by the International Federation of Accountants.

T/F One way to improve Category IV customers (those with substantial future profit potential but current low profitability) is to reduce the cost-to-serve these customers by eliminating nonvalue-added activities and increasing the efficiency of value-added activities.

True. ABC not only allows an accurate cost-to-serve assessment but it also can identify those activities that can be eliminated or made more efficient.

T/F ABC can be used to help classify customers into one of four categories based on current profitability and the potential for future profitability.

True. Activity-Based customer costing can more accurately classify customers based on their profitability. It can also help assess their future potential.

What is variable costing?

Variable costing assigns only variable manufacturing costs to the product; these costs include direct materials, direct labor, and variable overhead. Because variable costing focuses on the variable costs of production, managers can use it to more easily determine whether certain actions can be taken profitably.