ACC 602 CH. 16

Manufacturing overhead

All manufacturing costs OTHER than direct materials and direct labor. INCLUDES the following: Indirect materials. Indirect labor. Machinery and equipment costs. Cost of regulatory compliance. DOES NOT include selling or general and administrative expenses. *Manufacturing overhead is treated as a control account. *MO is used to 1) record all products classified as "overhead" 2) assign these costs to products being manufactured.

As direct labor employee salaries and wages are recorded each period,

Cash is credited. the Direct Labor account is debited.

Which of the following are examples of manufacturing overhead?

Depreciation of a production facility. Depreciation of a materials warehouse. Waste disposal costs associated factory operations.

Which of the following is an example of manufacturing overhead?

Depreciation of factory equipment

Which of the following are a manufacturing company's product-related inventory accounts?

Finished Goods Inventory Work in Process Inventory Materials Inventory

Direct labor

Includes the payroll cost of direct workers. P.S...The cost of employees who do not work directly on the goods is considered indirect labor and is part of manufacturing overhead. *Direct labor is both a conversion cost and a prime cost

Which of the following statements is/are true about a schedule of the cost of finished goods manufactured?

It is used to understand and evaluate the overall cost of manufacturing products. It is not a formal financial statement. It is used to compare costs over successive periods.

Which of the following accounts are included among those used by companies to track the flow of manufacturing costs?

Materials Inventory Cost of Goods Sold Manufacturing Overhead Direct Labor

As direct materials are placed into production,

Materials Inventory is credited. Work in Process Inventory is debited.

As goods are completed and transferred out of production, which of the following occur(s)?

The Finished Goods Inventory account is debited. The Work in Process Inventory account is credited.

A manufacturing company uses a perpetual inventory system. As materials are acquired by the company, which of the following occur(s)?

The Materials Inventory account is debited.

To record the purchase of indirect materials, the Manufacturing Overhead account is debited, and the account credited would most likely be which of the following?

accounts payable

cost of goods sold

as items in finished goods are sold, their manufacturing costs are transferred from the balance sheet to the income statement. For this reason, manufacturing costs are often called product costs (or inventoriable costs)

Which of the following costs of a manufacturing company is/are considered a prime cost?

direct labor direct materials

Costs in the Work in Process Inventory account flow directly into the ______ _____ Inventory account.

finished goods

Costs in the Work in Process Inventory account flow directly into the ___________ Inventory account.

finished goods

Which of the following inventories has/have a value based upon an assignment of costs as opposed to its actual purchase price?

finished goods inventory work in process inventory

wages payable

if a balance sheet falls between payroll dates, the direct labor account will have a credit balance representing the amount owed to employees for work already performed. This should be listed as wages payable, a current liability.

Which of the following is/are considered a period cost?

income tax expense selling expenses interest expense

Costs that cannot be easily traced to units of production are referred to as _________ manufacturing costs.

indirect

A credit balance in the Wages Payable account will be included in the Balance Sheet as a current .

liability

The design and use of accounting information by those inside of an organization is referred to as ___________ accounting.

management

Decision-making authority over assets is often conveyed to managers in a variety of ways, including

management accounting reports. verbal instructions. written job descriptions.

The focus of chapter 16 was primarily upon _______ accounting, whereas the focus of previous chapters was upon _______ accounting.

management//financial

The focus of chapter 16 was primarily upon __________ accounting systems, as opposed to financial accounting systems.

managerial

selling expenses

once products are classified as finished goods, no additional costs are allocated to them. The costs of storing, marketing, or delivering finished goods is regarded as selling expenses not manufacturing costs.

As direct labor costs are applied to production,

the Direct Labor account is credited. the Work in Process Inventory account is debited.

Which of the following manufacturing costs is/are included in a manufacturing company's cost of goods sold and inventory?

the cost of raw materials used in production, various costs associated with the operation of a manufacturing company's production facility, salaries and wages of production workers

conversion costs

the costs of converting raw materials into finished goods, specifically the direct labor and overhead costs

direct manufacturing costs

the costs of direct materials and direct labor that can be traced conveniently and directly to specific units of product

Which of the following is/are considered a product cost?

the depreciation of manufacturing machinery the depreciation of a raw materials warehouse

prime costs

the direct materials and direct labor that are consumed in production

per-unit cost

transferring the cost of specific units from one account to another requires knowledge of each unit's per-unit cost - that is, the total manufacturing costs assigned to specific units.

True or false: Unit cost information is important to both financial and managerial accountants.

true

finished goods inventory

unsold finished products available for sale to customers

_______ is a set of activities and resources required to create and deliver goods and services to customers.

value chain

Financial accountants use unit cost information to

-record the transfer of items from Finished Goods Inventory to Cost of Goods Sold. -record the transfer of completed goods from Work in Process Inventory to Finished Goods Inventory.

A company had a Finished Goods Inventory balance of $200,000 at the beginning of the year. Its cost of goods manufactured for the entire year was $500,000, and its Cost of Goods Sold balance for the year was $600,000. Based on this information, the company's Finished Goods Inventory balance reported in the balance sheet at the end of the year was $__________.

$100,000 Reason: ( 200,000 + 500,000 - 600,000)

Distinguish between direct and indirect costs.

Direct costs: Costs that can be easily and conveniently traced to a unit of product or other cost objective.Examples: direct material and direct labor... Indirect costs: Costs cannot be easily and conveniently traced to a unit of product or other cost object.Example: manufacturing overhead

Distinguish between product costs and period costs.

-See Slide 14-Chapter 16 1. Product Costs (manufacturing costs) a manufacturing environment represent resources consumed to create inventory. 2. Period Costs (operating expenses and income taxes) operating expenses associated with time periods, rather than with the production of inventory, are period costs.

Accounting for Manufacturing Operations

-See slide 12-Chapter 16 Manufacturing costs are often combined as follows: Prime Cost = Direct Materials + Direct Labor. Conversion Cost= Direct Labor + Manufacturing Costs.

Management accounting systems enable managers to better understand

-a company's historical performance trends. -a company's projected future performance. -elements of a company's value chain.

Financial accounting information is

-composed primarily of general-purpose financial statements and related disclosures. -influenced heavily by generally accepted accounting principles. -provided primarily to investors, creditors, and other external parties.

Management accounting systems must be designed to

-make budgetary projections of future performance. -evaluate and reward management performance. -compare actual outcomes to budgetary projections.

The assets over which individual managers have decision-making authority

-produce returns that belong to the corporation. -produce returns that are used to evaluate the performance of those managers. -produce returns that can be used to determine management bonuses.

Describe how manufacturing costs flow through perpetual inventory accounts.

-see slide 14-Chapter 16 *When a perpetual inventory system is in use, the flow of manufacturing costs through the company's ledger accounts closely parallels the physical flow of goods through the production process. *Manufacturing costs originally recorded in three places: materials inventory, direct labor, and manufacturing overhead. As these costs become applicable to goods placed into production, they are transferred from these manufacturing cost accounts to the work in process inventory. as units are completed, their cost is transferred from the work in process account to finished goods inventory. Then, when units are sold, their costs are transferred from finished goods inventory to the cost of goods sold.

perpetual inventory systems

-they provide managers with updated information about the amounts of inventory on hand and the per-unit costs of manufacturing products -virtually all large manufacturing companies use this system

The general principles governing the design of management accounting systems include

...

Direct materials

1. Raw materials & component parts that become an integral part of finished products. 2. Can be traced directly and conveniently to products. P.S...If materials cannot be traced directly to products, the materials are considered indirect and are part of manufacturing overhead.

Explain the three principles guiding the design of management accounting systems.

1. The management accounting system should aid in the identification of who exactly has the decision-making authority over the business assets. 2. The accounting information generated by the accounting system should be useful in planning and decision-making to the users of the information. 3. The Accounting reports thus generated should serve as a means of evaluating performance and rewarding the same.

A company had a Finished Goods Inventory balance of $150,000 at the beginning of the year. Its cost of goods manufactured for the entire year was $400,000, and its ending Finished Goods Inventory balance was $80,000. Based on this information, the company's Cost of Goods Sold balance reported in the income statement was $____________.

470,000 (150,000 + 400,000 - 80,000)

A manufacturer produced 4,000 golf carts in December. To do so, it incurred manufacturing costs of $2,500 per unit. Of these units, 3,000 were sold in December, and the remaining 1,000 were sold in January of the following year. What amount associated with December's manufacturing costs of these carts should be included in the company's income statement for the period ending December 31?

7.5 million (3,000 units sold x $2,500 per unit)

Prepare a schedule of the cost of finished goods manufactured.

Determining the Cost of Finished Goods Manufactured-A schedule of the cost of finished goods manufactured is prepared to provide managers with an overview of manufacturing activities during a period.--------see slide 48-Chapter 16

From which of the following accounts do increases to Work in Process Inventory flow?

Direct Labor Materials Inventory Manufacturing Overhead

Describe the three basic types of manufacturing costs.

Direct material Direct labor Manufacturing overhead

In addition to evaluating managerial performance, a management accounting system must also be designed to

assign decision-making authority. support decision-making processes.

Which of the following manufacturing costs is/are considered both a prime cost and a conversion cost?

direct labor

Which of the following amounts is/are added to beginning work in process inventory to determine the total manufacturing costs reported in a schedule of the cost of finished goods manufactured?

direct labor costs manufacturing overhead direct materials used

Indirect costs become part of _______ overhead.

manufacturing

Inventory costs of a manufacturing company are composed of the company's _______ costs.

manufacturing

The ________ principle underlies the distinction between product costs and period costs.

matching

Indirect materials

materials used in the production process but cannot be traced conveniently or directly to the finished goods manufactured.

schedule of the cost of goods manufactured

most manufacturing companies prepare this schedule to provide managers with an overview of manufacturing activities within the period. *NOT a formal financial statement. Generally does not appear in the company's annual report.

indirect manufacturing costs

overhead is an indirect manufacturing cost. Indirect costs cannot be traced easily and directly to specific units of production.

To record depreciation of manufacturing equipment, the Manufacturing _______ account is debited and the ____ ____ account is credited.

overhead//accumulated depreciation

work in process inventory

partially completed goods on which production activities have been started but not yet completed. 1) used to record the accumulation of manufacturing costs associated with the units of product worked on during the period 2) to allocate these costs between those units completed during the period and those that are only partially completed.

Management accountants use unit cost information to

prepare operating budgets. evaluate operating efficiency. make pricing decisions.

The depreciation of a raw materials warehouse is a

product cost. conversion cost. manufacturing cost.

Which of the following terms is synonymous with manufacturing costs?

product costs

materials inventory

raw materials on hand and available for use in the manufacturing process

A credit balance in the Direct Labor account at the end of a period is reported in the balance sheet as

wages payable