Accounting 2 : Exam 1 Ch.1-4
Widgets, Inc., plans to produce 8,000 widgets during the upcoming year. Each widget requires four direct labor hours at $25 per hour and $110 in direct material costs. Manufacturing overhead is assigned based on direct labor hours and is estimated to be $625,000 for the upcoming year. Compute the predetermined overhead rate per direct labor hour.
$19.53
SPL Enterprises assigns overhead based on number of machine hours. For the upcoming year, they plan to use a total of 250,000 machine hours and 50,000 direct labor hours. Total overhead cost is expected to be $500,000. The predetermined overhead rate per machine hour is $
$2
Which of the following are facility-level activities?
-Paying factory insurance -Human resource hiring fairs
Cost objects include ______.
-activities -anything for which cost data is desired -customers
Indirect costs can be assigned to products or services using ______.
-the activity proportion method -the activity rate method
Intended users of________ accounting information include investors and regulators; business owners and employees are included in the intended users of ________accounting.
1. Financial 2.Managerial
JVL Inc. adds all direct materials at the start of the production process. For a given period they had 100 units in beginning inventory that were 40% complete as to conversion costs. During the period, 1,500 units were started and completed. Ending inventory contained 200 units that were 30% complete as to conversion costs. Compute the equivalent units for direct materials using the FIFO method.
1700
Which of the following statements is true?
An existing ABC system can report sustainability-related information.
What two accounts are involved when underapplied or overapplied overhead is disposed of?
Cost of Goods Sold and Manufacturing Overhead
What is the journal entry to record the transfer of partially completed products from Processing Department #1 to Processing Department #2?
Debit Work in Process (Department #2) and credit Work in Process (Department #1).
What is the correct journal entry to apply manufacturing overhead costs to Processing Department #1?
Debit Work in Process Inventory (Dept. #1) and credit Manufacturing Overhead.
Which of the following is included in computing equivalent units under the FIFO method, but not under the weighted-average method?
Equivalent units to complete beginning work in process
True or false: Job-order costing can only be used in manufacturing firms.
F
True or false: Process costing can only be used by manufacturing firms.
F
Which method calculates cost per equivalent unit using only costs incurred by the processing department in the current period?
FIFO
What types of activities are carried out regardless of which products are produced, how many batches are run, or how many units are produced?
Facility-level
True or false: The best reason to implement an ABC system is to obtain more accurate information about the cost of products and services.
False
When a job is completed, which account is debited?
Finished Goods Inventory
What is the primary difference between managerial and financial accounting?
Managerial accounting provides information for internal use and financial accounting provides information to external users.
Which type of firm converts materials into finished products?
Manufacturing
The journal entry to record $20,000 in depreciation on factory equipment is debit ______.
Manufacturing Overhead $20,000 and credit Accumulated Depreciation $20,000
What document specifies the type and quantity of direct materials used on a specific job?
Materials requisition form
A department store is part of the ______ companies category of business.
Merchandising
Which of the following is NOT one of the three categories of businesses?
Nonprofit organization
When materials are purchased they are first recorded in the ______ account.
Raw Materials Inventory
Which of the following is not a manufacturing cost category?
Selling & administrative costs
Which of the following statements is true?
Some firms operate as more than one type of organization: manufacturer, merchandiser and/or service company.
How are manufacturing overhead costs distributed in each process?
The costs are distributed based on a predetermined overhead rate.
What is a key difference between process and job order costing?
Under process costing, it makes no sense to try to identify materials, labor, and overhead costs with a particular customer order.
The journal entry to record direct labor costs into Processing Department #1 is to debit ______.
Work in Process Inventory (Dept. #1) and credit Salary or Wages Payable
What of the following may be credited in the journal entry to record the purchase of materials?
accounts payable
In activity-based costing, what is calculated by dividing the total cost of each activity by its total cost driver?
activity rate
A method that attempts to assign overhead costs based on what is required to produce products is ______ costing.
activity-based
Improving operations and reducing costs if the focus of ______________-_______________ management.
activity-based
Because service firms tend to be labor-intensive, the primary driver used to assign cost is________________ ______________.
billable hours
The most common driver used to assign costs in a service firm is ______.
billable hours
A production report presents ______.
both costs to be accounted for and costs accounted for
Activity-based costing systems typically include ______ cost drivers.
both volume- and non-volume-based
A(n)_________ lays out plans in monetary of financial terms.
budget
A(n)___________________lays out plans in financial terms so that managers can determine the resources needed to achieve their objectives
budget
A journal entry that debits Finished Goods Inventory and credits Work in Process records the ______.
completion of a job
Managers keep track of how they are doing and determine if adjustments are needed during the_______________phase.
controlling
When making a decision,________.
cost control is a critical concern for most organizations
The formula to compute activity proportion is ______.
cost driver for product ÷ cost driver for all products
Any item a manager wants to know the cost of is called a(n)
cost object
The total cost transferred out of Work in Process inventory into Finished Goods inventory is ______.
cost of goods manufactured
A group of similar activities that have been combined together is an activity ______.
cost pool
A group of similar activities that have been combined together is called an activity _____________ _______________.
cost pool
Issuing raw materials into production requires a ______ to the Raw Materials account.
credit
When overhead is underapplied, a _____ must be made to the Manufacturing overhead account to eliminate the balance
credit
In an automobile manufacturing plant, assembly-line workers' wages are______________ ___________costs.
direct labor
Labor costs that can be easily and conveniently traced to specific products are ______ costs
direct labor
Manufacturing costs can be divided into three categories: direct materials, direct____________and____________ ___________
direct labor manufacturing overhead
Conversion costs include ______.
direct labor and manufacturing overhead
The document used to record the time workers spend on each job and task is a ______.
direct labor time ticket
For a juice maker, grapes would be considered a(n)_________ ________.
direct material
When using process costing, major material inputs used in production that can be traced to the product are ______.
direct materials
Manufacturing costs include ______.
direct materials, direct labor, and manufacturing overhead
Categories of manufacturing costs include ______.
direct materials, direct labor, manufacturing overhead
A journal entry that involves Manufacturing overhead and Cost of goods sold is recorded to ______.
dispose of underapplied or overapplied overhead
Calculating the number of physical units worked on during the period is ______.
done the same way under FIFO as under the weighted-average method
In order to track the cost of partially completed units, they must be converted into a(n)____________ number of fully completed units.
equivalent
The standards of conduct for judging right from wrong is referred to as
ethics
Ideally, an allocation base should
explain or influence the amount of overhead incurred
Activities that occur regardless of how many products are produced or how many batches are run or units made are ___________________-__________________activities.
facility-level or company-wide
True or false: The cost of each individual unit is tracked to products under both job order and process costing.
false
If cost data will be used for decision making, it is important to consider ______.
how costs will behave or change
Decisions made during______ phase are sometimes called operational decisions.
implementation
Decisions such as deciding how many employees to hire, salary schedules, and training policies are made during the ______ phase of the management process.
implementation
The Sarbanes Oxley Act ______.
includes rules that should help employees make ethical decisions
Materials are treated as_________costs when it is not worth the cost or effort to trace them to specific products.
indirect
Manufacturing overhead costs include ______.
indirect materials, factory supervisors' salaries, and factory depreciation
A(n)_________ cost will not influence a decision
irrelevant
A system that pulls materials and products through the manufacturing system based on customer demand is called ______.
just-in-time
In order to make good product introduction decisions in today's digital age, managers need to be able to accurately estimate ______.
life cycle costs
Which of the following is NOT a volume-based cost driver?
machine setups
When using process costing, costs are accumulated by ______.
major process
Companies that use job-order costing ______.
make unique products
Cost of goods ____ is the total cost of jobs completed during the period.
manufactured
Actual manufacturing overhead consists of all ______.
manufacturing costs other than direct labor and direct materials
Factory costs such as cleaning supplies, taxes, insurance, and janitor wages are classified as
manufacturing overhead
Factory labor charges that cannot be easily traced to a job are treated as ______.
manufacturing overhead
To calculate manufacturing overhead cost per unit using ABC, divide the total ______.
manufacturing overhead cost by the number of units produced
Controlling involves
measuring actual results
Wholesalers and retailers are both types of__________ companies.
merchandising
The distinction between manufacturing and nonmanufacturing costs applies
only to companies that make a physical product
The Sarbanes-Oxley (SOX) Act focuses on three factors that affect the accounting reporting environment:_____________ ,____________ , and________________.
opportunity, incentives, and character.
The difference between overhead applied to jobs and actual overhead is ______.
overapplied or underapplied overhead
Indirect costs are also referred to as _________costs.
overhead
An equivalent unit is a measure used to convert__________completed units into the equivalent of a full unit.
partially
The activity proportion method uses ___________ to assign overhead costs to products.
percentages
There are two broad classifications of costs: manufacturing costs and__________costs.
period
The difference between__________ costs and __________ costs determines how and when the cost will be matched up against revenue on the income statement.
period and product
Nonmanufacturing costs incurred during a period are treated as ______.
period expenses
A journal entry debiting Work in Process Inventory and crediting Raw Materials Inventory records ______.
placing materials into production
The first step in______is to establish goals or objectives and tactics to achieve them.
planning
The future-oriented aspect of the management process is ______.
planning
Which of the following is NOT a component of the triple bottom line?
planning
The continuous, ongoing cycle of management functions include ______.
planning, implementing, and controlling
To keep quality problems from happening, companies incur _____________costs.
prevention
Information about the number of units and costs that flow through a manufacturing process during an accounting period is provided on the ______________ ______________
production report
The foundation of a process costing system is the ______.
production report
triple bottom line includes
profits, people, planet
Implementing an ABC system ______.
provides information for cost management
All materials that will be used in future production are first recorded in the
raw materials
All materials that will be used in future production are first recorded in the ______________ ________ inventory account.
raw materials
The first step in preparing a weighted-average production report is ______.
reconcile the number of physical units
Variable costs________.
remain constant per unit and vary in total
Indirect materials include ______.
salt and pepper
A bakery creates a new type of cake for sale. Under activity-based costing, this is an example of a ______-level activity.
service
Hotels and airlines are examples of___________Companies.
service
Units completed - units in beginning inventory = units ______.
started and completed
The approach to determine what costs should be in order to earn an acceptable profit across a product's life cycle is called ______________ ____________or cost planning.
target costing
Overhead costs are debited to Work in Process when ______.
they are applied to jobs
A direct labor _______________ ______________ is a document used to record how long workers spend on each job and task.
time ticket
The activity rate is computed by dividing the ______ by the ______.
total activity cost; total cost driver
An approach that aims to improve products by reducing and eliminating errors, streamlining activities, and continuously making production processes better is called _________________ ______________ management.
total quality
A management system that focuses on continually improving production processes is called ______.
total quality management
Costs that are moved from one production process to another are called___________-____________costs
transferred-in
True or false: Cost control is a critical concern for most organizations.
true
True or false: When computing unit costs, the direct materials and direct labor costs are the same, regardless of whether ABC or a volume-based costing system is used.
true
True or false: When using process costing, direct labor costs are often combined with manufacturing overhead into a single cost category.
true
Recording the transfer of partially completed products from one processing department to another requires a debit and a credit to the _______ accounts in both of the processing departments.
work in process inventory
Direct materials used for the period cost $66,000; Direct labor cost $80,000; Applied overhead was $60,000; Beginning work in process inventory was $27,000; and Ending work in process inventory was $25,000. Calculate the cost of goods manufactured.
$208,000 Reason: Cost of goods manufactured = $27,000 + ($66,000 + $80,000+ $60,000) - $25,000 = $208,000
Given the following, compute the cost of goods manufactured. Direct material cost: $40,000 Direct labor cost: $100,000 Applied overhead: $120,000 Beginning work in process inventory: $30,000 Ending work in process inventory: $12,000
$278,000 Reason: Cost of goods manufactured = $30,000 + $40,000 + $100,000 + $120,000 - $12,000 = $278,000
Adele's Attic assigns overhead to products based on direct labor hours. For the upcoming year the business plans to use a total of 25,000 machine hours and 5,000 direct labor hours. Total overhead cost is expected to be $35,000. How much overhead would be assigned to a job that used 180 machine hours and 40 direct labor hours? Multiple choice question.
$280 Predetermined overhead rate = $35,000/5,000 or $7 per direct labor hour × 40 hours = $280.
Plaster Company expects to have a total cost of $400,000 in its activity cost pool. The total expected activity is 800 machine setups. The activity rate is $ ___________ per setup.
$500 ($400,000/800)=500
Larson Productions LLC has an activity cost pool called product design and redevelopment. The cost driver for this pool is design hours. A total of 1,000 design hours were used, 620 for Model XLT and 380 for Model TXT. The total cost assigned to the cost pool was $118,000. Using the activity proportion method, determine how much cost should be allocated to each product.
$73,160 to Model XLT and $44,840 to Model TXT Reason: 620/1000 = 62% to Model XLT and 380/1000 = 38% to TXT
A company's total expected overhead for the year is $500,000. Two activity cost pools have been identified: Customer Service with a total cost of $200,000 and a total activity of 25,000 customer service calls; and Product Development with a total cost of $300,000 and total activity of 20,000 development hours. The activity rates are ______.
$8 per customer call and $15 per development hour Reason: $200,000/25,000 = $8 per customer call and $300,000/20,000 = $15 per development hour.
Using the FIFO method, what is the cost per equivalent unit if cost in beginning inventory is $3,000, current costs are $6,000, and there are 75 equivalent units of production?
$80
Which of the following statements are true
-Before implementing ABC, a company should weigh the benefits against the costs. -The support of upper management is required for successful ABC implementation.
Which of the following statements are true?
-Classifying a cost a product or period can impact reported profitability. -The distinction between product and period costs has more to do with financial accounting than managerial accounting.
Which of the following statements are true?
-Costs that move from one process to another are called transferred-in costs. -Under the weighted-average method, beginning inventory costs are treated just like costs added during the current period.
Which of the following statements are true?
-Managing and reducing costs is the true benefit of ABC. -Implementing an ABC system is not a trivial task.
Which of the following statements are true?
-Most experts believe that incurring prevention costs is the most effective way to manage quality costs. -Quality training is an example of a prevention cost.
Which of the following statements are true?
-There are many different ways to categorize costs. -Costs are treated differently in different situations.
Which of the following statements are true?
-When materials are purchased they are recorded in the Raw materials inventory account. -Raw materials inventory represents the cost of materials not yet used in production.
Labor costs ______.
-are recorded in basically the same way as material costs -may be direct or indirect
Non-volume-based cost drivers ______.
-are used in ABC systems -allow more indirect costs to be allocated to products
Equivalent units of production are needed to ______.
-determine the cost of partially completed units -properly prepare GAAP-based financial statements
When materials are requisitioned into production, ______.
-direct materials are recorded on the job cost sheet -direct materials are recorded in Work in Process
Which of the following products would be more suitable for process costing than job order costing?
-gasoline -breakfast -sunscreen
The Sarbanes-Oxley (SOX) Act ______.
-has many implications for managers -was primarily aimed at renewing investor confidence
Companies with strong ethical cultures ______.
-have higher productivity than those without such cultures -have higher levels of customer satisfaction
Activity-based management focuses on ______.
-increasing efficiency -improving operations
The total cost of Work in Process Inventory ______.
-is divided between ending inventory and costs transferred to the next process or Finished Goods -includes beginning Work in Process plus current costs
Process costing ______.
-is used for homogeneous products -is used for mass production
A just-in-time (JIT) system ______.
-is used to help reduce costs -is a demand-pull system
When classifying costs, _____________ costs relate to making a product and ______________costs relate to delivering and selling a product
-manufacturing -nonmaunfacturing
A relevant cost ______.
-pertains to the future -differs between alternatives
Materials requisition forms are used to ______.
-record the cost of raw materials in the accounting system -control the flow of materials from inventory into production
A journal entry that debits Manufacturing overhead and credits Accounts payable could be made to record ______.
-rent expense on factory equipment -factory utilities expense
The formula to reconcile the number of physical units is Units in___________ Inventory + Units Started=Units computed + Units In__________ Inventory.
1. beginning 2.ending
The correct journal entry to apply manufacturing overhead costs Process #1 would be to __________ manufacturing overhead and ___________ work in process inventory (process #1).
1. credit 2. debit
The journal entry to record labor costs for Process #1 is to _________ Salaries or wages payable and ________ work in process inventory.
1. credit 2. debit
The purchase of raw materials is recorded with a ________ to raw materials Inventory and a _________ to accounts payable.
1. debit 2. credit
Place the steps in order as needed to prepare a production report using the weighted-average method.
1.Reconcile the number of physical units. 2.Convert physical units into equivalent units 3. Calculate cost per equivalent unit 4. Reconcile the total cost of work in process inventory 5. Prepare the report.
A company assigns overhead based on direct labor costs. The predetermined overhead rate is $3.00 per direct labor dollar. A job that used a total of 20 direct labor hours ($400 in total direct labor costs) would be assigned $___________in total overhead.
1200
Given 100 units in beginning inventory, 1,500 units started, and 200 units in ending inventory, the number of units started and completed equals ______.
1300
Given 100 units in beginning inventory, 1,500 units started, and 200 units in ending inventory, the number of units completed equals ______.
1400
JVL Inc. adds all direct materials at the start of the production process. For a given period they had 100 units in beginning inventory that were 60% complete as to conversion costs. During the period, 1,500 units were started and completed. Ending inventory contained 200 units that were 30% complete as to conversion costs. Compute the equivalent units for conversion costs using the FIFO method.
1600 Since the beginning inventory is 60% complete, 40% is required to finish it. (100 × 40%) 40 in beginning inventory + 1,500 started and completed + (200 × 30%) 60 in ending inventory = 1,600
A FIFO costing process had 400 units in beginning inventory. If 2,000 units were started and 600 units are in ending inventory,___________ units were completed during the period.
1800
Anders Inc. assigns overhead using activity proportions and has a machine setup cost pool. Last year there were 27,500 setups at a total cost of $550,000. Product R3D used a total of 8,250 of those setups and should be assigned _________________% of the total setup cost.
30% (8250/27500)=%30
Given the following, compute the conversion cost per equivalent unit using the weighted-average method. Conversion costs in beginning inventory $5,000 Conversion costs added in the current period $40,000 1,000 units were completed and transferred out during the period. 500 units in ending inventory are 50% complete.
36
Reconciling the total cost of Work in Process Inventory is the ______ step in preparing a production report using the weighted-average method.
4th
How many physical units are in ending inventory if 300 units were in beginning inventory, a total of 1,500 were started, and 1,300 were completed?
500
Given $40,000 of current costs, $3,000 of costs in beginning inventory, and 500 equivalent units, the cost per equivalent unit using the weighted-average method is $
86
The journal entry to record the transfer of completed units to finished goods is debit ______.
Finished Goods Inventory and credit Work in Process Inventory
The journal entry to record expired prepaid factory insurance debits ______.
Manufacturing Overhead and credits Prepaid Insurance
A company purchases $40,000 of direct materials and $30,000 of indirect materials on account. The journal entry to record this transaction is debit ______.
Raw Materials Inventory $70,000 and credit Accounts Payable $70,000
To record the purchase of raw materials, debit ______.
Raw Materials Inventory and credit Accounts Payable
A technique that attempts to assign overhead costs to products based on the actions they require is called __________-_____________ ______________.
activity-based costing
A journal entry debiting Salaries expense and crediting Salaries and wages payable could record ______.
administrative salaries
The first step in assigning manufacturing overhead is to determine the__________ __________ or the cost driver.
allocation base
The journal entry to record general selling and administrative costs is debit ______
an expense account and credit Cash or a payable
On the job cost sheet and work in process accounts, the ______ manufacturing overhead is recorded.
applied
Indirect costs ______.
are not easily traced to products or services
Applied manufacturing overhead costs are credited to the Manufacturing Overhead account ______.
as the costs are applied to jobs
The final step in activity-based costing is ______.
assigning indirect costs to products or services
The basic formula for process costing is ______.
average unit cost = total manufacturing cost/total units produced
Predetermined overhead rates are ______.
based on some secondary allocation measure
The formula to reconcile the number of physical units the company worked on during the period is units in ______.
beginning inventory + units started = units completed + units in ending inventory
Which of the following is not an activity that managers perform on a regular, routine basis?
budgeting
Cost objects ______.
can be products, customers, or jobs
When overhead is overapplied, a ______ entry is required to dispose of the balance in the Manufacturing Overhead account
debit
The journal entry to record the transfer of completed units to finished goods is _________ finished goods inventory and _______ work in process inventory
debit credit
The first step in assigning manufacturing overhead costs using a predetermined overhead rate is to ______.
determine the cost driver
Underapplied or overapplied overhead is the ______.
difference between overhead applied to jobs and actual overhead
True or false: ABC is designed to provide managers with detailed information about the cost of activities and is therefore not useful in providing sustainability-related information.
false
True or false: Virtually all accounting and business problems have clear right or wrong answers.
false
When a job is completed, its costs are transferred into
finished goods
When production is completed in the last processing department, the units are transferred to the___________ ________ Inventory account.
finished goods
Once production is completed, total manufacturing costs are transferred to ______.
finished goods inventory
The duration of a product from its infancy through its eventual decline is represented by the _____________ _____________ _______________.
product life cycle
The balance of work in process inventory may be calculated by ______.
summing the costs of all jobs in process
When applied to business,_________ means a company can meet today's needs without sacrificing future generations from meeting their own needs.
sustainability
Providing managers with a broader set of information to meet the needs of multiple stakeholders, with the goal of ensuring the company's long-term survival in an uncertain and resource-constrained world is the goal of____________accounting.
sustainable
A proactive approach managers use to determine what costs should be is called ______.
target costing
When using ______, the number of units both started and completed during the period must be computed.
the FIFO method
Nonmanufacturing costs increase ______.
the Selling, General & Administrative expense accounts
When actual manufacturing overhead costs are incurred, ______.
the manufacturing overhead cost is debited
When comparing the FIFO method of computing equivalent units to the weighted-average method, ______.
the weighted-average method blends together work and costs from prior periods with the current period, whereas FIFO separates the two periods
True or false: When using the FIFO method, the number of units both started and completed during the period must be calculated.
true
The difference between (units in beginning inventory + units started) and units completed is ______.
units in ending inventory
Which of the following is NOT one of the V's of big data?
validity
The concept of the ________ _________ begins with the customer and works backward to ensure that activities deliver what matters to customers.
value chain
The linked set of activities required to design, produce, and deliver products and provide aftermarket service to customers is called the _________ ___________.
value chain
Which type of cost changes in total, in direct proportion to changes in activity level?
variable
Direct labor hours and machine hours are both examples of ____________-based cost drivers.
volume
The three V's that make date big are________,____________, and__________.
volume, velocity, and variety
The major difference between job order and process costing is ______.
whether the products produced are similar or different
Costs of partially completed units are accounted for in ______.
work in process
When a job is completed, its costs are transferred out of ______.
work in process
When a job is completed, which account is credited?
work in process