ACCT 2023 Exam 1 UARK Alecusan

Underapplied Overhead is when

Applied<Actual

Contribution Margin=

Sales-Variable Costs

What happens to COGS and net operating income when overhead is underapplied?

COGS increases and net operating income decreases

Direct Labor+Manufacturing Overhead

Conversion Costs

Unit Product Cost

Product Cost/# of units

Overapplied Overhead is when

Applied>Actual

Step Variable Costs

Cost behavior patterns, such as employee wages

Conversion Costs=

DL+MOH

Variable Cost examples

DM, DL, Supplies, Power, Sales Commission, Shipping Costs

Cost Behavior

Refers to how a cost reacts to changes in the level of activity

Non-manufacturing Costs include

Selling and Administrative Costs

Period Costs include:

Selling and Administrative Costs

Y=a+bx

Y= total mixed cost a= total fixed cost b= variable cost per unit X= level of activity

Differential Cost

Are the future costs that differ between alternatives and are always relevant in making business decisions (can be fixed or variable)

Examples of DL (car)

Assembly line workers

Selling Costs included costs necessary to:

Deliver the product, secure the order, direct or indirect

Examples of DM (car)

Engine, frame, windows, wheels

Is POHR found using estimated or actual amounts?

Estimated

Is a fixed cost strictly fixed?

Yes, but only within the relevant range (if machine can run 3000 test per month and cost $20,000 to rent, we can not do 5000 tests, so we must get another and now rent expense is $60,000)

Indirect Cost

a cost that cannot be easily and conveniently traced to a unit of product or cost object

Mixed Costs

A company must pay a set $2000 to the state and $5/guest attending a conference, so if 20 guests come, they must pay $5 x 20=$100+$2000=$2100 (note they must pay the $2000 even if no one attends

Job Order Costing

A cost system that assigns costs to specific production batches or jobs (used for products or jobs that are specific/made to order (boeing jets))

Sunk Cost

A cost that has already been incurred and that cannot be changed by any decision made now or in the future (not differential therefore NOT relevant)

Activity Base (Cost Driver)

A measure of what causes the incurrence of a variable cost

Cyber Devices manufactures PCTV products that enable people to watch television content on their computers. It sells its product to retailers for $50. A tuner component that goes into each of these devices costs $5 to acquire. The total variable cost at an activity level of 1,000 units equal ________.

$5 x 1000 = $5000

Differential Revenue

the difference in revenue between two alternatives

A fixed cost is a cost which_______________.

Remains constant in total with changes in the level of activity.

Fixed Cost

Remains constant, in total, regardless of changes in the level of activity

Fixed Cost examples

Rent, straightline depreciation, insurance, administrative salaries

Gross Margin=

Sales-COGS

Davidson Company has a product with a selling price per unit of $100, the unit variable cost is $60, and the total monthly fixed costs are $30,000. If the company sells 1,000 units, how much is Davidson's contribution margin per unit?

The contribution margin per unit equals selling price per unit less variable cost per unit, $100 − $60 = $40.

Audio Corporation purchased $20,000 of DVDs during the current year. The company had DVD inventory of $15,000 at the beginning of the year. An end of the year audit revealed that the company had DVD inventory of $10,000. The amount that would be reported as cost of goods sold in the income statement for the current year is ________.

The correct answer is $25,000. Cost of goods sold ($25,000) = Beginning merchandise inventory ($15,000) + Purchases ($20,000) - Ending merchandise inventory ($10,000)

Which of the following occurs when manufacturing overhead is applied to Work in Process?

The entry to apply manufacturing overhead cost to jobs includes a debit to Work in Process and a credit to Manufacturing Overhead.

Opportunity Costs

The potential benefit given up when one alternative is selected over another. Virtually every alternative involves an opportunity cost.

Overhead Application

The process of assigning overhead cost to specific jobs

Cost Structure

The relative proportion of each type of cost in an organization

Wilson Products uses a plantwide predetermined overhead rate of $10 per direct labor-hour. Direct material and direct labor associated with Job X23 are $4,000 and $1,200 respectively. If Job X23 used 100 direct labor-hours, what is the total cost assigned to this job?

Total cost associated with the job = Direct material + Direct labor + Manufacturing overhead applied Total cost associated with the job = $4,000 + $1,200 + ($10 × 100 DLHs) = $6,200

What is the term used when a company applies less overhead to production than it actually incurs?

Underapplied

Wilson Products uses a plantwide predetermined overhead rate of $10 per direct labor-hour. Direct material and direct labor associated with Job X23 are $4,000 and $1,200 respectively. If Job X23 used 100 direct labor-hours to produce 50 audio controllers, what is this job's unit product cost (per audio controller)?

Unit product cost = Total product cost ÷ Number of units Unit product cost = $6,200 ÷ 50 Units = $124

Job Order Costing

Used for internal decision making, often used for external reporting

Which of the following best describes the journal entry to record the withdrawal of raw materials from the storeroom for use as direct and indirect materials in production?

WIP XXX MOH XXX Raw Materials XXX Debit Work in Process, debit Manufacturing Overhead, and credit Raw Materials.

Which of the following best describes the journal entry to record the use of direct and indirect labor in production?

WIP XXX MOH XXX Salaries & Wages Payable X Debit Work in Process, debit Manufacturing Overhead, and credit Salaries and Wages Payable.

Period costs are expensed on the income statement in the period in which they occur

Accrual Accounting

Job Cost Sheet

Accumulates the total direct materials, direct labor, and MOH costs assigned to a job

Subsidiary Ledger

All of a company's job cost sheet forms together, show jobs in WIP and Finished Goods on balance sheet, and COGS on income statement

Manufacturing Overhead (MOH)

All of the manufacturing costs other than DM and DL, cannot be easily traced to a product. Includes indirect materials that cannot be easily traced to product

Normal Cost System

Applies overhead to jobs by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the jobs

Direct Costs

Costs that can be easy, conveniently, and directly traced to a unit of product or other cost objects

When companies incur selling and administrative costs, those costs ________.

do not flow through inventories on the balance sheet (they are not product costs)

Direct Labor

labor costs that can be easily traced to individual units of product

If a firm increases its activity level,

some costs will change, others will remain the same.

When all of a company's job cost sheets are viewed collectively they form what is known as a ________.

subsidiary ledger

Total fixed cost does not change but

the average cost per unit does (Nooksack Expeditions: $500 for storage, if 250 guest, then $2/guest, but it too guest, then $1/guest

The management of Blue Ocean Company estimates that 50,000 machine-hours will be required to support the production planned for the year. It also estimates $300,000 of total fixed manufacturing overhead cost for the coming year and $4 of variable manufacturing overhead cost per machine-hour. What is the predetermined overhead rate?

Estimated total overhead cost = $300,000 + ($4 per MH × 50,000 MHs) = $500,000 Predetermined overhead rate = Estimated total overhead cost of $500,000 ÷ 50,000 MHs = $10 per MH $10.00 per machine hour

Administrative Costs include:

Executive salaries (CEO, CFO), clerical costs, office supplies, direct or indirect

To move from WIP to Finished Goods the journal entry is

Finished Goods XXX WIP XXX

Materials Requisition Form

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

Common Cost

Indirect costs incurred to support a number of cost objects. These costs cannot be traced to any individual cost object.

Indirect Materials

Indirect labor costs that cannot be easily or conveniently traced to a specific product

Total Variable Cost (TVC) expressed on a per unit base

It is constant

What is true of the contribution approach (income statement)?

It separates costs into fixed and variable categories

Managerial Accounting

Managerial accounting is concerned with providing info to managers with an organization so that they can formulate plans, control operations, and make decisions

Examples of Indirect Costs

Manufacturing Overhead, Indirect Materials, Indirect Labor

Financial Accounting

Financial accounting is concerned with reporting financial info to external parties such as stockholders and creditors

MOH includes

only those indirect costs associated with operating the factory

What is in both prime and conversion costs?

DL

Examples of Direct Costs

Direct Materials, Direct Labor

Equation for POHR

(a+bx)/x

Examples of MOH

Cleaning supplies of facility

Prime Costs=

DM+DL

POHR is computed when

before the beginning of the period

When goods are shipped to a customer, what is the journals entry to move these goods from Finished Goods to COGS

COGS XXX Finished Goods XXX

What happens to COGS and net operating income when overhead is overapplied?

COGS decreases and net operating income increases

Is a variable cost strictly variable?

Consider a caterer paying waiters $50 to work for 20 guests, if 40 guest show up, now he must pay $100 and hire more workers

MOH includes everything except

DM and DL

Product Costs include:

DM, DL, MOH

Variable costs always include:

DM, DL, Sales Commission

The ____________ requires that the costs incurred to generate a particular revenue should be recognized as expenses in the same period that revenue is recognized.

Matching Principle

Traditional Format Income Statement

Organizes costs into two categories: cost of goods sold and selling and administrative expenses

Examples of IM

Plant supervisor salary

Spartan Corporation estimates that it will incur $200,000 of total manufacturing overhead cost at an estimated activity level of 10,000 direct labor-hours. What is the amount of manufacturing overhead that would be applied to a job that required 200 direct labor-hours?

Predetermined overhead rate = $200,000 ÷ 10,000 DLHs = $20 per DLH For 200 DLHs, the manufacturing overhead that would be applied is = $20 per DLH × 200 DLHs = $4,000

Direct Materials + Direct Labor

Prime Costs

The adjustment for overapplied overhead ________.

decreases cost of goods sold and increases net operating income

"Other" in MOH includes

depreciation of manufacturing equipment and utility costs of the manufacturing facility

Companies can improve job cost accuracy by using ________.

multiple predetermined overhead rates

Employee Time Ticket

provides hourly summaries of each employee's activities throughout the day

Direct Materials

raw materials that become an integral part of the product and that can be conveniently traced directly to it

Total Variable Cost (TVC)

rise and fall as activity costs rise and fall