Fundamental Managerial Accounting Concepts

True or false: Finished goods inventory includes completed products that have already been sold to customers.

False

When under or overapplied overhead is not significant, most companies normally assign that total amount of overhead correction directly to

cost of goods sold.

Cost of goods sold accounts include the cost of materials, labor and a(n) __________ amount of overhead.

estimated

Paying cash for manufacturing overhead is an asset __________ transaction.

exchange

Paying cash for manufacturing overhead is an asset________ transaction.

exchange

Paying cash for raw materials is an asset __________ transaction.

exchange

Ventra paid $1,000 cash to purchase production supplies. This transaction is an asset __________ transaction.

exchange

Ventra paid production workers $2,500 cash. This transaction is an asset ___________ transaction.

exchange

paying cash for manufacturing overhead is an asset ________ transaction.

exchange

Ventra paid $1,000 cash to purchase production supplies. This transaction is an asset

exchange transaction.

If the amount of overapplied or underapplied overhead is significant, it must be allocated proportionately between work in process inventory, _________ goods inventory and cost of goods sold accounts.

finished

If the amount of overapplied or underapplied overhead is significant, it must be allocated proportionately between work in process inventory,____________ goods inventory and cost of goods sold accounts.

finished

Which inventory account would include a product that is complete and waiting to be sold?

finished goods inventory

Unlike manufacturing companies, service companies do not have (Select all that apply.)

finished goods. work in process.

Beginning raw materials inventory __________ purchases __________ ending raw materials inventory equals direct raw materials used.

plus, less

Product costs are expensed as cost of goods sold when the

product is sold.

Which of the following is an inventory account for a manufacturing company? (Select all that apply.

raw materials Finished Goods Work in process

In a company where production exceeds sales, which costing method would produce a higher amount of net income?

Absorption

Ring Company had beginning finished goods of $10,000. During the period, the company produced goods that cost $200,000. If the ending balance in the Finished Goods Inventory account was $45,000, the amount of cost of goods sold was:

$165,000 Cost of goods sold = Beginning finished goods + Cost of goods manufactured − Ending finished goods Cost of goods sold = $10,000 + $200,000 − $45,000 = $165,000

Ring Company had beginning finished goods of $50,000. During the period, the company produced goods that cost $150,000. If the ending balance in the Finished Goods Inventory account was $25,000, the amount of cost of goods sold was:

$175,000 Cost of goods sold = Beginning finished goods + Cost of goods manufactured − Ending finished goods Cost of goods sold = $50,000 + $150,000 − $25,000 = $175,000

Sam Company produces race cars. This year costs for the race cars included: Direct materials $2,500 per car Direct labor $3,500 per car Variable overhead $1,500 per car Fixed overhead $10,000,000 Assume that Sam produces 10,000 race cars and sells 5,000 race cars at a sales price of $14,000 per car. What is gross margin using absorption costing?

$27,500,000

At the beginning of the year, Ventra expected to produce 12,000 jewelry boxes and estimated overhead costs of $40,320. Actual overhead costs ended up being $44,000 and Ventra only produced 11,000 jewelry boxes. Based on the information given, what is the predetermined overhead rate?

$3.36 Predetermined Overhead Rate = Estimated Overhead Costs/Estimated units of production $40,320/12,000 = $3.36

During the year, Sam Company made 600 boxes for a cost of $6,000. The company transferred 400 boxes from finished goods inventory to cost of goods sold. What is the value of the inventory transferred from finished goods to cost of goods sold?

$4,000--$6,000/600=$10 $10*400=$4000

At the beginning of the year, Ventra expected to produce 10,000 jewelry boxes and estimated overhead costs of $40,000. Actual overhead costs ended up being $45,000 and Ventra only produced 9,000 jewelry boxes. Based on the information given, what is the predetermined overhead rate?

$4.00 Predetermined Overhead Rate = Estimated Overhead Costs/Estimated units of production $40,000/10,000 = $4.00

Sam Company produces race cars. This year costs for the race cars included: Direct materials $2,000 per car Direct labor $3,000 per car Variable overhead $1,000 per car Fixed overhead $10,000,000 Assume that Sam produces 10,000 race cars and sells 6,000 race cars at a sales price of $14,000 per car. What is gross margin using absorption costing?

$42,000,000

Ventra Company estimates for the current accounting period that its overhead costs will amount to $510,000 and that it will work 85,000 direct labor hours. If actual overhead costs for the year amounted to $530,000 and actual labor hours amounted to 87,000, then overhead would be:

$8,000 Predetermined overhead rate= Estimated overhead/estimated hours $510,000/85,000 = $6 per direct labor hour Predetermined overhead rate * Actual hours= Applied overhead $6 per direct labor hour * 87,000 actual hours= $522,000 applied overhead Compare $522,000 applied overhead to $530,000 actual overhead and overhead was underapplied by $8,000.

Which of the following statements about the schedule of cost of goods manufactured and sold is correct? (Select all that apply.)

*The schedule is an internal document which is not presented with the company's financial statements. *The schedule of cost of goods manufactured and sold indicates the amount of direct raw materials used during the period.

Which of the following formulas can be used to calculate cost of goods manufactured?

*Total manufacturing costs plus beginning work in process inventory less ending work in process inventory *Total work in process inventory less ending work in process inventory

Ventra paid $1,000 cash to purchase production supplies. What effect will the transaction have on the financial statements? (Select all that apply.)

Cash decreases Production supplies increases Total assets are unchanged

Ventra Company manufactures jewelry boxes. Ventra Co. paid $26,500 cash to purchase raw materials. Recognizing this transaction will have what effect on the financial statements? (Select all that apply.)

Cash decreases Raw materials inventory increases

Ventra paid production workers $2,500 cash. What effect will the transaction have on Ventra's financial statements? (Select all that apply.)

Cash decreases Work in process inventory increases Total assets are unchanged

Which of the following is an example of a service company?

Delta Airlines

What is the effect on net income when a company recognizes $1,000 of estimated manufacturing overhead?

No effect on net income

Ventra Company placed $1,100 of raw materials into the production process of making jewelry boxes. The boxes are not completed. What is the effect on the financial statements? (Select all that apply.)

Raw materials inventory decreases Work in process inventory increases

What is the correct formula for cost of goods manufactured?

Total manufacturing costs plus beginning work in process inventory less ending work in process inventory

True or false: Under variable costing, the income statement is prepared using a contribution margin approach.

True

If production exceeds sales, ___________ costing produces a higher amount of net income.

absorption

_______costing may motivate managers to overproduce in order to increase profits. (Enter only one word.)

absorption

Recognizing estimated manufacturing overhead costs is a(n)

asset exchange transaction

When is the difference between actual and estimated overhead corrected?

at year-end

Transferring inventory from finished goods to cost of goods sold will____________stockholders' equity.

decrease

Transferring inventory from finished goods to cost of goods sold will

decrease finished goods inventory

Transferring the total cost of dog toys made in January from work in process to finished goods inventory will

decrease work in process inventory increase finished goods inventory

Raw materials available for use less ending raw materials inventory equals

direct raw materials used.

On the income statement, cost of goods sold is subtracted from sales revenue to determine

gross margin

The amount of product cost transferred to the Cost of Goods Sold account is expensed on the __________ statement. (Enter only one word.)

income

Placing $1,100 of raw materials into the production process will cause raw materials inventory to decrease and work in process inventory to _______________. (Enter only one word.)

increase

Selling inventory for cash will

increase net income.

Actual overhead costs are recorded as _______________ in the manufacturing overhead account.

increases

During the year, Oliver Company paid cash for monthly rent cost on its manufacturing facilities. Oliver Company will record this transaction by decreasing cash and

increasing manufacturing overhead.

Generally accepted accounting principles require that all product costs, both variable and fixed, be reported as _______ until the products are sold. (Enter only one word.)

inventory

In practice, raw materials, work in process and finished goods are frequently combined and reported as a single amount called _________ on the balance sheet. (Enter only one word.)

inventory

In practice, raw materials, work in process and finished goods are frequently combined and reported as a single amount called__________ on the balance sheet. (Enter only one word.)

inventory

Lumber, metals and chemicals used to make the company's products are examples of raw materials __________________. (Enter only one word.)

inventory

What type of accounts are raw materials, work in process and finished goods?

inventory

Actual overhead costs are accumulated in

manufacturing overhead

Raw materials inventory would include

materials used to make the company's product.

On the income statement, selling and administrative expenses are subtracted from gross margin to equal

net income

Paying cash for manufacturing overhead will

not effect net income

Transferring the total cost of dog toys from work in process inventory to finished goods inventory will

not impact net income.

If more overhead has been applied than was actually incurred then overhead was ________. (Enter only one word.)

overapplied

If more overhead has been applied than was actually incurred then overhead was _____________. (Enter only one word.)

overapplied

The Hamilton Company planned to produce 150,000 units during 2017. At that production volume, the company estimated that its overhead costs would amount to $637,500. Assume that actual output totaled 150,000 units as expected but actual overhead costs amounted to $600,000. By how much was overhead, over or underapplied?

overapplied by $37,500 Allocated overhead = $4.25 × 150,000 = $637,500. Overhead was overapplied by $37,500 ($600,000 - $637,500).

Absorption costing may motivate managers to increase profitability by

overproducing inventory

Work in process inventory includes________ completed products. (Enter only one word.)

partially

A __________ company does not maintain a finished goods inventory account.

service

Unlike manufacturing companies, ____________________ companies do not have Work in Process and Finished Goods inventory accounts. (Enter only one word.)

service

Cost of goods ________ is equal to: cost of goods available for sale - ending finished goods.

sold

Cost of goods ___________ is equal to: cost of goods available for sale - ending finished goods.

sold

Generally accepted accounting principles require that all product costs, both variable and fixed, be reported as inventory until the products are

sold to customers.

Selling inventory for cash is an asset ________ transaction.

source

Selling inventory for cash is an asset __________ transaction.

source

Claire Corporation estimated total overhead cost would be $23,000, but actual overhead costs were $26,500. This indicates Claire spent $3,500 more than expected for overhead cost. This type of variance is known as a(n):

spending variance

The manufacturing overhead account is a __________ asset account. (Enter only one word.)

temporary

When estimated manufacturing overhead costs are recognized

total assets are not affected

True or false: Companies do not adjust for the difference between estimated overhead costs and actual overhead costs on an interim basis.

true

If less overhead was applied than was actually incurred then overhead was__________ . (Enter only one word.)

underapplied

The Hamilton Company planned to produce 150,000 units during 2017. At that production volume, the company estimated that its overhead costs would amount to $637,500. Assume that actual output totaled only 145,000 units but the actual overhead cost incurred was $637,500 as expected. By how much was overhead, over or underapplied?

underapplied by $21,250 Predetermined overhead rate = $637,500/150,000 = $4.25 per unit. Allocated overhead = $4.25 × 145,000 = $616,250. Overhead was underapplied by $21,250 ($637,500 - $616,250).

When the actual volume is less than the expected volume, the volume variance is _____________. (Enter only one word.)

unfavorable

Generally accepted accounting principles will not permit a company to report their financial statements using _________ costing. (Enter only one word.)

variable

Under_________ costing, inventory includes only variable product costs. (Enter only one word.)

variable

Absorption costing produces a higher amount of net income

when production exceeds sales.

Which inventory account includes the value of partially completed products?

work in process

Which account is estimated overhead cost applied to throughout the year?

work in process inventory