ACC312 Exam #2

The formula to calculate the labor rate variance is

(AH x AR) - (AH x SR)

True regarding activity-based budgeting (ABB)

-ABB forecasts demand, determines the activities needed to meet that demand and identities the resources needed to perform that activity -ABB takes the ABC model and reverses the flow of analysis

entries made when goods are sold

-Accounts receivable ---->Sales revenue -Cost of goods sold ---->Finished goods inventory

the proration of under/over applied manufacturing overhead involves which of the following accounts?

-COGS -WIP inventory -FG inventory

COGS schedule shows

-COGS manufactured -changes in FG inventory for the period

examples of entries that reflect actual indirect production costs incurred

-Manufacturing overhead ---->Factory property taxes payable -Manufacturing overhead ---->Accumulated depreciation-factory equipment -Manufacturing overhead ---->Prepaid factory insurance

when choosing a cost driver consideration should be given to:

-a correlation b/w the cost and the activity chosen as the driver -an activity that is common across all products

under or over applied manufacturing overhead is the result of

-actual manufacturing overhead being less than applied manufacturing overhead -the inaccuracy of the predetermined overhead rate -actual manufacturing overhead being greater than applied manufacturing overhead

A budget is used for such purposes:

-allocating resources -evaluating performance and providing incentives for employees -planning -facilitating communication and coordination -controlling profit and operations

The steps in customer-profitability analysis include:

-apply customer related cost driver rate to customer activity -identify customer related cost drivers -calculate customer related cost driver rate -identify customer related activities

steps in stage 1 of ABC costing:

-assignment of costs to appropriate cost pool -identification of cost pools

The cost of assignment view of the ABC system uses:

-assignment of resource costs to activity cost pools -assignment of activity costs to cost objects -determination of resource costs

True about a Master Budget:

-budget schedules are interdependent -operational assumptions are identified and incorporated into the budget -it consists of a series of budget schedules -budgets included budgeted financial statements

The cash flow budget reflects:

-cash inflows from other sources -cash outflows for merchandise purchases -proceeds from the sale of fixed assets -cash inflow from customers -repayment of loans

steps performed in stage 2 of ABC costing include:

-computation of product cost per unit for each product line -computation of total activity cost for each product line -computation of pool rate

Activity analysis and evaluation involves:

-determination of root causes of activities -evaluation of performance measures -identification of events that trigger activities

to calculate total unit cost in an activity based system requires:

-direct labor per unit -direct materials per unit -overhead cost per unit

Major factors in sales forecasting include:

-industry specific economic trends -general economic trends -past sales and company sales trends -advertising and product promotions -economic climate -past sales levels -political events -expected actions of competitors

correct regarding accounting for manufacturing overhead

-manufacturing overhead account is increased by the actual manufacturing overhead costs incurred -a predetermine manufacturing overhead rate is calculated for use in applying manufacturing overhead to production -manufacturing overhead is applied to production using a predetermined overhead rate X the activity based required for the period's production

Non-value added activity

-non-essential -a duplicate operation -unnecessary and dispensable -necessary, but inefficient and improvable

volume-based product costing systems have difficult assigning overhead costs accurately if

-products differ significantly in the way they use activities -there is a large proportion of non-unit level activities

product costs can be distorted by using

-the same cost driver for all activities -single cost pool -a cost driver at a level different from the activity

Weaknesses of actual costing:

-the same product could appear to be profitable or unprofitable, depending upon when it was produced -the variance of costs during a production cycle -actual overhead costs are not timely

Some common alternatives to direct labor as a cost driver for manufacturing overhead are

-throughput time -machine hours

labor hours based product costing systems where labor hour are related closely to the factory volume are also called

-volume-based costing systems -throughput-based costing systems

two-stage cost allocation

1. Re-assign all service department costs to production departments 2. Overhead absorption

entry made upon completion of a job

Finished goods inventory ---->Work-in-process inventory

Example of a business value added activity

IT expenditures

entries that reflect the use of indirect materials in production

Manufacturing overhead ---->Manufacturing supplies inventory

entry to record the use of indirect labor in production

Manufacturing overhead ---->Wages payable

entry to record the purchase of materials for use in a job-order costing system

Raw materials inventory ---->Accounts payable

The formula to calculate the materials quantity variance is

SP(AQ - SQ)

the entries reflect the application of manufacturing overhead costs to jobs

Work-In-process inventory ---->Manufacturing overhead

entry to record the use of direct labor in production is:

Work-in-process ---->Wages payable

the entry to record the release of direct materials to production in a job-order costing system is:

Work-in-process inventory ---->Raw materials Inventory

cost driver

a characteristic of an event or activity that results in the in the incurrence of costs

bill of activities

a complete listing of activities required for the production of a product or service

Budget

a detailed plan, expressed in quantitative terms that specifies what resources will be acquired and used during a specified period of time

customer-profitability profile/whale chart

a graphical display of an organizations complete customer-profitability analysis

Revolving budget

a plan that is continuously updated by adding a new time period and dropping the period just completed

A financing budget shows

a plan that shows how the organization will acquire financial resources

Financial planning and analysis (FP&A) system

a system that includes planning, measuring and records results and evaluating performance for the entire organization

batch level activity

activities performed for a group of products rather than individual units

facility level activities

activities required in order for the entire production process to occur

product-sustaining level activity

activities that are necessary to support entire product lines, but are not performed every time a new unit or batch is produced

Process value analysis

activity analysis that looks at a set of linked activities to determine the cause of a non-value added activity

activity cost per unit of product

activity cost for each product line/product line production volume

pool rate

activity cost pool/cost driver quantity

unit level activity

an activity that must be done for each item produced

direct labor would not be the best cost driver for a cost related to the purchasing power of product raw materials because the purchasing activity is a

batch activity and direct labor is a unit level activity

The end result of budgeting process is the creation of

budgeted financial statements

Financing budgets

budgets that project cash flow and identify likely cash shortfalls and surpluses

Operational

budgets that specific how activities will be carried out to meet sales demands

When the timing of cash flows does not precisely align with the expenditures in operational budgets, what additional budget must be prepared?

cash disbursements budget

under and over applied manufacturing overhead is most commonly

closed into COGS

Pulling together the plans of all the organization's managers is the purpose of

communication

purpose of a multidisciplinary team

concept of involving personnel from various functional areas to gather information from all facets of operations and improve credibility of decisions

Kaizen Costing

continuous and gradual cost reduction

cost of measurement relates to the

cost of obtaining the information compared to the benefit of using the information obtained

The process of systemically comparing expected costs against actual costs, analyzing significant differences and their causes is called

cost variance analysis

The materials purchase price variance is

determined at the time the materials are required

The direct labor variance is the

difference between actual cost and the standard cost of direct labor for actual output

The difference between actual cost and standard cost for materials is

direct material variance

T/F: Identification of activities should be done at the broadest level possible

false

T/F: Service industry firms do not prepare production budgets since they do not manufacture a tangible product

false

T/F: the cost driver for each activity pool in an ABC system is the same

false

When a company is able to negotiate a long term contract for materials at a price less than projected, what is the likely variance?

favorable materials price variance

When a company has higher wage rates than anticipated, but uses less materials in the manufacture of a product than allowed by the standard, the company will have a

favorable materials quantify variance

When a company expects to spend more than it actually spends there will be a

favorable variance

with a traditional volume-based costing system, there is a tendency to over-cost

high-volume products

Sales forecasting

impacts other budgeting components as they are dependent upon sales

under applied manufacturing overhead

increases COGS

The variance that measures the number of hours worked compared to the number of hours allowed for the actual output is called the

labor efficiency variance

manufacturing overhead is over applied when actual manufacturing overhead is

less than applied manufacturing overhead

One factor driving the movement toward ABC is

more product diversity

selling and administrative costs include:

office supplies expense, sales commissions, insurance expense--showroom, advertising expense

Non-value added costs should be highlighted

on activity center cost reports

storyboarding is the process of

placing key information about departmental activities on cards and organizing the cards into the activity sequence

when an organization uses a single overhead rate it is referred to as a

plant-wide overhead rate

When no inventories of merchandise is maintained, the purchases budget will equal the number of units expected to be sold

plus the amount of resources needed to provide expected services

interviewing

process of speaking with a key employee in a support department to gather information about how time is spent

activity cost for each product line

product line pool rate X cost driver quantity for each product line

Another term for a Master Budget

profit plan

The order of budget preparation in nonprofit organizations will generally be

program budgets and then funding sources

The cash receipts budget can differ from the sales budget due to

sales on account and cash collections may occur in different periods

Example of a customer value added activity

technical support for a cell phone

cost hierarchy

the classification of activities into levels

The direct materials variance is

the difference between actual material cost and standard material cost for actual output

Sales budget

the first budget to create in the budgeting process

proration

the process of allocating under-applied or over-applied overhead to WIP, FG, or COGS; more accurate but more complicated procedure to dispose of overhead

customer-profitability analysis

the process of identifying the cost and use of services by customers

consumption ratio

the proportion of an activity consumed by a particular product is called the

the degree of correlation

the relationship b/w the consumption of an activity and the consumption of the cost driver

Conversion costs are the costs of

the resources needed to convert purchased inputs into a marketable product or service

Activity-based management (ABM)

the use of ABC information to support an organization's strategy, improve operations or manage costs

Inspection time

time spent ensuring the product is of high quality

COGS manufactured shows the amount of goods

transferred into FG inventory

T/F: A master budget can, and should, be used by all types of businesses, governmental agencies as well as individuals

true

departmental overhead rates are frequently used by organizations because the relationship b/w overhead costs and a single cost driver are substantially different b/w production departments

true

When the standard cost is less than the actual cost, there will be an

unfavorable variance