Accounting 2

Target Profit

(Target Profit + Fixed Expenses) / Unit CM

dollars to attain target profit

(target profit + fixed expenses) / CM ratio

A dress manufacturer would consider the cost of relatively inexpensive items like thread to be part of:

1. manufacturing overhead 2. indirect materials

Find predetermined overhead rate per direct Labor dollar is Manu overhead/ Labor cost. Example Manu overhead is 162k and the Labor cost is 120k. What is the answer

1.35

General Ledger

A ledger that contains all asset, liability, stockholders' equity, revenue, and expense accounts.

allocation base

A measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects.

Example of Direct Materials

A radio installed in an automobile

overapplied overhead

A situation in which overhead assigned to work in process is greater than the overhead incurred.

underapplied overhead

A situation in which overhead assigned to work in process is less than the overhead incurred.

Margin of Safety

A wiggle room before your broke

What kind of costing do most companies use in their management reports

Absorption

All manufacturing costs are assigned to units of products and all manufacturing costs are treated as period cost under....

Absorption costing

To find the Fixed cost you will

Add everything that has the word fixed in it

Administrative Costs

All executive, organizational, and clerical costs associated with the general management of an organization rather than with manufacturing or selling.

Maintenance and depreciation of test equipment are examples of

Appraisal cost

Raw materials purchases

Are classified in the raw materials inventory

Activity based absorption costing

Assigned overhead based on events that consume overhead resources

Overhead application is the process of

Assigning manufacturing overhead cost to jobs

Bar codes can be used to

Automatically record and post direct labor costs to jobs

The unit product cost is the same as the

Average product cost per unit, total job cost divided by number of units

Finding cost of goods sold

Beginning inventory + purchase-ending inventory

CM Ratio

CM/Sales

Allocation bases that do no drive overhead costs

Can cause product costs to be distorted

Direct and indirect materials

Cannot be traced

Finding CM Unit

Cm per unit/ sell price unit

Fixed costs that cannot easily be changed and often lock a company into a multi-year decision are

Committed fixed cost

Structuring Sales Commissions

Companies generally compensate salespeople by paying them either a commission based on sales or a salary plus a sales commission. Commissions based on sales dollars can lead to lower profits in a company.

Degree of Operating Leverage

Contribution Margin / Net Operating Income

Variable and fixed cost are found on the

Contribution format

Sales -Variable ————————- =Contribution margin -Fixed Expense ——————————- Net Income

Contribution income Statement

direct labor and manufacturing overhead are what

Conversion costs consist of

How individuals costs react to change in activity level is referred to as

Cost behavior

indirect costs

Costs that cannot be easily and accurately traced to a cost object.

Mixed Costs

Costs that contain both a variable- and a fixed-cost element and change in total but not proportionately with changes in the activity level.

What you start with is _____ (raw materials). When taken out it is _______, if added it is _____

Debit Credit Debit

Labor cost that can easily and conveniently traced to products are

Direct Labor

To find total manufacturing cost you need to add

Direct Labor Direct material Manufacturing overhead

Total Conversion Cost

Direct Labor + Manufacturing Overhead, ex: of Direct Labor was 51k and variable moh was 32k and the fixed moh was 30k. The total conversion would be 113k

Widely used allocation bases in manufacturing are:

Direct Labor Hours, Direct Labor cost, units of products, machine hours

At a automobile manufacturing plant, the assembly line workers are classified as

Direct Labor cost

Fantastic furniture makes custom order of couches, the material used to match a couch is an _____ of the customer placing the order

Direct cost

To find product cost you need to add

Direct materials, direct Labor and manufacturing overhead

When finding the variable manufacturing overhead you need to add the

Direct materials, direct Labor and the variable moh

Selling and Admin costs are

Direct or indirect

Fixed costs that can be cut-back or eliminated without significant damage to a company's long term goals are

Discretionary fixed cost

When a company recalls a defective product what is incurred

External failure cost

Job order costing can only be used in manufacturing firms t/f

False

Vertical Distance from fixed expenses is your profit area. T/F

False

dollars to break even

Fixed Expenses / CM Ratio

unit sales to break even

Fixed Expenses / Unit CM

Contribution Approach to Income Statement distinguishes between

Fixed and variable cost

Manufacturing overhead examples

Glue Nails Rent of factory building Factory supplies Supervisors of factories

The purpose of statistical process control is to identify processes that are....

In our out of control

A manufacturing cost that cannot be easily traced

Indirect cost

Manufacturing overhead cost include

Indirect materials, factory supervisors and factory depreciation

The more effective a company's appraisal activities, the greater level of...

Internal failure cost

Product cost is also called

Inventorial cost

finished goods

Inventory awaiting sale to consumers.

Assets equal

Liabilities + Equity

materials requisition form are used for

Making journal entries in accounting records, controlling the flow of materials into production

Manufacturing Overhead

Manufacturing costs that are indirectly associated with the manufacture of the finished product.

A job cost sheet contains:

Materials costs charged to the job, manufacturing overhead costs charged to the job, and labor costs charged to the job.

An activity base

Measures whatever causes costs to vary and sometimes called cost driver

Compared to a plantwide overhead rate system, a multiple predetermined overhead rate system is

More complex, but more accurate

The predetermined overhead rate is multiplied by the actual allocation base incurred by a job to find

Overhead applied to the job

Costs incurred in an attempt to lower the number of products manufactured with defects are

Prevention cost

Direct Material and Direct Labor are...

Prime Costs

Preventing, detecting, and dealing with defects causes...

Quality cost

Direct Materials

Raw materials that can be physically and directly associated with manufacturing the finished product.

Finding CM

Sales-Variable

What happens in a financial statement?

So in the balance sheet, raw materials goes to work in process inventory and then turns into finished goods inventory which enters the Costs of goods sold

Indirect Labor

The labor costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced to particular products.

The intercept represents under the slope represents

The total fixed cost

The tax department in an accounting firm would not be considered a job that uses job order costing because

They are a department and job would be an individual client

Selling and Administrative transfers straight to where?

To the income statement

What absorption cost system uses a volume related allocation base for all the manufacturing costs

Traditional

A income statement that focuses on product and period costs are using a

Traditional format

Sales -COGS ————— =Gross Profit -Selling& Admin Expense ——————————————- =net income

Traditional income statement

A cost may be direct or indirect, depending on the cost object. T/F

True

A cost may be direct or indirect, depending on the cost object. True or False

True

Number 2 on the exam

True

One reason to use a predetermined overhead rate is to eliminate the effect of seasonal factors. T/F

True

The absorption approach to overhead charges products for resources they don't use. T/F

True

Too much fixed overhead may be applied to products when the predetermined overhead rate is based on estimated activity

True

Total Estimated overhead at capacity is generally larger than total estimated overhead at the expected level of activity

True

Direct materials + Direct Labor + Manu Overhead= total job cost / number of units which equals

Unit product cost

When predetermined overhead rates are based on budgeted activity

Unit products costs fluctuate depending upon budgeted activity. Products are charged for resources they don't use

Cost of goods sold for merchandising company, direct materials and commission are all examples of

Variable cost

The average manufacturing overhead cost per unit tends to

Vary from on period to the next

Object Cost

Whatever you want to analyze about

direct labor and manufacturing overhead fall under hat category

Work in process inventory

Can a direct cost become a indirect cost later?

Yes

Job Order Costing

a cost system that assigns costs to specific production batches or jobs

Fixed Cost

a cost that does not change, no matter how much of a good is produced

sunk cost

a cost that has already been paid and cannot be recovered

Which method will produce the highest values for work in process and finished goods inventories?

absorption costing

margin of safety formula

actual sales - break even sales

Salary expense is considered to be

an expense in the period incurred

raw materials

any materials that go into the final product

Absorption Costing

assigns all 3 factors(direct material, direct labor, and both fixed and variable manufacturing overhead) to inventory

sales revenue - variable expenses=

contribution margin

Any item for which cost data is desired is called a

cost object

selling costs

costs necessary to secure the order and deliver the product

Period Costs

costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued

Direct Costs

costs that can be easily and accurately traced to a cost object

variable costs

costs that vary directly with the level of production

fixed cost per unit

decreases as production volume increases

A change in revenues between two alternatives is known as _____revenue or ______revenue.

differential or incremental

Manufacturing Costs

direct materials, direct labor, manufacturing overhead

Product Costs

direct materials, direct labor, manufacturing overhead

To calculate the unit product cost using the job cost sheet

divide the total job cost by the number of units produced

target profit analysis

estimating what sales volume is needed to achieve a specific target profit

Salaries of factory supervisors and factory maintenance personnel are examples of _____ labor costs

indirect

Typical cost drivers include:

machine-hours, flight-hours, computer time

Factory costs such as cleaning supplies, taxes, insurance, and janitor wages are classified as:

manufacturing overhead

The revenue obtained from selling one additional unit of product is called ___________ revenue.

marginal

Indirect Materials

materials whose costs are difficult to trace to specific products

Sales commissions are

period costs

designing and advertising a product are all __-level activities

product

Matching Principle

recognize expenses in the same period as the revenues they help to generate

variable cost per unit

remains constant

Cost of Goods Manufactured

the manufacturing costs associated with the goods that were finished during the period

Direct Labor

the work of factory employees that can be physically and directly associated with converting raw materials into finished goods

an activity __ pool relates to a single activity measure in the ABC system.

to cost

A fixed cost remains fixed _____ within the relevant range of activity

total

POHR

total estimated overhead / total estimated allocation base

work in process

units of product that are only partially complete and will require further work before they are ready for sale to the customer

The slope of the variable cost line represents

variable cost per unit of activity

Variable Expense Ratio

variable expenses/sales

Example of Direct Labor

wages paid to automobile assembly workers

opportunity cost

whatever must be given up to obtain some item