Acct Ch 1, 2, 5, and 6

journal entry Have employees work (to record factory labor costs paid)

Debit Factory labor. Credit Wages payable or cash

journal entry Completion of Work: (Assignment)

Debit Finished goods inv Credit WIP Inventory

journal entry Use (assign) direct labor and use indirect labor (to assign Factory Labor to jobs

Debit WIP Inv (Direct labor) Debit MOH (Indirect labor) Credit Factory labor

Process cost system

costs are accumulated and assigned to departments or processes after a period of time. Large volume of similar products are made, and the production process is continuous. The product is usually of a like kind nature.

Job order cost system

costs are accumulated and assigned to individual jobs. Jobs have distinguishing characteristics (action film vs. animation film). They are unique products to be costed out when job is finished.

Linear assumption holds as long as

the activity level remains within the relevant range

what is the purpose of external reports for financial accounting

general purpose

Extended version of COGM

(+) BWIP (what happened yesterday) Current Manufacturing Costs (today) Direct Materials Used: Beg Raw Materials + Material Purchased Total Available - End Raw Materials (+) = DM Used (+)Direct labor (+)Manufacturing Overhead (+) = Total Manufacturing Costs in the Current Period (=) Total Costs of Work in Process (B. WIP + TMC) (-) Ending WIP (=) Cost of Goods Manufactured

Short version of COGM

+ Beginning WIP (what happened yesterday) + Total Manufacturing Costs in the Current Period (today) = Total Costs of Work in Process (B. WIP + TMC) - Ending WIP = Cost of Goods Manufactured

CVP assumes a constant sales mix

- The percentage of total sales represented by each product remains unchanged

When these accounts are credited

1. we will be "assigning costs"

Cost Flow of Job Order Costing System- Left (DR) side of T-Accounts is

Accumulation

2 major steps under job order costing system

Accumulation & Assignment

Who audits the external reports of financial accounting

CPA

Degree of Operating Leverage=

Contribution Margin / Net Income

What is the 1st major schedule for tracking costs ?

Costs of Goods Manufactured Schedule

journal entry Remove Inventory: (Assignment)

Debit COGS Credit Finished Goods Inv

journal entry Sale of Goods: (Assignment)

Debit Cash or accounts rec Credit sales rev

journal entry Use (assign) Direct materials and use indirect material (to assign Raw Material to jobs)

Debit WIP Inv (Direct materials) Debit MOH (Indirect materials) Credit Raw Materials Inv

Which of the following costs would be not expensed in the period incurred?

Depreciation on furniture used in the factory lunchroom

Which would be characteristic of managerial accounting reports?

Designed to provide the decision maker with the appropriate information.

Sales Mix Percentage =

Division sales dollars / Total firm sales dollars

External users do...

Financial accounting

Higher fixed costs relative to variable costs =

Higher Operating Leverage

Product Costs

Includes Materials, labor, and overhead. These costs occur in the factory and occur bc of the manufacturing activity of the product

Frequently used Activity Base:

Machine Hours, Direct Labor Hours, Direct Labor Cost

what provides economic and financial information for management to make decisions

Managerial accounting

what is this equation for Beg finished goods INV +Cost of goods manufactured (COGM) -End Finished Goods INV =COGS

Manufacturer

what is this equation for Beg. INV+ Cost of goods purchased- End INV=COGS

Merchandiser

Period Costs

Occur outside of the factory-usually selling, general and administrative expenses. They are expensed as incurred.

what is Capitalized as an asset when they occur (Finished goods inventory) and they are expensed when sold as COGS

Product costs

Accumulation

Recognition of RM purchased, FL incurred, MOH (except IDM and IDL) incurred

Organizational Structure

Shows the interrelationships of activities and the delegation of authority and responsibility within the company.

TMC =

TFC + TVC

TFC + TVC=

TFC + VC per unit * Activity Level

Sales Mix Percentage

The number of sales units of a particular product / The total number of sales units for the company

Mike Warner is the inventory manager for PNT Company. He regularly receives the financial statements prepared for external users such as the company's balance sheet, statement of cash flows, and income statement. Mike also receives a variety of internal reports including a report that shows the inventory balances for all the company's divisions. Which report will likely be of most assistance to Mike in decision-making?

The report showing inventory balances for all the company's divisions.

Job cost sheet

a form used to record the manufacturing costs chargeable to a specific job and determine the total and unit cost of the completed job (The lower section of job cost sheet for unfinished goods will not be filled out)

Contribution Margin ratio

a. The percent of each sales dollar that is available to cover fixed costs and then profit.

Contribution Margin per unit

a. for each unit of product sold, the amount of sales revenue that remains to cover fixed costs and contribute to profit.

relevant range

a. the range over which a company expects to operate during a year. Linear assumptions in this area produce useful data for CVP analysis as long as the level of activity remains within the relevant range.

Have employees work (to record factory labor costs paid) accumulation or assignment

accumulation

Purchase of Material from Supplier (To record purchase of raw material) accumulation or assignment

accumulation

contents of financial accounting external reports

aggregated and in accordance with GAAP

Right side of cost flow of job order costing system

assignment

Use (assign) Direct materials and use indirect material (to assign Raw Material to jobs) accumulation or assignment

assignment

Use (assign) direct labor and use indirect labor (to assign Factory Labor to jobs) accumulation or assignment

assignment

Balance Sheet or income statement? - Merchandiser: Inventory vs., Manufacturer: Finished Goods, Work in Process Inventory and Raw Materials Inventory (for recording purposes only)

balance sheet

Manufacturing Overhead

consist of manufacturing costs that are indirectly associated with the manufacture of the finished product to make a unit a product but are usually too costly or too impractical to be traced into the finished goods

directing

coordinating human resources and firm's diverse activities to ensure a smooth-running operation; Motivating employees; Selecting managers, hiring and training employees

Cost of goods manufactured is to a manufacturing enterprise as ________ is to a merchandising enterprise.

cost of goods purchased

Manufacturing Costs

costs of converting raw materials into finished goods

variable costs

costs that change in total directly and proportionately with changes in the activity level

fixed costs

costs that remain the same regardless of changes in the activity level

side in MOH recorded the application of overhead to the Work in Process as jobs being worked on.

credit side

journal entry Purchase of Material from Supplier (To record purchase of raw material) (

debit raw materials inv. credit accounts payable or cash

side of the MOH account accumulates all of the actual costs as they are incurred. The timing does not necessarily relate to the production of the product.

debit side

When inventory is recorded on the balance sheet at cost, which of the following is included in the computation of that cost?

depreciation of the manufacturing plant

Line positions

directly involved in a company's primary revenue-generating operating activities

Which is an example of an overhead cost?

electricity used to run a manufacturing plant

Which of the following describes the process for determining the predetermined overhead rate?

estimated annual overhead cost divided by estimated annual operating activity

what type of report is in financial accounting and how frequently is it done?

external reports and done quarterly and annually

cost behavior

how specific costs respond to changes in activity levels

MOH includes

i. Indirect materials ii. Indirect labor iii. Factory supervisor salaries iv. Factory maintenance/security v. Factory equipment depreciation vi. Factory insurance vii. Real estate taxes viii. Factory licenses/permits ix. Factory rent x. Utilities in factory

Balance sheet or income Statement - Costs of Goods Purchased vs. Cost of Goods Manufactured

income statement

what type of report is in managerial accounting and how frequently is it done?

internal reports and as frequently as needed (ad hoc, prn)

Staff positions

involved in activities that support the efforts of the line employees.

Cost Accounting

involves the measuring, recording, and reporting of product costs.

Controlling

keeping company's activities on track, insuring that planned goals and activities are being followed or achieved by the use of budgets, responsibility reports and performance evaluations.

Planning

looking ahead by establishing company objectives and performing only activities that add value

examples of mixed costs

maintenance, utilities

When the information being presented is very detailed and relevant to the decision at hand, it has most likely been prepared by a

managerial accountant.

internal users do...

managerial accounting

Alice is a managerial accountant who is responsible for creating reports. Which of the following reports is Alice most likely to generate?

market report of demand for action figures

Indirect materials

may not be physically become part of the product or the amount is too small to trace to the end unit

Is the internal reports done through managerial accounting audited?

no

cost=

product costs+period costs

Jaime K. owns a small gear manufacturing plant. Jaime's gears are sold to large earth-moving equipment manufacturers. Jamie considers which of the following a product cost?

production manager's salary

Varaible costs

remains the same per unit at every activity

examples of fixed costs

rent and depreciation

Direct Materials:

raw materials that can be physically and directly associated with the finished product during the manufacturing process

Operating Leverage

refers to the extent to which a company's net income reacts to a given change in sales.

Cost Structure

refers to the relative proportion of fixed verses variable costs that a company incurs. Firms whose operation depends heavier on fixed costs would have more operational risk than firms whose operation depends mainly on variable costs, because depending on fixed costs would make the firm's net income be more susceptible to the change in sales revenue.

contents of managerial accounting internal reports

segments or units, relevant to decision

Mixed Costs

semi-variable costs (Mixed cost contains both variable cost element and fixed cost element), mixed costs change in total but not proportionately with changes in activity levels.

what is the purpose of internal reports for managerial accounting

specific decisions

Cost Accounting system

system that provides info immediately on the cost of the product

A predetermined overhead rate of 70% of direct labor cost means

that for every dollar of direct labor, a company will apply $.70 of manufacturing overhead.

Target Income

the amount of income that a company wants to generate. Simply treat the amount as a fixed cost and then modify the break-even formulas.

activity index

the amount of the item selected also known as volume

Margin of Safety

the difference between actual or expected sales revenue and sales at the break-even point. (Cushion)

Break-even point

the point at which total fixed costs are completely covered and there is zero profit. (Remember that variable costs per unit have to be covered every time a unit of product is sold.)

Sales Mix

the relative percentage that each product represents of the total sales. The sales mix could be calculated based on either sales units or sales dollars, depending on the measurement of activity volume

To maximize net income,

the units that generate the higher contribution margin per unit of limited resource should be produced.

direct labor

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

In order to calculate the total cost of work in process, you should add the beginning balance of the work in process inventory to the

total manufacturing costs for the current period

As volume increases...

unit cost decreases and vice versa

fixed costs per unit...

vary inversely with activity

When these accounts are debited

we will be "accumulating costs"

Indirect labor

workers that don't physically touch the end product, or their contribution is too small to trace to the end product