accy 307 exam 2

Mandalay Enterprises has a budgeted beginning cash balance of $55,000. They anticipate collecting $52,916 of their accounts receivable, doing $5,000 in cash sales, and paying accounts payable invoices totaling $45,000. They plan to incur another $21,000 in payables, and invoice $22,500 to their customers. What is their budgeted ending cash balance?

$55,000 + $52,916 +$5,000 - $45,000. The additions to accounts payable and accounts receivable do not affect the cash balance. (67,916)

Mario used their line of credit to pay some vendor invoices that offered them a 1% cash discount. The annual interest rate on their line of credit is 9%. If they used $9,000 of their line of credit to pay the vendor invoices, how much interest would they pay on their line of credit, if they repaid the balance in two months?

($9,000 x 9%)/12 x 2= $135.00 in interest for the two months. Mario received a discount of $90.00 for paying within terms. In this case, it would not make sense for Mario to utilize the discount, since they are unable to repay the line of credit in time to pay less in interest than the amount of the discount.

Busy Bakers Inc. has four different styles of bagels produced each day. Larry is a baker, and is responsible for baking all of the products as they come to their area of the manufacturing plant. They have six ovens that are used to make all styles of bagels. How would their wages be classified?

A _____________might be a helpful tool to spot cause and effect relationships between various activities and cost drivers.

What is a key concept of preparing a participatory budget?

A key concept in participatory budgeting involves having various managers and employees provide information about the area they work in to create realistic and achievable budgets.

Zoey owns a bakery they use about $500 worth of raw materials per day and 8 hours of direct labor from their 2 employees and about 4 hours of direct labor for themself. When moving the manufacturing costs into production, what would be the best action for determining the accuracy of the associated journal entries for each individual job?

A material requisition sheet for each job should be used with the individual job numbers, and job costs correctly recorded. This will ensure each journal entry for each job has accurate information. (Tracking the job on a material requisition sheet.)

What information is needed to determine the COGS for a retail establishment?

A retailer would need the beginning inventory, plus items purchased, and the ending inventory to calculate their cost of goods sold. Because they do not manufacture anything, they do not purchase raw materials.

In ABC, various MOH activities will use a different _______________to arrive at the allocation rates.

ABC uses different cost drivers for various activities to determine the allocation of MOH. As an example, one activity may use direct labor hours as a cost driver, while another process might use machine hours. This method allows for a more accurate allocation of MOH than a traditional costing system which only uses one cost driver.

The advantages of activity based costing includes ___________________.

ABC uses relevant cost drivers for each activity which results in a more accurate allocation of MOH to a variety of product lines. ABC is not necessary if a company only has one product, and due to the cost of implementation, it may not be a good choice for all companies. The cost of implementation needs to be evaluated based on the value derived by the more accurate cost allocation.

Ahmed is the manager of the bindery department at a local printing company. They were just told that they are over budget on the depreciation of the bindery equipment. They knew they had purchased a new piece of equipment, but they were not involved in the buying decision. What type of budgeting process does the company Ahmed work for use?

Ahmed has no control over the depreciation of equipment, even though it is in their department. This is an example of an imposed budget in a centralized organization.

Alex is a traveling massage therapist. They charge $75 per hour for the massages and $50 per hour for travel time since they have a larger vehicle to transport their equipment. Jane has hired Alex for a 90-minute massage, and Jane lives 45 mins away from Alex. What would Alex's journal entry be for the massage?

Alex charges $75 an hour, and Jane booked for 90 minutes. The cost for the massage is $112.50 therefore the journal entry would be debit work in process inventory $112.50 and credit salaries and wages payable $112.50.

Jose is working on their personal budget and has a few questions. They have a cash inflow (after taxes) each month of $1,250. There rent is $500, car payment $210, cell phone $25, groceries $400, and miscellaneous expenses $50. If they plans to do a zero-based budget, what is their BEST next step?

Although all of the options are potential choices, the best option would be to consider starting a savings plan with their monthly surplus. This would allow them to have funds to cover emergency expenses, such as medical costs or car repairs.

Jose is working on their personal budget and has a few questions. They have a cash inflow (after taxes) each month of $1,250. Their rent is $500, car payment $210, cell phone $25, groceries $400, and miscellaneous expenses $115. They already are working with a zero-based budget, but just found out their rent will increase to $525 per month when they renew their lease next month. What is their best course of action to cover this additional expense?

Although all of the options are viable, the best option in the short term is to reduce another expense. Either miscellaneous expenses or groceries are the most likely line items where modifications can happen to cover the additional cost. In the long term, they could get a part-time job, move to a cheaper apartment (although moving comes with its own costs!), or get a roommate.

Leona noticed that different purchase orders took varying amounts of time to process. Purchase orders with stock items took less time than those with custom items, and purchase orders with only one or two items took less time than those with more items. It was also noted that the first purchase order for a new vendor took longer than if it was for an existing vendor. Using the general formula Y=m(X) + b format where Y= Total time allocated, m= Variable amount of time by type of transaction, X= Type of transaction and b = Fixed cost or Y-intercept, calculate Y for the following if the purchase order is being prepared for an existing vendor with no custom items and two stock items. New vendor= additional 6 minutes Custom items = additional 2 minutes per item Fixed cost for a basic purchase order = 3 minutes

An order for an existing vendor with no custom items would take 3 minutes, the fixed cost for a basic purchase order.

In which situation might an imposed budget be efficient and effective?

Because Gerald is involved daily in the operation of their restaurant, they will have a good understanding of their business. In small owner-managed businesses with tighter controls, an imposed budget might make the most sense.

Busy Bakers, Inc. has four products that they manufacture on a daily basis. John is assigned to moving the raw materials from the refrigerated warehouse to the appropriate production line. John's wages would be assigned to ______________.

Because John is delivering raw materials to all of the product lines, their time will be difficult to trace to individual products. Their wages would be assigned to manufacturing overhead and shared between the various products.

Leon owns a dry cleaning business and has three employees. They are working on their budget and has implemented an imposed budget for their business. Leon handles most of the management tasks himself. Why might an imposed budget be a good choice for Leon?

Because Leon has a small, owner-managed business, they most likely have a good understanding of how all processes in the business operations. Because of this, an imposed budget would be efficient, effective, and make good sense in this situation.

Lexi is a tax accountant, and they are working on determining which costs might need to be included in their budgeted cost of services. Which of the following might she need to include?

Because Lexi is a service provider, the biggest expense in her budget will likely be salaries, wages, and the corresponding taxes. The other expenses are all period costs.

Factory depreciation and utilities would be considered; what type of cost within the cost hierarchy?

Because depreciation and utilities cannot be traced to a specific product, they are considered facility-level costs in the hierarchy. These costs enable the overall manufacturing of products and delivery of service efforts.

Once the sales forecast is completed, _______________complete the production budget.

Because service businesses and merchandisers do not produce any products, they will skip the production budget step. Only manufacturing companies complete the production budget step of the master budget process.

Berkshire Community College employs 100 staff members and 61 faculty. The president of the college is working on the budget for the next year and isn't sure what type of budgeting process he should use. What type of budget would make the most sense in this case and why?

Because the organization is large, it would not be possible for the president to have a good handle on each department to prepare a realistic budget without input from others. Also, a participatory budget helps the staff and faculty to feel a part of the process, which will help with morale.

Lake City Kayak Company manufactures three styles of kayaks. They are in the process of classifying their costs into a cost hierarchy to get a better understanding of the cause and effect relationships between the various costs and drivers. The manufacturing facility is rented, and each style of kayak uses different machinery for production. What type of costs would these be in their cost hierarchy?

Because the rent on the manufacturing facility enables the overall manufacturing of the kayaks, it is a facility-level cost. Costs that enable a product type or process, such as the depreciation on a certain piece of machinery, are considered product/process-level costs.

Jerard noticed that different invoices took varying amounts of time to process. Invoices with stock items took less time than invoices with custom items, and invoices with only one or two items took less time than invoices with more items. It was also noted that the first invoice for a new customer took longer than if it was for an existing customer. Using the general formula Y=m(X) + b format where Y= Total time allocated, m= Variable amount of time by type of transaction, X= Type of transaction and b = Fixed cost or Y-intercept, calculate Y for the following if the invoice is being prepared for a new customer who ordered stock items: New customer= additional 3 minutes Custom items = additional 4.5 minutes Fixed cost for a basic invoice = 4 minutes

Because this is a new customer who ordered stock items, the time per invoice transaction would be 3 minutes plus 4 minutes= 7 minutes

Lesley is preparing the production budget for the next month. They are expecting a budgeted sales volume of 3,500 units for the month, with a targeted ending inventory of 10%. Currently, there are 215 units in the beginning inventory. How many units need to be produced to meet the budgeted sales volume?

Budgeted units to be produced= Budgeted sales volume + Target ending FG inventory units- Beginning finished goods inventory units, thus 3,500 + 350-215= 3,635 need to be produced.

Wyatt is the accounting manager at a small but growing regional grocery store. They noticed that no master budgets has been created for the store and asked the owner why this task had not been completed. The owner replied that it is too costly to prepare these budgets, and things have been going fine. What insight might Wyatt offer the owner to help them understand the importance of creating a master budget?

Budgets are tools that are helpful for businesses to have targets that can be measured and used to plan forward. Budgets are also helpful to notice areas where expenses may be too high, strategies need to be changed, and help to focus a company's use of funds on the outcomes that were deemed important in the strategic plan. Budgets are not required for GAAP or tax preparation. Budgets are also not set in stone.

______is a company's most important resource and must be budgeted and monitored closely.

Cash is a company's most precious resource, and it must be budgeted and monitored closely for a company to stay healthy. Sales won't matter if they are on account and not collected, so keeping track of cash is of vital importance.

A _________should be easy to understand and directly related to the activity being performed.

Cost drivers should be easy to understand, directly related to the activity being performed, and be useful for performance measurement purposes.

Direct labor and direct materials are ________________.

Direct materials and direct labor can be easily traced to the specific product or service. As an example, if tomatoes are used in tomato sauce, but not in alfredo sauce, the tomatoes are a direct material for only the sauce. If an employee is tasked with cutting up the tomatoes for the sauce, that labor will be assigned directly to that sauce.

Riverland Shoes and Boots Inc. manufactures three styles of steel-toed workboots. They are in the process of classifying their costs into a cost hierarchy to get a better understanding of the cause and effect relationships between the various costs and drivers. They are currently looking at the cost of direct materials to manufacture one style of their boots. What type of cost would this be in their cost hierarchy?

Direct materials are a unit-level cost which enables the production of each individual unit.

Edward is opening a pest control business and has decided to use their home office to run the business out of and rent a storage space for their equipment and materials. Each customer's job pricing would be different based on the needs and seriousness of their infestation that would not be known until the actual job is performed. Edward needs to decide the costing system they should use and why.

Edward's utilities are included in their rent and the rest of their material overhead costs will not be known until the completion of their job. This gives Edward the ability to utilize the actual costing system because it would benefit them to prioritize actual costs over time. Edward will then bill upon completion once they know their actual costs for direct labor and direct materials.

_____________costs are incurred by the company as a whole, and cannot be easily traced to individual products or services.

Facility-level costs enable the manufacturing process or delivery of services, but cannot be easily traced to a specific product or service. Companies must use good judgement to allocate these costs.

Frankie owns a financial consulting business. At the completion of a full financial setup for a client, the income statement would have the following information: Sales $675 and a cost of sales of $550. What would their gross margin be?

Gross margin equals sales minus cost of sales. $675 - $550 = $125.

Layla has been allocating MOH costs to their three different products using a single plant-wide rate of $19 per DL hour. Their controller has suggested a switch to the following activity-based rates: $10 per production run, $15 per direct labor hour and $12 per inspection hour. If the most recent job required 5 production runs, 150 DL hours and 5 inspection hours, how much MOH would be allocated using the traditional costing method?

If Layla continued to use the traditional costing method, the MOH applied would be $19 x 150 hours= $2,850. (Plant wide rate x Dl Hours)

A manager may at times be tempted to classify period costs as MOH costs. Doing this can increase current period net income because it moves the cost onto the Balance Sheet from which financial statement?

If the products have not yet been sold, misclassifying a period cost as MOH will move that cost to the Balance Sheet off the Income Statement and thus increase current period net income.

In a manufacturing company, their current assets would include cash, accounts receivable, supplies and _____________________.

In a manufacturing company, the current assets would include cash, accounts receivable, any inventory accounts, supplies, and prepaid expenses. There may be other current assets listed as well, depending on the business and how they classify their assets. Machinery and accumulated depreciation are always long-term assets. The line of credit and accounts payable are current liabilities. direct materials and finished goods inventories, along with any prepaid expenses.

Because service industry firms do not sell physical products, the Cost of Goods Sold account is replaced by the

In a service firm, the Cost of Sales account is similar to the Cost of Goods Sold account used in the manufacturing industry.

_____________refers to companies where the decision making authority resides within a narrow scope at the highest level of the firm.

In centralized organizations, the decision-making authority resides within a narrow scope at the highest level of the firm. Upper management makes the decisions in organizations that are centralized.

Melva has just received an invoice from a vendor offering a 2% discount if they pay within 10 days. Should Melva pay in the time frame even if they need to borrow the money to cover the payment?

In general, companies want to hold on to their cash as long as possible. But when a vendor offers a cash discount for paying early, it reduces net purchases and improves the gross margin. Even if the funds need to be borrowed, the cash discount generally is more than the interest paid on a short-term loan.

If Maria has a production budget of 4,590 units for month one, and 4974 units for month two, what is their total budgeted direct labor cost for month one if each unit requires .5 hours of labor and the labor rate is $11.72 per hour?

In month two, 4,590 units are to be produced, with each unit requiring .5 hours. The cost of one hour per labor is $11.72, thus 4,590 units x .5 hours x 11.72 per hour= $26,897.40. There is no beginning or ending inventory with direct labor.

If Maria has a production budget of 4,590 units for month one, and 4974 units for month two, what is their total budgeted direct labor cost for month two if each unit requires .5 hours of labor and the labor rate is $11.72 per hour?

In month two, 4,974 units are to be produced, with each unit requiring .5 hours. The cost of one hour per labor is $11.72, thus 4,974 units x .5 hours x 11.72 per hour= $29,147.64. There is no beginning or ending inventory with direct labor.

Because service businesses do not have a cost of sales, the most significant item to budget for is ___________________.

In service businesses, the largest expense and the one most significant to budget are salaries, wages, and the associated taxes. Because income is generated by the work of employees, these costs need to be carefully considered in the pricing of the service.

When might it be required to obtain proceeds from borrowing, even when a company has a positive cash balance?

In some cases, the bank requires a minimum balance, and provides a line of credit to always keep the cash balance at a certain level. This line of credit can then be paid off as soon as the cash balance is above what is required by the bank.

Jeremy owns a cafe and uses normal costing with a yearly material overhead budget of $92,000. Their sales are steady all year because of the local college during the school year and tourists during the summer. At year end, they have an applied material overhead of $90,000. After going over their end of year data, they found their actual material overhead was $83,000. Was their material overhead over or under applied, and by how much?

Jeremy's material overhead was overapplied because the applied material overhead is greater than the actual. $83,000- $90,000= ($7,000)

Lauren used their line of credit to pay some vendor invoices that offered them a 2% cash discount. The annual interest rate on their line of credit is 9%. If they used $10,000 of their line of credit to pay the vendor invoices, how much interest would they pay on their line of credit, if they repaid the balance in one month?

Lauren would pay ($10,000 x 9%)/12 months= $75.00 in interest per month. They would have gotten a discount of $200 for paying the invoices within the terms, saving them $125 even after paying the interest on their line of credit.

Major Seed Company has seen an increase in orders over the last year. Currently, they are incurring costs of $92,500 per year to process invoices and navigate exchanges, refunds and customer inquiries. They are considering hiring an additional clerk to handle the workload. Key Transactions Rate Per Minute for Supplying an Activity x Estimated Time Per Transaction = Cost per Transaction Original Invoice Entry $0.40 5 minutes $2.00 Processing Exchanges $0.40 3 minutes $1.20 Processing Refunds $0.40 4 minutes $1.60 Customer Phone Calls $0.40 10 minutes $4.00 If the department processed 40,000 original invoices, 2,000 exchanges, 1,000 refunds and 250 customer phone calls, what is the difference between the total costs incurred for this department and the total allocated costs?

Multiplying the cost per transaction x the transactions completed yields a total allocation of (40,000 x $2) + (2,000 x $1.20) + (1,000 x $1.60) + (250 x $4.00)= $85,000. The total cost incurred by the department was $92,500, so the difference is $7,500 under allocated cost.

Susan has set up a spreadsheet to track their bakery expenses so they can determine their pricing. Susan must decide if it would be better to use normal costing or actual costing to determine their products cost. Which is the most effective costing system for Susan to use and why would they choose that system?

Normal costing can use direct labor, direct material, and estimated material overhead costs to create unit costs. After the business is running, monthly adjusting journal entries can be created to correct the difference between the estimated and actual costs.

Bob is an accountant working at a large public accounting firm. They are currently working on a large audit project and will on occasion not record all the time that they work on the project. This is sometimes called "eating time". What can Bob's behavior cause?

Not accurately recording the time a project takes can cause the budget to be incorrectly set in the following year for the same project.

Hercules Construction builds large projects such as dams and skyscrapers. Because these projects take a long time to complete, they use the percentage-of-completion method. Project #101 is projected to have $10,000,000 in total costs and has had $7,000,000 in costs so far. The engineers on the project estimate that is actually only 50% complete. If the company records this project as 70% complete based on costs spent, the WIP will be misstated on the Balance Sheet. What other account will be misstated on the Income Statement?

Revenue will be misstated on the Income Statement if the percentage-of-completion is not correct.

What might be a potential pitfall of preparing and maintaining a rolling budget?

Rolling budgets can be time-consuming to maintain, each month, the ending balances from the prior month need to be considered, and a new month is added to the budget.

Preparing quarterly budgets with less lead time, helping a company be as responsive as possible to external factors is an example of what type of budget complexity for retailers?

Seasonality is a complexity of budgeting for retailers. They may need to prepare smaller seasonal, quarterly, or even monthly budgets with less lead time. This will help the company to be more responsive to possible external factors.

Zoey uses normal costing with applied Material Overhead for their landscaping business. They did well at budgeting and estimating their costs throughout the year, however, they over applied their Material Overhead by a small margin. At year end how would Zoey make the adjustments to clear out the Material Overhead account?

Since the amount that was overapplied in the Material Overhead was not significant, clearing out the Material Overhead account at the year-end should be applied to the Cost of Goods Sold on the income statement using the direct write-off method.

Jeremy owns a café and is analyzing their flow of costs for the month of June. They currently are showing a beginning work in process inventory of $125 for muffins that were commissioned to be made for an upcoming event. The direct materials are $628, the direct labor is $852, and the cost of goods manufactured are $1,409. Jeremy's applied material overhead is $1,320. What is Jeremy's work in process ending balance?

The T-account would show a debit to WIP beginning balance, direct labor, direct materials, and applied material overhead and a credit to the cost of goods manufactured once calculated the WIP ending balance is $1,516. ($125 + $628 + $852 + $1,320)- $1,409= $1,516

Georgina has opened a bow making business. They were commissioned to create bows for a birthday party. During this process of creating a product, Georgina is putting the raw materials into use. They have made the associated journal entry for the direct materials, but they are unsure what entry is made for the indirect materials?

The adjusting journal entry for the indirect materials is to debit the material overhead control and credit the raw material inventory.

What is the difference between the production budget and the direct materials purchases budget?

The big difference between the DM purchasing budget and the production budget is that the DM budget is first calculated in units, but those units are multiplied by the budgeted cost of the DM to determine the budgeted cost of DM to be purchased each period.

Able Manufacturing makes large granite stone cutting equipment made to order. The budgeted direct labor hours for the coming year are 25,000 hours and the budgeted MOH for the same time period is $375,000. What is the predetermined MOH rate for the coming year?

The budgeted MOH amount of $375,000 divided by the budgeted direct labor hours of 25,000 is equal to the budgeted MOH rate of $15 per direct labor hour.

Prestige Builders builds large family homes. The budgeted direct labor hours for the coming year are 12,000 hours and the budgeted MOH for the same time period is $96,000. What is the predetermined MOH rate for the coming year?

The budgeted MOH amount of $96,000 divided by the budgeted direct labor hours of 12,000 is equal to the budgeted MOH rate of $8 per direct labor hour.

The ____________is closely linked to the production budget and COGS budget.

The budgeted ending finished goods inventory is closely linked to the production budget and COGS budget. Target ending FG inventory informs the production plans, so ending inventory policies must be put in place before completing this budget.

Hathaway Computer Chip LLC is working on their MOH budget and have provided the following information: Budgeted units to be produced- 4,000, Budgeted variable MOH unit per unit= $0.15, the Budgeted portion of depreciation= $200, budgeted property taxes= $200, budgeted property insurance = $100. What is the total budgeted cost of variable MOH?

The budgeted units to be produced of 4000 units x $0.15 per unit = $600 variable MOH.

Tim owns a woodworking business and uses normal costing. They are doing their end of the year calculations for their work in process inventory. Currently, they have cost of goods sold as $520,000, direct labor $92,000, direct material $83,000, finished goods $60,000, and an applied material overhead of $125,000. What is their work in process?

The calculation for work in process is direct materials plus direct labor plus applied material overhead. $83,000+$92,000+ $125,000= $300,000.

Georgina has opened a bow making business. They were commissioned to create bows for a birthday party. During this process of creating a product, Georgina is putting the raw materials into use. What is the associated journal entry for the direct materials?

The corresponding journal entry is to debit the work in process and credit the raw material inventory.

Riverland Shoes and Boots Inc. manufactures three styles of steel-toed work boots. They are currently transitioning to the ABC method of costing. They are currently working on calculating the cost driver rate. What formula would they be using to calculate the rates needed to assign MOH to the boots?

The cost driver rate is calculated by dividing the dollars of activity cost by the number of the cost driver

In a service industry such as public accounting, employees may at times "eat time" meaning they don't charge for all of the time that they spent working on a specific project. What is the harm to the company if this is done?

The costs for the current year are often used to create the budget for the next year. If the costs are not accurately recorded, the budget will be incorrect for the following year.

The best denominator to be used in calculating the budgeted MOH rate is a cost driver that

The denominator in calculating the budgeted MOH rate is one that has a true cause and effect relationship with MOH.

The budgeted cash balance equals the budgeted beginning cash balance plus budgeted total cash receipts minus budgeted total cash disbursements ______________________.

The formula for budgeted cash balance = Budgeted cash beginning balance + Budgeted total cash receipts -Budgeted total cash disbursements +Proceeds from borrowing- Borrowing repayments- Interest payments.

The accounting department invoicing activity includes activities such as processing the invoice, printing, obtaining approval and mailing. The cost of the assets and personnel to staff these activities is $75,000. With this level of staffing and assets, the company has 124,800 minutes of capacity per year within the invoicing activity. If it takes, on average, 4 minutes per invoice, what is the cost per transaction?

The formula for the rate for supplying an activity is the total cost of the activity/ practical capacity available (in time). In this problem, $75,000/124,800=$.60/minute. Then multiply the cost per minute x the number of minutes per transaction (4 minutes)= $2.40 per invoice processed.

The customer sales activity includes activities such as order taking and refund processing. The cost of the assets and personnel to staff these activities is $91,560. With this level of staffing and assets, the company has 374,400 minutes of capacity per year within the customer sales activity. What is the rate to supply this activity per minute?

The formula for the rate for supplying an activity is the total cost of the activity/ practical capacity available (in time). In this problem, $91,560/374,400 = $0.24/minute.

For a non-profit organization, the __________can lead the ____________, due to financial constraints.

The funds available will be the driving force in the strategy implemented by a non-profit organization. In other words, the strategy morphs to fit the budget.

Georgina has opened a bow making business. She was commissioned to create bows for a birthday party. During this process from creating to shipping, the raw materials used are faux leather, glue, hair clips, a cardboard box, and packaging tape. Which item would NOT be considered a direct material?

The glue is used for the final product however it is considered an indirect material because the exact amount used cannot be easily traced to the final product.

Tim owns a woodworking business that specializes in building furniture. Tim is setting up their accounting systems and is deciding if it would be better to use normal or actual costing. What are the important factors contributing to their decision to choose normal or actual costing?

The main difference when considering actual or normal costing is that actual costing sacrifices timeliness for accuracy while normal costing sacrifices accuracy for timeliness.

Actual MOH and applied MOH are part of the _____________________

The manufacturing overhead control account includes both applied and actual MOH.

Jess took out a short-term loan to pay some vendor invoices that offered them a 2% cash discount. The annual interest rate on their short-term loan is 5%. If they have a total of $4,000 on this short-term loan, what would their monthly interest expense be?

The monthly interest on $4,000 at 5% annual interest can be calculated by taking the loan balance x the interest rate divided by 12 months. In this case $4,000 x 5%= $200/12=$16.67. If Jess used these funds to get a 2% discount on their vendor invoice, she would have gotten a $4,000 x 2%= $80 discount. The discount less the interest they would pay if they repaid the loan within 30 days is still a savings of $63.33, thus borrowing the funds to be able to take the discount makes sense.

Jose runs a doggy daycare. They are working on their budget for the upcoming year. They are currently breaking out the service costs from the period costs. Why would this be an important step for Jose in the budgeting process?

The process of breaking out service costs from period costs will assist Jose with determining how to price their services and determine the optimal service mix. Dog washing is also a service, but additional steps would be needed to determine if it should be added or not, as additional space, equipment and staff would be needed.

Implementing an ABC system of costing requires a company to undergo an intensive, detailed review of functions within its value chain, resulting in what?

The process of implementing an ABC system can be costly and time consuming. It will ultimately result in helping managers to better identify and understand the mission-critical activities of the business, which may lead to a myriad of other benefits.

The plant manager is responsible for the production and direct materials purchases budget. These are needed to complete which additional budgets that are part of the budgeted balance sheet?

The production and direct materials purchased budgets, prepared by the plant manager are part of the operating budget and the budgeted income statement. Both are needed to prepare inventory budgets on the budgeted balance sheet.

Layton Manufacturing is working on their cost hierarchy. They engineer and then produce a module for laptop computers. They are currently trying to decide potential cost drivers for their research and development process. Which of the following might be a viable cost driver for these costs?

The research and development costs are likely product/process-level costs. Potential cost drivers for this type of cost include engineering hours or the number of unique product lines the costs will apply to.

The __________of MOH is the same regardless of whether traditional costing or ABC is used to allocate.

The total dollar amount included in manufacturing overhead is the same regardless of which allocation method is used. How the amounts are allocated to each product will vary depending on the method chosen, with ABC being a more accurate allocation method when more than one product or service is being offered by a company.

Georgina has opened a bow making business. They have two employees that help assemble the bows and would consider them as direct labor. What costs would they synthesize to create the direct labor cost?

When calculating direct labor costs, the cost of the unemployment taxes and federal taxes should be calculated along with the employee's regular wages. Supervisor's wages are considered a factory overhead cost.

Jerard noticed that different invoices took varying amounts of time to process. Invoices with stock items took less time than invoices with custom items, and invoices with only one or two items took less time than invoices with more items. It was also noted that the first invoice for a new customer took longer than if it was for an existing customer. Using the general formula Y=m(X) + b format where Y= Total time allocated, m= Variable amount of time by type of transaction, X= Type of transaction and b = Fixed cost or Y-intercept, calculate Y for the following: New customer= additional 3 minutes Custom items = additional 4.5 minutes Fixed cost for a basic invoice = 4 minutes

Y= 3 minutes for the new customer + 4.5 minutes for a custom item order + 4 minutes for the basic invoice =11.5 minutes.

Zoey owns a bakery and uses normal costing with a material overhead budget of $40,000. Their sales are steady all year due to custom cakes and cupcakes for different types of parties. At year end, they have an applied material overhead of $32,000. After going over their end of year data, they found that their actual material overhead was $35,000. Was their material overhead over or under applied, and by how much?

Zoey's material overhead was underapplied because the actual material overhead is greater than the applied. $35,000- $32,000= $3,000

Sarah is opening a nail salon and is setting up their accounting system. They are deciding if it would be better to use normal or actual costing. What important factors would Sarah consider when deciding which costing system to use?

actual costing sacrifices timeliness for accuracy while normal costing sacrifices accuracy for timeliness.

Leon Industries is working on their budgeted ending accounts receivable balance. If they budgeted $12,500 in sales in July, how much will they collect on July sales in July? Cash Receipts Schedule % collected the same month 70% % collected next month 25% Uncollectable 5% (the uncollectable A/R written off at the end of the second month) Beginning A/R balance-July $7,000

same month (12,500 x 70%) = 8750

Busy Bakers Inc. has four different styles of bagels produced each day. Larry is a baker, and is responsible for baking all of the products as they come to their area of the manufacturing plant. They have six ovens that are used to make all styles of bagels. How would their wages be classified?

Because Larry might have all four products, or a combination of the products in the ovens at the same time, their time would be part of manufacturing overhead. Their wages would be difficult to trace to one exact product.

_________represent the sum of cash sales and cash collected on accounts receivable.

Cash receipts are all cash coming into the company from cash sales and collected on accounts receivable.

Edward is a personal trainer. They charge $75 per hour for their services. They spend on average 1.5 hours a day, 4 times a week with a client. What would his journal entry be for a week of workouts per client?

Edward charges 1.5 hours 4 times a week at a rate of $75 an hour. Their journal would be debit work in process inventory $450 and credit salaries and wages payable $450.

The term _________________refers to budgeted financial statements that predict a future outcome that is created with the best information available at the time they are prepared.

Pro forma or "for the sake of form" are budgeted financial statements that depict a future outcome. These financial statements use the best information available at the time they are prepared, but can be updated as more information or changes in the market occur.

Tim owns a woodworking business. They were commissioned to create a table. The table is finished and the person who commissioned the job paid for it and picked it up two months after the table was finished. At what point would Tim expense his product costs?

Products costs are expensed in the same period the revenue is recognized regardless of when the product was produced.

What is the associated journal entry for an applied material overhead cost?

The adjusting journal entry for an applied material overhead is debit work in process inventory and credit material overhead control.

Which budget is used to determine the direct labor budget?

The direct labor quantity is determined from the production budget. Knowing how many units need to be produced, and knowing the steps required in the production process, the production department can then determine how many direct labor hours will be necessary to complete the production quantity.

Direct materials and direct labor are examples of ______costs.

Unit-level costs include direct materials, direct labor and some traceable machine costs. These costs enable the production of each individual unit.

Hathaway Computer Chip LLC is working on their MOH budget and have provided the following information: Budgeted units to be produced- 4,000, Budgeted variable MOH unit per unit= $0.15, the Budgeted portion of depreciation= $200, budgeted property taxes= $200, budgeted property insurance = $100. What is the total budgeted cash cost of MOH?

4000 units x $0.15 per unit = $600 variable MOH, plus the taxes and insurance = $900 in total budgeted cash cost of MOH. Since depreciation is a non-cash expense, it is not included in the cash cost of MOH.

A(n) ________________is a task, effort, or other usage of a resource that causes a particular cost.

A cost driver is a task, effort, or other usages of a resource that causes a particular cost. A cost driver isn't always the number of units made.

The ranking of four layers of costs that are incurred in a business is called a ___________.

A cost hierarchy is a ranking of four layers of costs incurred in a business. Preparing this hierarchy will help identify the best cause-and-effect relationships between various activities and cost drivers.

A _____________might be a helpful tool to spot cause and effect relationships between various activities and cost drivers.

A cost hierarchy is a way to mindfully arrange costs so that relationships between activities and cost drivers will be easier to spot.

At the end of the accounting period the MOH control account has a debit balance of $100. What caused this balance?

A debit balance in the MOH control account means that the actual MOH was more than the amount of MOH that was applied.

A possible cost driver for shipping would be _________________.

A possible cost driver for shipping, which is a non manufacturing period cost, might be the units produced. Other options include direct labor hours or direct labor costs.

A sales budget for a retailer business would include which of the following line items?

A retail business will develop a sales budget by first determining the budgeted sales volume. This number is multiplied by the budgeted selling price to determine budgeted gross revenue. The sales returns and discount percentages are determined and subtracted from the gross revenue to determine the budgeted net sales.

Why might a company choose to stay with a traditional costing method knowing that the ABC method is more accurate?

ABC is costly to implement. If the benefits derived from switching to ABC are not enough to warrant the additional cost, it is best to stay with a traditional costing method. If a company only has one product, or produces products of similar complexity that use similar amounts of MOH components are also reasons to stay with traditional costing. ABC costing is used for internal decision making, thus not being GAAP approved is not a reason to not implement an ABC costing system.

Refining a costing system to employ __________will yield better product costs in certain production environments.

Activity-based costing allows for better allocation of MOH in specific instances. If a company has more than one product line, and the cost of implementing the system will be offset by the higher accuracy of allocation.

____________is important regardless of whether a company is service-based, retail, manufacturing or a combination of these.

All businesses and individuals need to budget. This is an important concept regardless of the type of organization to ensure that good decisions are being made.

When would be the best time for a business owner to develop a budget?

Although all are reasons to implement a budget, it is important for ALL businesses to have a budget to efficiently and effectively manage limited resources.

As a general rule, a centralized organization will use a(n)_____________budgeting process.

Although not a hard and fast rule, most centralized organizations use an imposed budget, since top management is required to make or approve all company decisions.

The first step in creating a master budget is ________________.

Before any budgets can be created, a sales forecast must be prepared. The quantity and price of the product to be sold will help to determine the production budget and all subsequent budget reports.

Riverland Shoes and Boots Inc. manufactures three styles of steel-toed work boots. Which of the following accounts is NOT part of the indirect MOH costs that will be assigned to each of the three styles of work boots being produced?

Direct materials and direct labor are easily traced to each product, thus are not part of the MOH calculation. Activities such as inspections, cleaning, maintenance and indirect labor are not easily traceable, and will be part of the MOH calculation, allocated based on the most appropriate cost driver.

If an outcome is not within an employees' control, but they are still held accountable for it they lack _______________________.

If an employee is held accountable for a budget line item that they have no control over, it is a lack of controllability. An example might be an employee being held responsible for the insurance line item of expenses, which does not make the decisions regarding which insurance policy to select.

Lake City Kayak Company manufactures three styles of kayaks. To determine the best cost driver for each activity a(n) ____________will be useful.

In some cases, there are more than one cost driver within each activity that would technically work. By studying the cause and effect relationship, it is possible to select the best driver that will give the most accurate results.

In a service organization, what would be considered direct materials applied to job costs?

Items such as making photocopies would be considered direct materials applied to job costs for a service organization.

The processing of purchase orders is considered which type of cost?

Purchase order processing is considered a non-manufacturing period cost.

To set ___________, companies use known input costs, desired ROI, and a knowledge of the current marketplace.

Selling prices are set based on the known costs of direct labor, direct materials and manufacturing overhead, desired ROI, and the current market.

Unlike retailers and manufacturers, service businesses do not have ________________.

Service businesses have Cost of Sales, which is similar to Cost of Goods Sold for retailers and manufacturers. The cost of sales might include wages as the most significant category.

Frankie owns a Financial consulting business and they are creating the bills for their clients. What information would they heavily rely on in order to properly bill their clients?

Service organizations rely heavily on employee timesheet data as a basis for billing their completed work.

Shaker Seeds sells heirloom seed packets direct to consumers that they purchase directly from a grower. They also have some short courses they offer to help folks be successful gardeners. What is the primary type of organization for Shaker Seeds?

Shaker Seeds is primarily a retailer, who offers short courses as a courtesy to their customers.

Shipping and returns are considered ____________costs.

Shipping and returns are unit-level nonmanufacturing period costs.

Many services firms such as accounting and law firms essentially sell time. Because of this, it is important to complete timesheets in a timely manner. Why is this so imperative?

Since these service firms sell time, customers cannot be accurately billed until time sheets are completed.

The Diamond Center creates specialty jewelry. The budgeted direct labor hours for the coming year are 15,000 hours and the budgeted MOH for the same time period is $150,000. Jewelry piece #150 had 15 hours of direct labor. The amount of MOH applied to this jewelry piece would be

The 15 hours of direct labor multiplied by the MOH budgeted rate of $10 is equal to $150 of applied overhead. (150,000/15,000 = (10) x 15 = 150

The _______is responsible for all company assets, and ensures that the minimum required rate of return is met.

The CEO is ultimately responsible for the investment center, along with the CFO. The CEO, however, is responsible for ALL company assets and is tasked with ensuring that the minimum required rate of return is met on all investments.

In the service industry the Client ID replaces what from the manufacturing industry?

The Client ID serves the same purpose as the job number.

The MOH control account is temporary and is closed at the end of the accounting period. This type of account is referred to as

The MOH control account is a temporary account that is closed at the end of the accounting period and is referred to as a clearing account.

On the budgeted balance sheet, the retained earnings will change by __________between the beginning and ending balances.

The beginning retained earnings will be increased by a net income or decreased by a net loss during the period. If a company paid dividends, this would also be a reduction in retained earnings from the beginning to ending balances. (the net income or loss from the budgeted income statement.)

Hercules Inc. allocates MOH in accordance with the direct labor hours. The supervisor has estimated 40,000 direct labor hours and $800,000 of budgeted MOH for the fiscal year. This project was accomplished with 225 hours of direct labor. What is the budgeted MOH rate for Custom Fabricators for this year?

The budgeted MOH amount of $800,000 divided by the budgeted direct labor hours of 40,000 is equal to the budgeted MOH rate of $20 per direct labor hour.

Ming has just received the sales forecast from their supervisor, and is working on the production budget. They are trying to calculate the budgeted units to be produced. What formula does Ming need to use to determine how many units need to be produced to meet the sales forecast and have enough product in inventory?

The budgeted units to be produced equals the budgeted sales volume, plus the target ending finished goods inventory units, less the beginning finished goods inventory units. The ending finished goods inventory from one period, becomes the beginning inventory for the next period.

Where will the budgeted ending cash balance appear in the master budget?

The cash balance will always appear in the current asset section of the balance sheet. It is typically the first item listed in this section.

Riverland Shoes and Boots Inc. manufactures three styles of steel-toed workboots. They are in the process of classifying their costs into a cost hierarchy to get a better understanding of the cause and effect relationships between the various costs and drivers. The plant manager oversees the production of the entire manufacturing facility.What type of cost would the plant manager's salary be in their cost hierarchy?

The plant manager's wages are a facility-level cost since she manages the manufacturing for all product lines. This is a cost that enables the overall manufacturing of the products.

Another term for the budgeted MOH rate is

The predetermined MOH rate is another name for the budgeted MOH rate.

The production number results in the number of units to be produced, so what is the impact on the cash budget?

The production budget consists only of the number of units to be produced. For this reason, there is not an effect on the cash budget.

Zoey owns a bakery. They rent a storefront to sell their products and separate kitchen space to create the products. How should they expense their rent for both the storefront and the kitchen on the balance sheet?

The rent for the storefront is recorded in rent expenses of the balance sheet, however the rent for the bakery is figured into the cost of goods sold as a material overhead cost.

If the activity-based rate is $119.54 per pound, and 3 products are produced using 56, 91 and 109 pounds, respectively. How much is allocated for MOH to the products in total?

The total MOH for this activity to be allocated is $119.54 x (56+91+109)= $119.54 x 256= $30,602.24.

How is the total budgeted purchases for a retail business calculated?

The total budgeted purchases for a retail business is calculated by multiplying the quantity in units to be purchased by the price per unit, which results in a dollar amount to be purchased.

Melori Inc. has a current cash balance of $5,000. They have accounts receivable of $3,500, accounts payable of $1,350, and an inventory balance of $4,250. If their bank requires a minimum balance in their cash account of $6,250, how much do they need to use from their line of credit to meet the bank's required balance?

The two important numbers in this problem are the current cash balance, and the balance required by the bank. In this case, the bank requires a $6,250-$5,000 cash balance, thus they would need to use $1,250 of their line of credit to meet the bank requirement. If they decide to pay the accounts payable to get cash discounts, they may need to take more from their line of credit. Conversely, if their customers pay, they may need to take less, or even zero, from their line of credit.

Tim owns a woodworking business. He was commissioned to create a table. The raw materials he used were wood, screws, brass fixtures, and varnish. Which item would NOTE be considered a direct material?

The varnish is used for the final product however it is considered an indirect material because the exact amount used cannot be easily traced to the final product.

Melori Inc. has a current cash balance of $5,000. They have accounts receivable of $3,500, accounts payable of $1,350, and an inventory balance of $4,250.Their bank requires them to have a $5,000 cash balance at all times, but they would like to take advantage of a 3% cash discount on their accounts payable? What should they do?

They should most likely take a short-term loan to pay the payables and take advantage of the discount. In most cases, the discount is more than the small amount of interest they would pay on the note.

Mason industries are trying to determine if it makes sense to use their line of credit to pay some vendor invoices that offer a 2% cash discount. The annual interest rate on their line of credit is 9%. If they used $10,000 of their line of credit to pay the vendor invoices, how much would they save if they repaid the balance on their line of credit in one month?

They would first need to calculate the discount of $10,000 x 2%= $200. Then the interest paid in one month on the note would be calculated ($10,000 x 9%)/ 12 months = $75. By borrowing the funds from their line of credit, they would net $125 even after paying the interest for one month.

Ahmed is the manager of the bindery department at a local company. Their direct supervisor just came to them to ask for their departmental budget to be reviewed. What type of budgeting process does Ahmed's company use?

This is an example of a participatory budget in a decentralized organization. Since Ahmed has an understanding of the needs of their department, they will be best to assist in preparing a budget that will be achievable and realistic.

Traditional job costing is useful for ___________determination.

Traditional job costing does a good job of determining the product-line gross margin, but will be less accurate in multi-product companies.

_________________costing is used for decision-making in one-product situations or by external users.

Traditional job costing works well for decision making if there is only one product, or if the results are being used by external users. It is not an effective method for decision-making if there are multiple product lines that use different quantities of various cost drivers.

Jeremy owns a cafe and uses normal costing. They found that their material overhead was overapplied. Using the prorated method, what would his adjusting journal entry be?

Using the prorated method, the adjusting journal entry for an overapplied material overhead would be to debit material overhead control and credit WIP inventory, finished goods inventory, and cost of goods sold.

Zoey owns a bakery and uses normal costing and found that their material overhead was underapplied. Using the prorated method, what would their adjusting journal entry be?

Using the prorated method, the adjusting journal entry for and underapplied material overhead would be to debit the work in process, finished goods inventory, and cost of goods sold and to credit the material overhead control.

Where do expenses related to the production of a product sit until the product is sold?

When a product is finished but has not been sold, the expenses stay in the work in process inventory account until it is sold, at which time these expenses will be moved to cost of goods sold.

In step 2 of the job cost flow, raw materials are moved into production. Choose the corresponding journal entry that releases direct materials from raw materials?

When the direct materials are released from raw materials inventory the corresponding journal entry includes a debit to Work-in-Process Inventory with the corresponding job number and a credit to Raw Material Inventory.

If there are no ___________then there will be no cash collections.

Without credit sales, there would be no cash collections. Credit sales are first put into the accounts receivable. When the invoice is paid, it is called a cash collection.

________________costs are unaffected by the number of units or batches of a product produced.

Product/process-level costs are incurred by the company to support the entire product line or type of service delivery. These costs are unaffected by the number of units or batches produced.

The budgeted MOH rate (predetermined MOH rate) is calculated by dividing the

The formula for budgeted MOH rate is the budgeted MOH by the budgeted usage of the cost driver.

Direct materials and direct labor are considered _____________costs.

Direct labor and direct materials, along with unit level MOH, like indirect materials, are considered unit-level product costs.

Creating a(n) ____________is the first step in the budgeting process for retailers, service businesses and manufacturers.

Determining how many units will be sold, whether it is service hours, retail products, manufactured goods, is the first step in budgeting for all types of businesses.

Some costs (rent, insurance, supervisory salaries, etc.) might be classified as either period or MOH costs. How does the cost accountant accurately and ethically decide how to classify these costs?

MOH costs are the costs that are related to the production of the product or are incurred at the production facility. Those costs that are not related to production or are not incurred at the production facility are classified as period costs.

_____________organizations allow managers the freedom at all levels to make binding decisions without dealing with continuous interference by top managers.

Managers in decentralized organizations have the freedom, regardless of their level within the company, to make binding decisions. Top management is not continuously interfering with managers, allowing them to work efficiently.

Which of the following is an example of a retailer business?

Melvin's Hardware would be considered a retailer, as they sell a product. The others are all service-based businesses.

Merchandise inventory for a retailer is similar to _____________inventory for a manufacturing company.

Merchandise inventory for a retailer is similar to finished goods inventory for a manufacturing company.

Misallocating costs between two different jobs can cause several problems. The problems can include making an unprofitable job appear profitable and producing unprofitable products at the expense of profitable products. A third problem might be

Misallocating costs can hide worker inefficiencies.

____________from the budgeted income statement are needed to determine the ending balance sheet numbers when completing a master budget.

Various components from the budgeted income statement are needed to determine ending balances for the budgeted balance sheet. As an example, the production and direct materials purchases budgets are necessary to create inventory balances on the balance sheet.

Erin is opening a dog grooming business. They are setting up their accounting systems and is not sure how to label and classify the receptionist's wages. These wages should be considered a(n) _______and _______

Product cost consists of manufacturing costs such as direct labor, direct materials, and material overhead costs. Erin would classify receptionist wages as an administrative expense and as a period cost.

For a cash sale, the entry would include a(n) __________to cash and a (n) __________to sales.

Recalling from financial accounting, for each debit, there must be an equal and offsetting credit, we know that a cash sale would result in an increase or debit to cash. The sales account would be credited to increase the sales account.

What is not a complexity of budgeting for a retailer?

Retailers do not have direct materials, thus this will not be an issue for a retail business. However, they have complexities in their budgeting process, including seasonality and sales and purchases returns and allowances.

What type of inventory accounts are held by retailers on their balance sheets?

Retailers have only one category of inventory-merchandise inventory. They purchase a product from a supplier and sell it without making changes to it.

How are the sales returns and discount percentages calculated?

Typically, the average sales returns and discounts from prior years are used to calculate a percentage to be used for budget purposes. These amounts may change from year to year as actual data is obtained.

Leona, the administrative coordinator, got to the end of the year, and was evaluating their budget for meals and entertainment. They noticed that they had $1,000 left in this line item. To expend these funds, they threw a big party for their department at the end of December. What ethical consideration is being examined?

Use it or lose it refers to spending all of the funds in a given line item to avoid being granted fewer funds the next year. This mentality boils down to mistrust within the organization. Leona feared that if they didn't spend all of the funds allocated to this year, that they would have a smaller budget the next year.

Layla has been allocating MOH costs to their three different products using a single plant-wide rate of $19 per DL hour. Their controller has suggested a switch to the following activity-based rates: $10 per production run, $15 per direct labor hour and $12 per inspection hour. If the most recent job required 5 production runs, 150 DL hours and 5 inspection hours, how much MOH would be allocated using the ABC method?

Using the ABC method the MOH allocated would equal: $10 x 5 for production runs, $15 x 150 for direct labor hours and $12 x 5 for inspection hours. $50 + $2,250 + $60= $2,360. If Layla continued to use the traditional costing method, the MOH applied would be $19 x 150 hours= $2,850.

Lorenzo has been allocating MOH costs to their three different products using a single plant-wide rate of $22 per DL hour. Their CPA firm has suggested a switch to the following activity-based rates: $15 per production run, $18 per direct labor hour and $10 per inspection hour. If the most recent job required 10 production runs, 200 DL hours and 20 inspection hours, how much MOH would be allocated using the ABC method?

Using the traditional costing method, Lorenzo would allocate $22 per hour x 200 hours = $4,400 in MOH allocated to this job. Using ABC, Lorenzo would allocate as follows: Production runs($15 x 10) + direct labor($18 x 200) + inspection hours( $10 x 20)=$3,950.