BSAD 530 (Advanced Managerial Accounting) Exam 2.4

variable costing net operating income

#of units sold x contribution margin per unit - total fixed costs

Sleep tight manufactures pillows. The company incurred $42,000 of fixed manufacturing overhead cost this year. Variable unit product cost was $17. Variable selling and administrative cost was $9 per unit and fixed selling and administrative expenses totaled $59,000. The company manufactured 28,000 pillows and sold 15,408. Total fixed expenses on the variable costing contribution format income statement equal:

$101,000 (42000 + 59000 = 101000)

Sleep Tight manufactures pillows. The company incurred $42,000 of fixed manufacturing overhead cost this year. Variable unit product cost was $17. Variable selling and administrative cost was $9 per unit and fixed selling and administrative expenses totaled $59,000. The company manufactured pillows and sold 15,408. Total fixed expenses on the variable costing contribution format income statement equal:

$101,000 42,000+59,000

SPS Products has two divisions-Catalog Sales and Online Sales. For the last quarter the Catalog Sales segement margin was ($5000). Online sales were 100,00. Online Sales contribution margin was 60,000 and its segment margin was $40,000. If Cataog Sales are discontinued, it is estimated that online sales will increase by 10%. Calculate the expected profit impact of Discontinuing Catalog Sales.

$11,000 (New online sales contribution margin is 100,000 x 10% x 60,000/100,000) = $6,000 + 5,000 saved from stopping catalog sales = 11,000))

SPS Products has two divisions-Catalog Sales and Online Sales. For the last quarter the catalog Sales segment margin was ($5,000). Online sales were $100,000. Online Sales contribution margin was $60,000, and its segment margin was $40,000. If Catalog Sales are discontinued, it is estimated that on line sales will increase by 10%. Calculate the expected profit impact of discontinuing catalog Sales.

$11,000 increase Increased online sales contribution margin ($100,000 x 10% x $60,000/$100,000) is $6,000 + $5,000 saved from stopping catalog sales = $11,000.

Blink sells and manufactures frames for eyeglasses. The unit product cost for frame #47320 is $76.35. Last period, Blink produced 200 frames and sold 155 of them. Total cost of goods sold equals:

$11,834.25 $76.35*155

Comfy Cozy Chairs makes and sells rockers. Each rocker requires $45 of direct materials and $37 of direct labor. Variable manufacturing overhead amounts to $8 per unit, and fixed manufacturing overhead totals $58,000. Variable selling and administrative costs amount to $15 per unit, and fixed selling and administrative costs total $102,000. During the period, 2,000 rockers were produced and 1,640 were sold. The unit product cost using absorption costing is:

$119

Comfy Cozy Chairs makes and sells rockers. The production of each rocker requires $45 of direct materials and $37 of direct labor. Variable manufacturing overhead amounts to $8 per unit, and fixed manufacturing overhead totals $58,000. Variable selling and administrative costs amount to $15 per unit, and fixed selling and administrative costs total $102,000. During the period, 2,000 rockers were produced and 1,640 were sold. What is the unit product cost using absorption costing?

$119 per unit Unit product cost = $45 + $37 + $8 + ($58,000/2,000) = $119

Given the following information, calculate the unit product cost under absorption costing. Direct materials: $50/unit Direct labor: $75/unit Variable manufacturing overhead: $27/unit Fixed manufacturing overhead: $30,000 Units produced: 10,000 Units sold: 6,000

$155 (50 + 75 + 27 + (30000/10000) - 155/unit)

Jones company uses a job-order costing system with a predetermined overhead rate of 120% of direct labor cost. The job cost sheet for Job #420 listed $4,000 in direct materials cost and $5,000 in direct labor cost to manufacture 7,500 units. The unit cost of Job #420 is:

$2.00 Total cost of job #420 = Direct materials + direct labor + overhead (predetermined overhead rate X direct labor cost) = $4,000 + $5,000 + 1.20 X $5,000 = $15,000 Unit product cost = $15,000

Estimated manufacturing overhead = 500,000 Estimated direct labor cost = 250,000 Actual manufacturing overhead = 720,000 Actual direct labor cost = 300,000 Based on the information presented above, calculate the predetermined overhead rate per direct labor dollar.

$2.00 pe direct labor dollar =500,000/250,000 = $2

The unit product of a blender is $24. If 900 blenders are produced and 849 blenders are sold, the total cost of goods sold is:

$20,376 (849 * 24 = 20376)

The unit product cost of a blender is $24. If 900 blenders are produced and 849 blenders are sold, the total cost of goods sold is:

$20,376 849 x $24

The unit product cost of a blender is $24. If 900 blenders are produced and 849 blenders are sold, the total cost of goods sold is $____.

$20,376 Total cost of goods sold = 849 x $24 = $20,376.

Based on the following information, compute the cost of goods sold for Spengler Merchandising Corporation. Sales $400,000 Purchases $300,000 Beginning inventory $50,000 Ending inventory $90,000 Selling expenses $70,000 Administrative expenses $30,000 Accounts receivable $110,000

$260,000 Beginning inventory + Purchases - Ending inventory = Cost of Goods Sold $50,000+$300,000-$90,000=$260,000

Granny's Touch manufactures and sells cookbooks. The company's variable cost of goods sold is $39,200 and variable selling and administrative expense is $6,200. Fixed manufacturing overhead is $19,700 and fixed selling and administrative expense is $9,290. An income statement prepared using variable costing shows $______ as the total fixed expenses

$28,990

Granny's Touch manufacturers and sells cookbooks. The company's variable cost of goods sold is $39,200; its fixed manufacturing overhead is $19,700; and its fixed selling and administrative cost is $9,290. An income statement using variable costing would show $____ as the total fixed costs.

$28,990 Total fixed costs = $19,700 + $9,290 = $28,990

Gemini had Sales of $50,000, Cost of goods sold of $20,000, and Selling and administrative expenses of $25,000. Gross margin is:

$30,000 Gross margin = Sales - Cost of goods sold $50,000-$20,000=$30,000

Murphy manufacturing estimated total manufacturing overhead for 2015 to be $100,000 and uses direct labor-hours as the allocation base. They estimated that 5,000 hours would be used in 2015. Actual overhead for 2015 was $120,000 and actual direct labor-hours were 7500. How much overhead was applied to a job completed during 2015 that used 200 direct labor-hours?

$4,000. the predetermined overhead rate = 100,000/5,000 direct labor hours = $20 per direct labor-hour. The overhead applied to the job $20 per direct labor-hours x 200 direct labor-hours = 4,000

Smith, Inc. uses a job-order costing system with the predetermined overhead rate of $12 per machine-hour. The job cost sheet for Job #42A listed $12,000 in direct labor cost, $18,000 in direct material cost, 1,200 direct labor-hours and 1,100 machine-hours. The total cost of #42A is $_____.

$43,200 Total cost of Job #42A = Direct materials + Direct labor + Predetermined overhead rate x Actual machine-hours $18,000+$12,000+($12x1,100)=$43,200

Put'er There manufactures baseball gloves. Each glove requires $22 of direct materials and $18 of direct labor. Variable manufacturing cost is $7 per unit and fixed manufacturing overhead cost is $19,000 in total. Variable selling and administrative costs are $11 per unit sold and fixed selling and administrative costs are $13,200. Last period, 800 gloves were produced, and 585 gloves were sold. The unit product cost using variable costing is:

$47 per unit (22 + 18 + 7 = 47)

Martin Industries had unadjusted cost of goods sold of $450000. Overhead was underapplied by $3000. Adjusted cost of goods sold was

$480000

Variable selling and administrative cost is $4 per unit sold, and fixed selling and administrative costs totals $48,400. A total of 429 units were produced and 297 units were sold. Total selling and administrative cost is:

$49,588

a company incurred $50,000 in direct labor costs and $35,000 in factory supervisor wages. The transaction would result in a

$50,000 increase on job cost sheets and a $35,000 increase to manufacturing overhead incurred

Fillia, Inc. Worked on three jobs this period: Job 14C, which cost $15,000; Job 23A, which cost $28,000, and Job 45B, which cost $23,000. At the end of the period, only Job 14C was still in process (unfinished). The cost of goods manufactured this period is $_____.

$51,000 The cost of goods manufactured, is the cost of jobs completed during the period - Jobs 23A and Job 45B. $28,000+$23,000=$51,000

Citrus Scents produces body sprays. Each bottle has a unit product cost of $5.38. The company produced 1,490 bottles this month and sold 1,203 of those bottles. Total cos of goods sold was:

$6,472.14 (5.38 * 1203 = 6472.14)

Frames, Inc. manufactures large wooden picture frames. Each frame requires $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost is $9 per frame produced, and variable selling and administrative expense is $13 per frame sold. The company produces 5,000 units each month and total fixed manufacturing overhead cost per month is $15,000. The unit product cost of each frame using variable costing is $_____.

$68 Variable Costing Unit Product Cost=Direct materials + Direct Labor + Variable Manufacturing overhead = $19+$40+$9 = $68

Pearls manufactures and sells jewelry. The total variable cost of goods sold this month is $72,490. Variable selling and administrative cost is $22 per unit sold. If 350 units are produced and 314 units are sold this month, the total variable cost reported on the income statement for the month is:

$79,398

Pearls, Pearls, Pearls! manufactures and sells jewelry. The total variable cost of goods sold this month is $72,490. Variable selling and administrative cost is $22 per unit sold. If 350 units are produced and 314 units are sold this month, the total variable cost reported on the income statement for the month is:

$79,398 (72490 + (22 * 314) = 79398)

Pearls, Pearls, Pearls! manufactures and sells jewelry. The total variable cost of goods sold this month is $72,490. Variable selling and administrative cost is $22 per unit sold. If 350 units are produced and 314 units are sold this month, the total variable cost reported on the income statement for the month is $______.

$79,398 Total variable cost = $72,490 + ($22 x 314) = $79,398. Variable selling costs are incurred on units sold, not units produced.

Blissful Breeze manufactures and sells ceiling fans. Each fan has a unit cost of $112 and a unit selling price of $190. If Blissful Breeze produces 900 fans and sells 842 fans this month, the total cost of goods sold will be:

$94,304 842 * $112

variable costing net income

(# of units SOLD x CM per unit) - total fixed expenses

Activity cost allocation rate

(Total estimated activity cost pool) / (Total estimated activity allocation base)

dollar sales for company to breakeven

(traceable fixed expenses + common fixed expenses) / overall CM ratio

Balance sheet vs. Income statement

*Balance sheet:* -Raw materials inventory -Work in Process inventory -Finished Goods inventory *Income statement:* -Cost of Goods Sold -Selling and Administrative Expenses

Multiple Predetermined Overhead Rates

*plantwide overhead rate*: single predetermined overhead rate for an entire factory -common in smaller companies *multiple predetermined overhead rate*: each production department may have its own predetermined overhead rate -such a system, while more complex, is more accurate because it can reflect differences across departments in how overhead costs are incurred -used in larger companies

Place the following line items in order to construct a contribution format income statement.

+Sales -variable costs =contribution Margin -Fixed expenses =net operating income

Prevention costs

- Avoid poor quality goods or services How? Train employees, use better materials, maintain equipment

Internal failure costs

- Avoid poor quality goods or services before delivery to customer or else.... - Production loss caused by downtime - Rejected product units - Machine breakdowns

Which of the following are used to calculate Cost of goods available for sale on the schedule of costs of goods sold?

- Beginning finished goods inventory - Costs of goods manufactured

when preparing contribution margin income statement

- COGS consists of only variable manufacturing costs - variable and fixed costs listed in separate sections of statement

Lean Operations...

- Can be found in all sectors, not just manufacturing - Can leave companies vulnerable to supply-chain disruptions - Are quickly becoming the dominant business paradigm

product costs under absorption costing

- DM - DL - variable MO - fixed MO

Appraisal costs

- Detect poor quality goods or services How? Inspect raw materials, inspect final products

Categories of manufacturing costs include:

- Direct materials - Direct labor - Manufacturing overhead

External failure costs

- Incurred after defective product is delivered, or else... -Lost profits from lost customers - Warranty costs - Cost of recalls

Product-level costs

- Second to top of hierarchy -Activities and cost incurred for a particular product, regardless of the number of units or batches of the product produced. - Examples include the cost to research, develop, design, or market new models.

Which of the following statements regarding segmented reporting is incorrect? - Segments may be comprised of product lines, sales territories, an or responsibility centers - Segmented reporting allows top management to evaluate the performance of lower level managers - Segmented reporting provides top management with cost, profit and investment performance data on the parts or activities of the organization. - Segmented reporting is not useful for organizations with more than one product.

- Segmented reporting is not useful for organizations with more than one product.

Which of the following costs are charged directly to the Inchon=me statement?

- Selling costs - Administrative costs

Which of the following statements are true?

- The relevant range of activity is approximated by a straight line. - Within the relevant range of activity, fixed costs remain constant in total.

Facility-level costs

- Top of hierarchy -Activities and costs incurred no matter how many units, batches, or products are produced in the plant. - Examples include facility upkeep: the cost of depreciation, insurance, property tax, heat for a factory, clean offices, security system, and maintenance on the entire production plant.

Which of the following are differences between the tradtional and contribution format to income statements?

- Traditional income statements focus on cost classifications. Contribution format statements focus on cost behavior. - Compared to traditional statements, contribution format statements provide management with a tool to make decision making easier.

Discontinuing a profitable segment results in: (check all that apply) - a reduction in the overall profits of the company - reduced common fixed costs for the company - the loss of the segment's revenues

- a reduction in the overall profits of the company - the loss of the segment's revenues

when # of units sold = # of units produced

- absorption costing net income = variable costing net income - under both VARIABLE costing and ABSORPTION costing --> all FIXED overhead incurred flows to income statement

Discretionary fixed costs include:

- advertising - management training programs

Using the high-low method, the fixed xost is calculated:

- after the variable cost per unit is calculated - using either the high or low level of activity

The total cost of a job includes:

- applied manufacturing overhead - direct labor cost - direct materials cost

common mistakes made by companies when assigning costs to segments

- arbitrarily allocating common fixed costs - inappropriately assigning traceable fixed costs - omitting costs that should be included

Advocates of variable costing: (Check all that apply.) - believe that fixed manufacturing overhead is best ignored. - believe that fixed manufacturing overhead is a period cost - believe that all manufacturing costs must be assigned to products - argue the fixed costs are not caused by and cannot be meaningfully traced to any specific unit that is produced.

- believe that fixed manufacturing overhead is a period cost - argue the fixed costs are not caused by and cannot be meaningfully traced to any specific unit that is produced.

Cost objects:

- can be products, customers or jobs - may be assigned costs to help control spending

segment margin should be discontinued when

- can't cover its own costs - has contribution margin that can't cover traceable fixed costs

super variable costing

- classifies all DL and MO costs as FIXED period costs - treats ONLY DM as a VARIABLE product cost

Typical cost drivers include:

- computer time - flight-hours - machine-hours

Manufacturing overhead costs:

- consist of many different items - are indirect costs

Widely used allocation bases in manufacturing are:

- direct labor costs - direct labor hours - machine hours - units of product

Common activity bases include:

- direct labor hours - machine hours - units sold

inventoriable costs under super variable costing

- direct materials - variable overhead

using variable costing & the contribution approach for internal decision making

- enables CVP analysis - supports decision making - facilitates explaining changes in net income

Absorption costing and variable costing net operating income will be (check all that apply): - equal when the number of units produced equals the number of units sold - equal when there is no beginning and no ending inventory. - different when there is no beginning or ending inventory - equal when there is a change in beginning or ending inventory.

- equal when the number of units produced equals the number of units sold - equal when there is no beginning and no ending inventory.

why use variable costing and contribution approach for internal decision making?

- facilitates explaining changes in net income - enables CVP analysis - supports decision making

Manufacturing overhead costs include:

- factory insurance - the factory supervisor's salary

Direct materials include:

- factory rent and insurance - factory manager's salary - laptop computer keyboards

incorrectly or arbitrarily assigning common costs to segments

- holds managers responsible for costs they can't control - distorts profitability of segments - reduces overall profits of company

direct labor

- if company treats it as a variable cost --> cost system may encourage managers to treat labor costs as an expense to be minimized when sales decline --> may result in reduced morale & eventual problems when business picks up - management have little ability to adjust the direct labor force --> resulting in a situation in which direct labor costs are in fact fixed

Manufacturing overhead:

- include some materials and some labor - are indirect costs - consists of only manufacturing costs

Labor charges that cannot be easily traced to a job are considered:

- indirect labor - manufacturing overhead

Companies need to be careful when assigning fixed costs to segments because (check all that apply): - the contribution margin of the segment is impacted when inappropriate cost assignments are made - allocating traceable fixed costs to segments may make a profitable segment look unprofitable - it is sometimes difficult to determine if a cost should be classified as traceable or common - allocation of common fixed costs to segments reduces the value of the segment margin as a measure of profitability

- it is sometimes difficult to determine if a cost should be classified as traceable or common - allocation of common fixed costs to segments reduces the value of the segment margin as a measure of profitability

Labor charges that cannot be easily traced to a job are considered:

- manufacturing overhead - indirect labor

Actual overhead costs may not be proportional to the actual amount of the allocation base used because:

- many actual overhead costs are fixed - overhead spending may not be under control

Common mistakes made by companies when assigning costs to segments include (check all that apply): - arbitrarily allocating common fixed costs - inappropriately allocating variable costs - inappropriately assigning traceable fixed costs - omitting costs that should be included

- omitting costs that should be included - inappropriately assigning traceable fixed costs - arbitrarily allocating common fixed costs

Cost Behavior:

- refers to how a cost will change as activity level changes - categorizes costs as fixed, mixed and variable

A journal entry that debits Manufacturing overhead and credits Accounts payable could be made to record:

- rent expense on factory equipment - factory utilities expense

selling & admin expenses on absorption costing income statement

- reported as a single amount - equal amounts reported on variable costing income statement

GAAP & IFRS

- require segmented financial data be included in annual reports - create problems in reconciling internal and external reports - require same method be used for internal and external SEGMENT reporting

GAAP and IFRS rules: (check all that apply) - require segmented financial data be included in annual reports. - create incentives for companies to use the contribution margin format in segment reporting. - require that the same method be used for both internal and external segment reporting.

- require segmented financial data be included in annual reports. - require that the same method be used for both internal and external segment reporting.

Fixed costs:

- should not be expressed on a per unit basis when making decisions - generally include rent and supervisor salaries - remain constant in total regardless of changes in activity

The United States requires absorption costing for:

- tax reports - external financial reports

Differential cost is:

- the difference in cost between two alternatives - also known as incremental cost

contribution margin income statement

- variable and fixed costs listed in separate sections of statement - COGS consists of ONLY VARIABLE MO costs

Within the relevant range of activity, variable costs:

- vary in total - remain constant per unit

Smith, Inc. uses a job-order costing system with the predetermined overhead rate of $12 per machine-hour. The job cost sheet for Job #42A listed $12,000 in direct labor cost, $18,000 in direct materials cost, 1,200 direct labor-hours and 1,100 machine hours. The total cost of job #42A is $______________.

-$43,200

Fillia, Inc. worked on three jobs this period: Job 14C, which cost $15,000; Job 23A, which cost $28,000, and Job 45B, which cost $23,000. At the end of the period, only Job 14C was still in process (unfinished). The cost of goods manufactured this period is $______________.

-$51,000

DOWNTIME

-An acronym for the eight wastes: 1) Defects 2) Overproduction 3) Waiting 4) Not utilizing people to their full potential 5) Transportation 6) Inventory 7) Movement 8) Excess Processing

an absorption costing income statement, selling and administrative expenses

-Are reported as a single amount -Equal the amounts reported on a variable costing income statement

Unit-level costs

-Bottom of hierarchy -Activities and costs incurred for every unit -Example include inspecting and packaging EACH unit the company produces

what methods can be used to dispose of underapplied or overapplied manufacturing overhead?

-Closing it out to cost of goods sold -Allocating it among work in process, finished goods, and cost of goods sold

Place these items in the order in which they appear on the schedule of costs of goods sold. -Add: underapplied overhead -Deduct: finished goods inventory, ending -Adjusted cost of goods sold -Unadjusted cost of goods sold -Cost of goods available for sale

-Cost of goods available for sale -Deduct: finished goods inventory, ending -Unadjusted cost of goods sold -Add: underapplied overhead -Adjusted cost of goods sold

Incorrectly or arbitrarily assigning common costs to segments:

-Could reduce the overall profits of the company - Holds managers responsible for costs they cannot control -Distorts the profitability of segments

Labor costs that are easily traced to a job are called ________ labor costs.

-Direct

Which categories do companies generally classify manufacturing costs? (3)

-Direct Labor -Direct Materials -Manufacturing overhead

Which of the following costs make up the manufacturing cost per unit of a product under variable costing? - Variable manufacturing overhead - Direct materials - Fixed selling and administrative - Direct labor - Variable selling and administrative - Fixed manufacturing overhead

-Direct Materials -Direct Labor -Variable Manufacturing Overhead

Job-Order costing example

-Direct costs 1) Direct materials: traced directly to each job as the work is performed 2) Direct labor: traced directly to each job as the work is performed 3) Manufacturing overhead: includes indirect materials and indirect labor that are allocated to all jobs rather than directly traced to each job

What are recorded on job cost sheets?

-Direct materials -Direct labor -MOH applied

Put the steps for computing the predetermined overhead rate in order: -Estimate total fixed overhead & variable overhead per unit of allocation base for the coming period -Calculate the predetermined overhead rate -Estimate the total amount of the allocation base required -Use the cost formula Y = a + bX to estimate the total expected overhead for the upcoming year

-Estimate the total amount of the allocation base required -Estimate total fixed overhead & variable overhead per unit of allocation base for the coming period -Use the cost formula Y = a + bX to estimate the total expected overhead for the upcoming year -Calculate the predetermined overhead rate

Completed units that have not yet been sold are found in ____________ __________ inventory.

-Finished -Goods

Place these items in the order in which they appear on the schedule of costs of goods sold. -Unadjusted cost of goods sold -Add: Cost of goods manufactured -Finished goods inventory, beginning -Deduct: Finished goods inventory, ending -Cost of goods available for sale

-Finished goods inventory, beginning -Add: Cost of goods manufactured -Cost of goods available for sale -Deduct: Finished goods inventory, ending -Unadjusted cost of goods sold

What costs are assigned to units of product in absorbtion costing?

-Fixed manufacturing costs -Variable manufacturing costs

What are charged to the overhead account?

-Indirect materials

The schedule cost of goods ___________ summarizes costs that remain in Work in process inventory and that have been transferred from Work in process to Finished goods inventory.

-Manufactured

A normal costing system applies overhead by job by multiplying a(n) ________________ _______________ rate by the _____________ amount of the allocation base incurred by the job.

-Predetermined -Overhead -Total

why have direct labor costs decreased relative to overhead as a component of product costs?

-Production processes have become more automated -Products have grown more sophisticated and complex

Any purchased materials that will go into the finished product are recorded in the ___________ ___________ inventory account.

-Raw -Materials

Put the steps in order for calculating direct materials on the schedule cost of goods manufactured in order. -Raw materials inventory, beginning -Deduct: Indirect materials included in manufacturing overhead -Add: Purchases of raw materials -Deduct: Raw materials inventory, ending -Raw materials used in production -Total raw materials available

-Raw materials inventory, beginning -Add: Purchases of raw materials -Total raw materials available -Deduct: Raw materials inventory, ending -Raw materials used in production -Deduct: indirect materials included in manufacturing overhead

Put the steps for calculating direct materials on the schedule of cost of goods manufactured in order. -Raw materials used in production -Deduct: indirect materials included in manufacturing overhead -Deduct: Raw materials inventory, ending -Total raw materials available -Add: purchases of raw materials -Raw materials inventory, beginning

-Raw materials inventory, beginning -Add: purchases of raw materials -Total raw materials available -Deduct: Raw materials inventory, ending a. Raw materials used in production -Deduct: indirect materials included in manufacturing overhead

Place these items from the income statement in the order in which they should appear: -Gross margin -Cost of goods sold -Net operating income -Sales -Selling and administrative expenses

-Sales -Cost of goods sold. -Gross margin -Selling and administrative expenses -Net operating income

Batch-level costs

-Second to bottom of hierarchy -Activities and costs incurred for every batch, regardless of the number of units in the batch -Example includes setting up equipment and shipping orders. With machine setup, once the machines are set up for the specifications of the production run, the company could produce a batch of 1, 10, or 100 units. Yet the company only incurs the machine setup cost once for the entire batch.

Cost of Goods Sold- The Direct Method

-Simpler and quicker when the necessary data are available -Must know *unit product cost* and *# of units sold*

A document used to record how long workers spend on each job and task is called a(n) ____________ ___________. (one word per blank)

-Time -Sheet

Product costs under absorption costing are:

-Variable manufacturing overhead -Direct labor -Direct materials -Fixed manufacturing overhead

Units that are only partially complete are in __________ ____________ __________.

-Work -In -Process

bill of materials

-a document that lists the type and quantity of each type of direct material needed to complete a unit of product

materials requisition form

-a document that specifies the type and quantity of materials to be drawn from the storeroom -identifies the job that will be charged for the cost of the materials -used to control the flow of materials into production -used to make entries in accounting records

The US requires

-absorption costing for tax reports

A measure such as direct labor-hours or machine-hours used to assigned overhead costs to products and services is called a cost driver or a(n) ___________ ___________.

-allocation -base

time ticket

-an hour-by-hour summary of the employee's activities throughout the day -companies rely on computerized systems to maintain the time tickets includes: -the nature of indirect tasks worked -the amount of time spent on each job -the number of jobs worked on

Raw materials

-any materials included in a finished product -when materials are purchased they are recorded in the Raw Materials inventory account -Raw Materials used in production are transferred to Work in Process

The process used to assign overhead costs to products is called overhead __________.

-application

a normal costing system applies overhead by..

-applies overhead by job by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job

when are actual manufacturing overhead costs recorded in the Manufacturing overhead account?

-as they are incurred

Raw materials inventory is originally recorded in a(n) ______________ account.

-asset

The unit product cost is the same as the:

-average product cost per unit -total job cost divided by number of units

When preparing financial statements in job-order costing system, finished goods flow first to the ____________ ____________ and then to the ______________ _____________.

-balance -sheet -income -statement

Manufacturing overhead costs (3)

-can include materials and labor -must be manufacturing costs -must be indirect costs

What methods can be used to dispose of underapplied or overapplied manufacturing overhead?

-closing it out to cost of goods sold -allocating it among work in process, finished goods, and cost of goods sold

finished goods inventory

-consists of completed units that have not yet been sold

Cost of Goods Sold

-consists of the costs of the products sold to customers -BI+Purchases-EI=Cost of goods sold

work in process

-consists of units that are only partially complete

Select all costs that are included in product costs under absorption costing.

-direct materials -fixed manufacturing overhead -variable manufacturing overhead -direct labor

Direct labor costs are labor costs that are:

-easily traced to a particular job -accounted for on a time ticket

when preparing financial statements in a job-order costing system, finished goods..

-finished goods flow first to the balance sheet and then to the income statement

Steps to calculate cost of goods manufactured?

-includes all manufacturing costs of goods finished during the period Cost of goods manufactured=Total manufacturing cost charged to jobs + Beginning work in process inventory - End work in process inventory

Predetermined Overhead Rate

-is used to apply manufacturing overhead to jobs; determined BEFORE the period begins POHR=Estimated total manufacturing overhead cost/Estimated total amount of the allocation base

production order

-issued when an agreement has been reached with the customer concerning the quantities, prices, and shipment date for the order

a multiple predetermined overhead rate system is more accurate than a plantwide overhead rate system because..

-it reflects differences in how overhead costs are incurred within departments

A materials requisition form contains the :

-job that will be charged for the cost of the materials -type of materials to be drawn from the storeroom -quantity of materials to be drawn from the storeroom

The Need for a Predetermined Overhead Rate

-makes it possible to estimate total job costs sooner -actual overhead for the period is not known until the end of the period -seasonal factors in overhead costs can produce fluctuations in the overhead rate ex: costs of heating a factory in Illinois will be highest in the winter months

What are materials requisition forms used for?

-making entries in the accounting records -controlling the flow of materials into production

The cost of goods ___________ is the sum of all amounts transferred form Work in process to Finished goods during a period.

-manufactured

A credit balance in the Manufacturing overhead account means overhead was __________.

-overapplied

We have direct labor costs decreased relative to overhead as a component of product costs?

-products have grown more sophisticated and complex -production processes have become more automated

A bill of materials contains the:

-quantity of each direct material needed to complete a unit of product -type of each direct material needed to complete a unit of product

job cost sheet

-records the material, labor, and manufacturing overhead costs charged to that job

The schedule of cost of goods _________ summarizes costs that remain in Finished goods inventory and that have been transferred to Cost of goods sold.

-sold

Underapplied or Overapplied overhead

-the difference between the manufacturing overhead cost applied to jobs and the actual manufacturing overhead costs of a period 1. Underapplied=exists when the amount of overhead applied to production is less than the actual manufacturing overhead costs 2. Overapplied=exists when the amount of overhead applied to production is greater than the actual manufacturing overhead costs

Job-Order vs. Process Costing

-the key difference is whether the company's products or services are different or similar -process costing is used by companies that make standardized or similar products or services; these manufacturers or services distribute costs evenly across the total number of units produced during a period -job order costing systems are used in companies that offer customized or unique products or services; these capture the unique cost of each individual item produced

Overhead application

-the process of assigning overhead cost to jobs -the POHR is based on estimates and determined before the period begins Formula: Overhead applied to a particular job=Predetermined overhead rate x Amount of the allocation base incurred by the job (so direct-labor hours)

Indirect labor costs are charged..

-to the manufacturing overhead incurred account

the unit product cost is the same as..

-total job cost/# of units -average product cost per unit

Allocation of MOH

-used to assign manufacturing overhead to products; such as direct labor hours, direct labor dollars, or machine hours -*cost driver*: a factor, such as machine-hours, beds occupied, computer time, or flight hours that causes overhead costs -we use an allocation base because 1) it is impossible or difficult to trace overhead costs to particular jobs ( it is an indirect cost) 2) Manufacturing overhead consists of many different items ranging from the grease used in machines to the production manager's salary 3) Many types of manufacturing overhead costs are fixed even though output fluctuates during the period

Job-order costing

-used when: 1) many different products are produced each period 2) products are manufactured to order 3) the unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job -is a widely used costing method -may be used in any type of organization ex of companies: -Boeing (aircraft manufacturing) -Bechtell International (large scale construction) -Walt Disney Studios (movie production) -ex: Levi jeans makes different types of jeans for both men and women; an order of 1,000 jeans mens blue style A312 is called a *job*

What kinds of costs are assigned to units of product in absorption costing?

-variable manufacturing costs -fixed manufacturing costs

the average manufacturing overhead cost per unit tends to..

-vary from one period to the next

When should a segment be discontinued?

-when the segment contribution margin doesn't cover the traceable fixed costs -when the segment margin is negative

Levels of Segmented Income Statements

...

Job-Order Costing-The Flow of Costs

1) *Raw materials*: include any materials that go into the final product 2) *Work in process*: consists of units of production that are only partially complete and will require further work before they are ready for sale to customers 3) *Finished goods*: consist of completed units of product that have not been sold to customers 4) *Cost of goods manufactured*: include the manufacturing costs associated with the goods that were finished during the period

Types of Quality Costs, Total Quality Management (TQM)

1) Prevention costs 2) Appraisal costs 3) Internal failure costs 4) External failure costs

Characteristics of successful ABC implementations

1) Strong top management support 2) Cross-functional involvement 3) Linked to evaluations and rewards

ABC costs are generally thought to be most accurate because ABC takes into account:

1) The specific resources each product uses 2) The extent to which they use these resources

Steps in requisitioning and issuing materials in order

1) a production order is issued 2) the production department prepares a material requisition form 3) the materials requisition form is presented to the storeroom clerk 4) the storeroom clerk issues materials

steps used to calculate net present value in the correct order:

1) determine the discount rate using the minimum required return; 2) find the PV factors using the discount rate and timing of each cash flow; 3) multiply all project cash flows by the present value factor; 4) find the difference between the PV of cash inflows and cash outflows

4 Step process POHR

1) estimate the total amount of the allocation base that will be required for the next period's estimated level of production (denominator) 2) estimate the total fixed manufacturing overhead cost for the coming period and the variable manufacturing overhead cost per unit of the allocation base 3) use the cost formula to estimate the total manufacturing overhead cost (numerator) for the coming period: Y=a + bX Y=The estimated total manufacturing overhead cost a=The estimated total fixed manufacturing overhead cost b=The estimated variable manufacturing overhead cost per unit of the allocation base X=The estimated total amount of the allocation base 4) compute the predetermined overhead rate

What do we do with underapplied or overapplied overhead balances?

1) it can be closed out to Cost of Good Sold 2) it can be allocated b/w Work in Process, Finished Goods, and Cost of Goods Sold in proportion to the overhead applied during the current period that is in the ending balances of these accounts -Overapplied overhead is deducted from Cost of Goods Sold -Underapplied overhead is added to Cost of Goods Sold -We always assume that underapplied or overapplied overhead is closed out of Cost of Goods Sold

Match each event in the process of accounting for manufacturing overhead with the appropriate entry. 1. Actual overhead in incurred 2. Overhead is applied to Work in Process 3. The period ends a. Manufacturing overhead is closed b. Manufacturing overhead is credited c. Manufacturing overhead is debited

1. Actual overhead in incurred - c. Manufacturing overhead is debited 2. Overhead is applied to Work in Process - b. Manufacturing overhead is credited 3. The period ends - a. Manufacturing overhead is closed

Match each event in the process of accounting for manufacturing overhead with the appropriate entry: First group: 1. Actual overhead is incurred 2. A job is completed 3. The period ends Second group: a. Manufacturing overhead is closed b. Manufacturing overhead is debited c. Manufacturing overhead is credited

1. Actual overhead is incurred -B. Manufacturing overhead is debited 2. A job is completed -C. Manufacturing overhead is credited 3. The period ends -A. Manufacturing overhead is closed

The following are common mistake made in preparing segmented income statements:

1. Arbitrarily dividing common costs among segments 2.Omitting costs that should be included 3.Using inappropriate allocation bases

Order of the cost of goods sold section of the income statement`

1. Beginning finished goods inventory 2. Plus: Cost of goods manufactured 3. Less: Ending finished goods inventory 4. Unadjusted cost of goods sold

Three Key concepts

1. Both income statement formats include product costs and period costs, although they define these cost classifications differently. 2. Second, variable costing income statements are grounded in the contribution format. They categorize expenses based on cost behavior-variable costs are reported separately from fixed costs. Absorption costing income statements ignores variable and fixed cost distinctions. 3. Variable and absorption costing net operating income figures often differ from one another. The reason is always related to the way income statements account for fixed manufacturing overhead differently.

When preparing a contribution margin income statement:

1. COGS consists of only variable manufacturing costs 2. Variable and fixed costs are listed in separate sections of the statement

Murphy company has three departments, and uses a multiple predetermined overhead rate system. Department A manufactures parts in a highly automated process, then Department B assembles the parts by hand. Department C places completed units in a heat chamber to sterilize the before they are shipped out. Match each department with an appropriate overhead allocation rate. 1. Department A 2. Department B 3. Department C a. Direct labor hours b. Machine hours c. Batches

1. Department A - b. Machine hours 2. Department B - a. Direct labor hours 3. Department C - c. Batches

Which of the following costs can be directly traced to a particular product?

1. Direct materials 2. Direct labor

Place the following steps needed to compute the predetermined overhead rate in the order given in the textbook.

1. Estimate the total amount of the allocation base. 2. Estimate the total fixed manufacturing overhead and variable overhead per unit for the upcoming period. 3. Estimate the total manufacturing overhead for the upcoming period 4. Compute the predetermined overhead rate.

When should a segment be discontinued?

1. Has a contribution margin that cannot cover any common fixed costs 2. Cannot cover its own costs

Which of the following are widely used allocation bases in manufacturing?

1. Machine Hours 2. Direct Labor Cost 3. Direct Labor Hours 4. Units of Product

A job cost sheet contains:

1. Manufacturing Overhead costs charged to the job 2. materials costs charged to the job 3. labor costs charged to the job

GAAP and IFRS rules:

1. Require segmented financial data be included in annual reports. 2. Require that the same method be used for both internal and external segment reporting. 3. Create problems in reconciling internal and external reports

Absorption costing is:

1. Required by GAAP and IFRS 2. Used by most companies for both internal and external reports

Use the following line items to construct an income statement using absorption costing.

1. Sales 2. Total Cost of Goods Sold 3. Gross Margin 4. Total selling and administrative costs 5. Net operating income

Order of the schedule of cost of goods manufactured

1. Total current manufacturing costs 2. Plus: Beginning work in process inventory 3. Less: Ending work in process inventory 4. Cost of goods manufactured

what 2 approaches may be used internally by manufacturing companies for costing products for the purposes of valuing inventory and cost of goods sold?

1. absorption costing 2. variable costing

Manufacturing overhead:

1. are indirect costs 2. consists of only manufacturing costs 3. can include materials and labor

Advocated of variable costing believe fixed manufacturing costs:

1. are period expenses 2. are not caused by and cannot be meaningfully traced to specific units of production

Steps for implementing ABC in order:

1. define activities, activity cost pools, and activity measures; 2. assign overhead costs to activity cost pools; 3. calculate activity rate; 4. assign overhead costs to cost objects; 5. prepare management reports

Categories of manufacturing costs include:

1. direct materials 2. manufacturing overhead 3. direct labor

Absorption costing and variable costing net operating income will be: (2)

1. equal when there is no beginning and no ending inventory 2. equal when the number of units produced equals the number of units sold

absorption costing and variable costing net operating income will be: (2)

1. equal when there is no beginning and no ending inventory 2. equal when the number of units produced equals the number of units sold

place the following steps needed to compute the predetermined overhead rate in the order given in the textbook

1. estimate the total amount of the allocation base 2. estime the total fixed manufacturing overhead and variable overhead per unit for the upcoming period 3. estimate the total manufacturing overhead for the upcoming period 4. compute the predetermined overhead rate

What categories of costs contain labor charges that cannot be easily traced to a job?

1. indirect labor 2. manufacturing overhead

which of the following are advantages of using variable costing and the contribution approach for internal decision making? (3)

1. it is easy to explain changes in net income 2. it supports decision making 3. it enables CVP analysis

In order to adjust Cost of Goods sold to reflect actual rather than estimated overhead costs (check all that apply):

1. overapplied overhead is deducted from Cost of Goods Sold 2. underapplied overhead is added to Cost of Goods Sold

what is the schedule of cost of goods manufactured?

1. raw material (warehouse) 2. work in progress (factory) 3. finished goods (finished good warehouse) 4. finished goods (transportation)

income statement (using absorption costing) (5) :

1. sales 2. (-) COGS 3. (=) gross margin 4. (-) total selling & admin costs 5. (=) net operating income

place these items from the income statement in the order in which they should appear

1. sales 2. cogs 3. gross margin 4. selling and admin expenses 5. net operating income

contribution format income statement (5) :

1. sales 2. variable costs 3. contribution margin 4. fixed costs 5. net operating income

when a segment is eliminated, a:

1. traceable fixed cost will disappear 2. common fixed cost will remain unchanged

when a segment is eliminated, a: (2)

1. traceable fixed cost will disappear 2. common fixed cost will remain unchanged

______ costing separates costs between variable and fixed, whereas ________ costing separates costs b/w product and period

1. variable 2. absorption

when preparing a contribution margin income statement: (2)

1. variable and fixed costs are listed in separate sections of the statement 2. cost of goods sold consists of only variable manufacturing costs

when should a segment be discontinued: (2)

1. when the segment contribution margin doesn't cover the traceable fixed costs 2. when the segment margin is negative

Comfy Cozy Chairs makes and sells rockers. The production of each rocker requires $45 direct material and 37 of direct labor. Variable manufacturing overhead amounts to 8 per unit, fixed manufacturing overhead totals 58000. What is the product cost using absorption?

119 (45+37+8) + (58000/2000)=119

variable costing & absorption costing

2 general costing approaches used by manufacturing companies to prepare income statements

murphy company has three departments, and uses a multiple predetermined overhead rate system. department a manufactures parts in a highly automated process, then department B assembles the parts by hand. Department C places completed units in a heat chamber to sterilize them before they are shipped out. Match each department with an appropriate overhead allocation rate.

3 department multiple predetermined overhead rate system department A manu. parts with machines (mat bc highly automated) department B assembles the part (labor bc labor-driven) department C places complete units in a heat chamber to (overhead bc process is applied in batches)

Smith, Inc. Uses a job-order costing system with the predetermined overhead rate of $12 per machine-hour. The job cost sheet for Job #42A listed $12,000 in direct labor costs, $18,000 in direct material cost, 1,200 direct labor-hours and 1,100 machine-hours. The total cost of Job #42A is $_____.

43,200 Total cost of Job #42A = Direct materials + Direct labor + Predetermined overhead rates x Actual machine-hours = $18,000+$12,000+($12x1,100)=$43,200

Frames, Inc. manufactures large wooden picture frames. Each frame requires $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost $9 per frame produced, and variable selling and administrative expense is $13 per frame sold. The company produces 5,000 units each month and total fixed manufacturing overhead per month is $15,000. The unit product cost of each frame using variable costing is:

68 Unit product cost=$19 + $40 + $9 = $68 Selling and admin expenses are not product costs. Under variable costing, fixed overhead is not a product cost

Dollars to attain target profit

=(target profit + fixed expenses)/CM Ratio

Activity cost pools in an ABC system

A "cost bucket" to accumulate costs related to a particular activity

absorbsion costing

A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in unit product costs

What is a traceable fixed cost?

A fixed cost that is incurred because of the existence of the segment

allocation base

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

Segment

A part or activity of an organization about which managers would like cost, revenue, or profit data.

Place the following steps in the requisitioning and issuing materials in order. The production department prepares a materials requisition form. The materials requisition form is presented to the storeroom clerk. A production order is issued. The storeroom clerk issues materials.

A production order is issued. The production department prepares a materials requisition form. The materials requisition form is presented to the storeroom clerk. The storeroom clerk issues materials.

Using variable costing and the contribution approach for internal decision making: a. facilitates explaining changes in net income b. enables CVP analysis c. supports decision making d. is required as part of GAAP financial statements

A, B, C

Disadvantage of ABC Costing

ABC doesn't reduce costs, just helps you understand costs better to know what to correct

Fixed manufacturing overhead costs are expensed as units are sold as part of costs of good sold under __________ costing, and expensed in full with period costs under __________ costing

ABSOPRTION, VARIABLE

fixed MO costs included as part of WIP under

ABSORPTION costing ONLY

Advocates of ____ costing believe fixed costs are an essential part of product production.

Absorption

In order to comply with GAAP and IFRS the _______ costing method must be used for external reporting in the US.

Absorption

In order to comply with GAAP and IFRS, the ____ costing method must be used for external reporting in the US.

Absorption

Net income computed under _______ costing may not agree with the results of CVP analysis

Absorption

Net income computed under ________ costing may NOT agree with the results of CVP analysis

Absorption

The use of ____ costing can lead to the omission of segment costs because nonmanufacturing costs aren't included as costs of a product.

Absorption

Variable and fixed cost distinctions are ignored when a company prepares income statements using ______ costing.

Absorption

When inventory increases, which costing method generally results in higher net operating income?

Absorption

Match the costing method with the way costs are separated for the method.

Absorption Costing: Manufacturing and selling and administrative Variable Costing - Variable and fixed

Fixed manufacturing overhead is treated as part of the per unit product cost and expensed as units are sold.

Absorption costing

Fixed manufacturing overhead is treated as part of the per unit product cost and expenses as units are sold.

Absorption costing

When inventory increase which costing method generally results in higher net income?

Absorption costing

Which of the following approaches may be used internally by manufacturing companies for costing products for the purposes of valuing inventory and cost of goods sold?

Absorption costing Variable costing

Match the costing methods with the appropriate income statement format used by each.

Absorption costing ~ Traditional format Variable costing ~ Contribution margin format

Contrast the way fixed manufacturing overhead costs are treated in absorption costing versus variable costing.

Absorption costing: Fixed manufacturing overhead is treated as part of the per UNIT product cost and expensed as units are sold. Variable costing: Fixed manufacturing overhead is treated as a PERIOD cost and expensed in full each period.

Variable costing and absorption costing net operating incomes may differ.

Absorption costing: some FMOH is capitalized in inventories rather than currently expense d on the income statement. If inventories increase during the period, some FMOH will be deferred in ending inventories. If one is sold it will be part of COGS if not it is part of Finished goods inventories.

Costs are categorized by function when using ______ costing and by behavior when using ______ costing.

Absorption; Variable

The journal entry to record the purchase of materials credits:

Accounts payable

Costs associated with the general management of an organization are called _____ costs.

Administrative

A journal entry debating Salaries expense and crediting Salaries and wages payable could record:

Administrative salary costs

A measure such as direct-labor-hours or machine hours used to assign overhead costs to products and services is called a cost driver or a(n) _____ _____.

Allocation base

Applied manufacturing overhead is entered on what side of the Manufacturing overhead account?

Always the credit side

Activity measure or cost driver in an ABC system

An allocation base based on number of times an activity occurs or amount of time needed for an activity

Activities in an ABC system

An event that causes the consumption of overhead resources; that is, drives the use of overhead

The process used to assign overhead costs to products is called overhead _____.

Application

Which of the following appears on job cost sheets and in the work in process account?

Applied manufacturing overhead

Which of the following would appear on a job cost sheet and in the work in process account?

Applied manufacturing overhead

Advocates of variable costing believe fixed manufacturing costs:

Are period expenses; aren't caused by and can't be meaningfully traced to specific units of production

Advantage of ABC Costing

Assigns overhead to products based on whether they "caused it"

Process Costing formula

Average Unit Cost=Total Manufacturing Cost/Total Units Produced -Many products are produced in a continuous manufacturing process in which raw materials are put through a standardized production process so that each unit of the final product comes out identical to the next.; because each unit is the same, companies that make these products do not need to track the cost of each unit individually; instead, process costing breaks the production process down into its basic steps, or processes, and then averages the total cost of the process over the number of units produced

Calculate cost of goods available for sale

Beginning finished goods inventory+Goods available for sale

How individual costs react to changes in activity level is referred to as cost _____.

Behavior

Disadvantage of ABC Costing

Benefits of implementing an ABC system may not outweigh the costs

Costs assigned to units of product in absorption costing including _____ manufacturing costs.

Both variable and fixed

A fixed cost that supports the operations of more than one segment, but is not traceable in whole or parts to any one segment is a(n) _______ fixed cost

COMMON

put the steps for calculating direct materials on the schedule of cost of goods manufactured in order

COST OF GOODS MANUFACTURED: 1. Direct materials: beginning raw materials inventory $7000 add: purchases of raw materials 60000 total raw materials available. 67000 deduct: ending raw materials inventory 15000 raw materials used in production 52000 deduct: indirect materials included in manufacturing overhead 2000 direct labor 60000 manufacturing overhead applied to work in process 90000 total manufacturing costs 200000 add: beginning work in process inventory 1. BEGINNING RAW MATERIALS INVENTORY + 2. PURCHASES OF RAW MAETERIALS = 3. TOTAL RAW MATERIALS AVAILABLE 3. TOTAL RAW MATERIALS AVAILABLE - 4. ENDING RAW MATERIALS INVENTORY = 5. RAW MATERIALS USED IN PRODUCTION 5. RAW MATERIAL USED IN PRODUCTION - 6. INDIRECT MATERIALS INCLUDED IN MANUFACTURING OVERHEAD = **7. DIRECT MATERIALS

why is CVP analysis more difficult when using absorption costing than when using variable costing?

CVP analysis require costs to be broken down between variable and fixed which is not done in absorption costing

Why is CVP analysis more difficult when using absorption costing than when using variable costing?

CVP analysis requires costs to be broken down between variable and fixed which isn't done in absorption costing

Enabling CVP analysis

CVP requires we break costs down into their fixed and variable components. Variable costing income statements categorize fixed costs as fixed and variable, it is much easier to use this income statement.

A fixed cost that supports the operations of more than one segment, but it is not traceable in whole or part to any one segment is a(n) ___________ fixed cost.

Common

Costs that are shared by multiple cost objects in a company are known as _____ costs.

Common

If a segment is eliminated, ___ fixed costs that are not traced to the segment will not change.

Common

One mistake companies make when preparing segmented income statement in arbitrarily assigning ___ fixed costs to segments.

Common

One mistake companies make when preparing segmented income statements is arbitrarily assigning _________ fixed costs to segments.

Common

When a segment is eliminated, a:

Common fixed cost will remain unchanged Traceable fixed cost will disappear

When a segment is eliminated, a:

Common fixed cost will remain unchanged; Traceable fixed cost will disappear

The financial statement that organizes costs by their behavior instead of by their function is the:

Contribution format income statement

Direct labor and overhead costs incurred to change raw materials into finish products are known as _____ costs.

Conversion

What do managers use to predict how costs will change as the level of activity changes?

Cost behavior

When calculating a predetermined overhead rate, the ideal allocation base should be a _______

Cost driver

Any item for which cost data is desired is called a(n) _____ _____.

Cost object

Place these items in the order in which they appear on the schedule of cost of goods sold.

Cost of Goods Manufactured: Direct materials: beginning raw materials inventory add: purchases of raw materials total raw materials available deduct: ending raw materials inventory. raw materials used in production deduct: indirect materials included in manufacturing overhead direct labor manufacturing overhead applied to work in process total manufacturing costs add: beginning work in process inventory deduct: ending work in process inventory cost of goods manufactured COST OF GOODS SOLD beginning finished goods inventory add: cost of goods manufactured cost of goods available for sale deduct: ending finished goods inventory unadjusted cost of goods sold add: underapplied overhead adjusted cost of goods sold 1.BEGINNING FINISHED GOODS INVENTORY + 2.COST OF GOODS MANUFACTURED = 3.COST OF GOODS AVAILABLE FOR SALE 3.COST OF GOODS AVAILABLE FOR SALE - 4.ENDING FINISHED GOODS INVENTORY = 5.UNADJUSTED COST OF GOODS SOLD 5.UNADJUSTED COST OF GOODS SOLD + 6.UNDERAPPLIED OVERHEAD = 7.ADJUSTED COST OF GOODS SOLD. 1. Cost of goods available for sale 2. Deduct: ending finished goods inventory 3. unadjusted cost of goods sold 4. add: underapplied overhead 5. adjusted cost of goods sold

Milton Corporation sold goods costing $50,000 for $75,000. Journal entries to be made could include entries debiting:

Cost of Goods Sold for $50,000 and Accounts Receivable for $75,000

The journal entry to record shipping goods to customers includes a debit to:

Cost of goods sold

Failure to Trace Costs Directly

Costs that can be traced directly to a specific segment should be charged directly to that segment and should not be allocated to other segments.

Incorrectly or arbitrarily assigning common costs to segments:

Could reduce the overall profits of the company Holds managers responsible for costs they cannot control Distorts the profitability of segment.

Actual manufacturing overhead was $50,000, while overhead applied to jobs was $45,000. The entry to dispose of underapplied or overapplied overhead would:

Credit Manufacturing overhead $5,000 Underapplied overhead results in a $5,000 debit balance in the overhead account. To dispose of it, Manufacturing overhead should be credited for $5,000.

unit product cost using variable costing

DM + DL + variable MO

unit product costs under absorption costing

DM + DL + variable MO + (fixed MO / units PRODUCED)

A company purchased $70,000 of materials on account. $40,000 were direct materials and $30,000 were indirect materials. The journal entry to record this transaction would be to:

Debit Raw Materials $70,000 and credit Accounts Payable $70,000

When inventory increases, absorption costing net operating income is higher than variable costing net income due to the fixed manufacturing overhead:

Deferred in the inventory account on the balance sheet.

Advantage of ABC Costing

Delivers more useful information than traditional costing when a company has a lot of overhead and produces a diverse set of products

A journal entry that debits Manufacturing overhead and credits Accumulated depreciation records:

Depreciation on factory equipment

A change in revenues between two alternatives is known as _____ revenue or incremental revenue.

Differential

Costs that can be easily and conveniently traced to a specific product are called _____ costs.

Direct

Labor costs that are easily traced to a job are called _____ labor costs.

Direct

A cost that can be easily and convenienlty traced to a specific cost object is a(n) _____ cost of that cost object, whereas costs that cannot be easily and conveniently traced to that specific cost object are _____ costs.

Direct Indirect

Hands-on work that can be easily traced to a specific product is called ______

Direct Labor

Major material inputs that can be easily traced to a specific job

Direct Materials

The journal entry that debits Work in Process and Manufacturing overhead and credits Salaries and Wages Payable is recording:

Direct and indirect labor costs

What are some other terms for variable costing?

Direct costing or marginal costing

In an automobile manufacturing plant, the assembly line workers are considered to be _____ _____.

Direct labor

A journal entry that debits Manufacturing overhead and credits Accounts payable could not reduced the incurrence of:

Direct labor costs

TOC: Variable costing income statements require one adjustment to support the TOC approach.

Direct labor costs need to be removed from variable production costs and reported as part of the FMOH costs that are entirely expensed in the period incurred.

Which of the following costs make up the manufacturing cost per unit of a product under variable costing?

Direct labor, Direct materials, Variable MOH

Manufacturing cost per unit of a product under variable costing are:

Direct labor, direct materials and variable overhead

A laptop computer manufacturer would consider the computer's processor chip to be a(n) _____ cost.

Direct material

Which of the following costs can be directly traced to a particular product?

Direct materials Direct labor

Murphy Manufacturing estimated manufacturing overhead for 2013 to be 100000. murphy uses direct labor hours as its allocation base. they estimated that 5000 hrs would be used in 2013. actual overhead for the year was 120000 and actual direct labor-hours were 7500. how much overhead was applied to a job completed during 2013 that used 200 direct labor-hours?

ESTIM manu overhead = 100000 ESTIM direct labor hours = allocation base = 5000 actual overhead = 120000 actual direct labor-hours = 7500 how much overhead was applied to 1 job w 200 direct labor-hours. 1. POHR = 100,000/5000 = 20 PER HR PER JOB 2. APPLIED OVERHEAD = 20*200 = 4000. OK! 1. PREDETERMINED OVERHEAD RATE = ESTIMATED TOTAL MANUFACTURING OVERHEAD COST/ESTIMATED TOTAL AMOUNT OF THE ALLOCATION BASE 2. OVERHEAD APPLIED TO A PARTICULAR JOB = (PREDETERMINED OVERHEAD RATE) X (AMOUNT OF THE ALLOCATION BASE INCURRED BY THE JOB)

Place the following steps needed to compute the predetermined overhead rate in the order given in the textbook. Estimate the total amount of the allocation base. Compute the predetermined overhead rate. Estimate the total fixed manufacturing overhead and variable overhead per unit for the upcoming period. Estimate the total manufacturing overhead for the upcoming period.

Estimate the total amount of the allocation base. Estimate the total fixed manufacturing overhead and variable overhead per unit for the upcoming period. Estimate the total manufacturing overhead for the upcoming period. Compute the predetermined overhead rate.

A predetermined overhead rate is calculated by dividing the _____ total manufacturing overhead by the _____ total amount of the allocation base.

Estimated Estimated

What is the formula for a predetermined overhead rate?

Estimated total manufacturing overhead cost/estimated total cost driver

When using variable costing, fixed manufacturing overhead is:

Expenses in the period incurred

T/F: Absorption costing and variable costing always result in the same net operating income each year

FALSE

Abosrption costing (1)

FMOH is treated as part of the product cost and expensed as units are sold.

Absorption Equation for Fixed MOH

FMOH per unit=Total fixed manufacturing overhead/ Units produced.

Which of the following costs would be classified as manufacturing overhead? Factory supervisor's salary Direct materials Office equipment depreciation CEO's salary Factory insurance

Factory supervisor's salary Factory insurance

Which of the following is a cost that car manufacturers incur that can be directly traced to the product? Factory supervisor's salary Machine depreciation Factory rent Factory-installed GPS system

Factory-installed GPS system

Management cannot use account analysis when trying to estimate the components of a mixed cost.

False

Mixed costs are also commonly known as step variable costs.

False

Periods costs are included as part of the cost of goods.

False

T/F: When calculating the segment margin, both traceable and common fixed costs are charged to the segment.

False

The equation for straight-line makes it easy to calculate the total mixed cost for any activity level outside the relevant range.

False

The fixed portion of a mixed cost represents the cost incurred for the actual consumption of a service.

False

The wages of assembly-line workers are period costs.

False

True or False: When calculating the segment margin, both traceable and common fixed costs are charged to the segment.

False

True or false: Cost, profit, and investment centers are segments, but sales territories, manufacturing plants, and service departments are not segments.

False

True or false: It is easy to determine whether a cost should be classified as traceable or common

False

True or false: It is easy to determine whether a cost should be classified as traceable or common.

False

True or false: When calculating the segment margin, both traceable and common fixed costs are charged to the segment

False

True or false: in an ABC system, it is best to combine activities that aren't highly correlated.

False

Completed units that have not yet been sold are found in _____ _____ inventory.

Finished goods

When a job is completed, its costs are transferred into:

Finished goods

Place these items in the order in which they appear on the schedule of cost of goods sold. Deduct: Finished goods inventory, ending Add: Cost of goods manufactured Finished goods inventory, beginning Unadjusted cost of goods sold Cost of goods available for sale

Finished goods inventory, beginning Add: Cost of goods manufactured Cost of goods available for sale Deduct: Finished goods inventory, ending Unadjusted cost of goods sold

Within the relevant range of activity, _____ cost remain constant in total.

Fixed

Variable Costing (1)

Fixed MOH is treated as a period cost and expensed in full each period.

Traceable costs can become common costs

Fixed costs that are traceable to one segment may be a common cost of another segment.

Absorption and variable costing net income are usually different due to the accounting for:

Fixed manufacturing overhead

Under variable costing the cost of a unit of inventory does not contain:

Fixed manufacturing overhead

When using absorption costing, which of the following equations is use to compute the amount of fixed manufacturing overhead in unit product costs?

Fixed manufacturing overhead cost per unit = Total fixed manufacturing overhead / units produced

Activity Based Costing to allocate indirect costs

Goes beyond multiple departmental MOH rates to focus on ACTIVITIES, rather than departments, as the fundamental cost objects.

In the ease of adjustment coding scheme, which type of cost automatically adjusts to changes in activity without management action?

Green cost

An absorption costing income statement calculates:

Gross margin by deducting cost of goods sold from sales

Net operating income under absorption costing is generally ____ net income under variable costing in periods in which inventory increases.

Higher than

Net operating income under absorption costing is generally _____ net operating income under variable costing in periods in which inventory increases.

Higher than

The company-wide break-even sales will aways be _____ the sum of the segment break-even sales.

Higher than

Variable costs vary _____ within the relevant range of activity.

In total

Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will _____ as the number of units produced increases

Increase in total

Differential costs are also known as _____ costs.

Incremental

Manufacturing overhead is a(n) _____ cost.

Indirect

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

Indirect

Product costs are also called _____ costs.

Inventoriable

When using absorption costing and explaining changes in operating income, financial statement users need to be aware of changes in ____ levels

Inventory

When using absorption costing and explaining changes in operating income, financial statement users need to be aware of changes in ____ levels.

Inventory

Under absorption costing, fixed manufacturing overhead accumulates in which accounts until units of product are sold?

Inventory (on the balance sheet)

How do we make trade-offs among the four types of quality costs?

Investment in prevention and appraisal costs reduces internal and external failure costs.

A traceable fixed cost:

Is incurred because of the existence of the segment

A segment's contribution margin:

Is useful for decisions impacting temporary uses of capacity

The Practice of arbitrarily allocating common costs to segments is often justified on the grounds that "someone" has to "cover the common costs". Arbitrarily allocating common costs to segments does not ensure that this will happen.

It may make an otherwise profitable segment appear unprofitable.

The document that record the materials, labor and manufacturing overhead costs charged to a job is the:

Job cost sheet

Why is top management support needed when ABC is implemented?

Leadership is instrumental in motivating employees to embrace ABC

What operational features will help us become more lean?

Lean operations are typically characterized by many of the following features: - Just in time (JIT) Inventory - Value stream mapping - Production in self-contained work cells - Employee empowerment through broader roles and use of small teams - 5S workplace organization - Point-of-use-storage (POUS) - Continuous flow pull system - Shorter manufacturing cycle times - Reduced setup times - Smaller batches - Emphasis on quality - Supply-chain management - Backflush costing

When inventory decreases, net operating income under absorption costing will be ___ cost of goods sold under variable costing.

Less than

When inventory decreases, net operating income under absorption costing will be ______ cost of goods sold under variable costing

Less than

The cost of goods _____ is the sum of all the amounts transferred from Work in process to Finished goods during a period.

Manufactured

In a traditional absorption costing system all ___ costs are assigned to products.

Manufacturing

There are two broad calssifications of costs: _____ costs and nonmanufacturing costs.

Manufacturing

Absorption costing

Manufacturing and selling and administrative

Factory materials, such as cleaning supplies, that are not components of finished products are classified as:

Manufacturing overhead

George Corporation recognized $1,000 of accrued property taxes on its manufacturing facility. The journal entry to record this would debit:

Manufacturing overhead $1,000 and credit Property taxes payable $1,000

The cost of producing one more unit is the _____ cost.

Marginal

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

Marginal

Manufacturing costs can be divided into three categories: direct _____, _____ labor and manufacturing _____.

Materials Direct Overhead

Segmented income statements:

May be prepared for activities at many levels in a company

what are typical cost driver?

NOT utilitites. utilities can be an overhead cost, not something that causes overhead costs YES machine hours computer time flight-hours

Indirect materials include:

Nails, glue, and thread

segment break even calculations

ONLY include TRACEABLE fixed expenses - NOT COMMON fixed expenses

Common mistakes made by companies when assigning costs to segments include:

Omitting costs that should be included Arbitrarily allocating common fixed costs Inappropriately assigning traceable fixed costs

Segment break-even calculations include:

Only traceable fixed expenses

Variable costing treats ___________ manufacturing costs as product costs

Only variable

Costs should be allocated to segments for internal decision-making purposes:

Only when the allocation base actually drives the cost being allocated

A potential benefit that is forfeited or lost when one decision is chosen over another is called a(n) _____ _____.

Opportunity cost

What types of activities are carried out regardless of which customers are served, which products are produced, how many batches are run or how many units are produced?

Organization-sustaining

Activity-based costing uses numerous ____ cost pools.

Overhead

to calculate a predetermined overhead rate, divide the estimated manufacturing overhead by

PREDETERMINED OVERHEAD RATE = MANUFACTURING OVERHEAD/ESTIMATED ALLOCATION BASE

Under both variable costing and absorption costing, variable and fixed selling and administrative costs are treated as ___ costs.

Period

Under both variable costing and absorption costing, variable and fixed selling and administrative costs are treated as ________ costs.

Period

Variable costing advocates believe that, under the matching principle, fixed costs should be treated as ____ costs.

Period

Costs expensed on the income statement when incurred are _____ costs and _____ costs become part of inventory on the balance sheet.

Period Product

The formula for applying overhead to a specific job is:

Predetermined overhead rate x Amount of allocation base incurred by job

Decision-making problems that could occur as a result of treating fixed overhead similarly to a variable cost when using absorption costing include inappropriate ______ decisions, and decisions made to _______ products that are, in fact, profitable.

Pricing, drop

Decision-making problems that could occur when using absorption costing include inappropriate ___ decisions, and decisions made to ____ products that are, in fact, profitable.

Pricing; Drop

When allocating fixed manufacturing overhead cost to units under absorption costing, the total fixed overhead costs must be divided by the number of units:

Produced

Absorption costing treats fixed manufacturing overhead as a ___________ cost.

Product

Activities such as research and development that aren't dependent on the number of units or batches are _____ - level activities.

Product

Direct materials, dirwect labor, and manufacturing overhead are all _____ costs.

Product

A product's ___ is a function of sales and the direct and indirect costs that the product causes.

Product margin

Advantage of ABC Costing

Provides better cost data to support manager's activity-based management (strategic) decisions Examples: - Eliminate unprofitable product lines - Cut other non-value added costs - Change product-mix

Contribution Margin Ratio

Ratio that tells managers how much contribution margin is generated by each dollar of sales revenue. Computed as contribution margin divided by sales revenue.

Any purchased materials that will go into the finished product are first recorded in the _____ _____ inventory account.

Raw materials

The journal entry to record issuing materials to be used in production credits:

Raw materials

Put the steps for calculating direct materials on the schedule of cost of goods manufactured in order. Add: Purchases of raw materials Deduct: Indirect materials included in manufacturing overhead Raw materials used in production Deduct: Raw materials inventory, ending Raw materials inventory, beginning Total raw materials available

Raw materials inventory, beginning Add: Purchases of raw materials Total raw materials available Deduct: Raw materials inventory, ending Raw materials used in production Deduct: Indirect materials included in manufacturing overhead

To support the TOC approach, which of the following must be done to the variable costing income statement?

Report direct labor costs as part of fixed manufacturing overhead.

Absorption costing is:

Required by GAAP and IFRS Used by most companies for both internal and external reports

GAAP and IFRS rules:

Requires segmented financial data be included in annual reports; Require that the same method be used for both internal and external segment reporting; Create problems in reconciling internal and external reports

from decision making point of view....

SEGMENT MARGIN - most useful for major capacity decisions CONTRIBUTION MARGIN - most useful for short-term sales volume decisions

Use the following line items to construct an income statement using absorption costing.

Sales - Total cost of goods sold = Gross margin - Total selling and administrative costs = Net operating income

Place the items from the income statement in the order in which they should appear. Gross margin Cost of goods sold Sales Net operating income Selling and administrative expenses

Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income

Place the following line items in order t construct a contribution format income statement

Sales Variable expenses Contribution margin Fixed expenses Net operating income

Contribution Margin is:

Sales revenue minus variable costs

What is the order to construct a contribution format income statement?

Sales, variable expenses, contribution margin, fixed expenses, and net operating income

What occurs when a cost that is directly traceable to Segment A is incorrectly allocated over several segments?

Segment A's costs will be understated.

Which of the following statements regarding segmented reporting is incorrect?

Segmented reporting is not useful for organizations with more than one product.

A company's operations can be divided by product lines, geographical area, manufacturing plants, service centers or sales territories, which are know as:

Segments

Selling and Administrative Expenses

Selling and Admin are NEVER treated as product costs, regardless of the costing method. Does not matter whether they are variable or fixed.

Variable costing

Separates variable and fixed expenses

Costs that can be traced directly to a segment:

Shouldn't be allocated to the other segments

The schedule of cost of goods _____ summarizes costs that remain in Finished goods inventory and that have been transferred to Cost of goods sold.

Sold

The schedule of cost of goods _____ summarizes costs that remain in the Finished goods inventory and that have been transferred to Costs of goods sold.

Sold

The cost of goods manufactured report

Summarizes manufacturing costs from Raw Materials to Work in Process Inventory and into Finished Goods

Costs that have already been incurred and can not be changed by decisions made in the current period or in the furute periods are called _____ costs.

Sunk

smith, inc. uses a job-order costing system with a predetermined overhead rate of $12 per machine-hour. The job cost sheet for Job #42A listed 12000 in direct labor cost, 18000 in direct materials cost, 1200 direct labor-hours and 1100 machine hours. the total cost of job #42A is

TOTAL JOB COST = DIRECT MAT + DIRECT LABOR + MANU OVERHEAD DIRECT MAT = 18000 DIRECT LABOR = 12000 MANU OVERHD = 12X1100 TOTAL JOB COST = 43200

The rise-over-run formula for the slope of a straight line is the basis of:

The high-low method

Discontinuing a profitable segment results in:

The loss of the segment's revenues; A reduction in the overall profits of the company

The segment margin represents the:

The margin available after a segment has covered all of its own costs

Absorption Costing Income Statement

The only reason absorption income differs from variable costing is that the methods account for fixed manufacturing overhead differently. Under absorption costing, fixed manufacturing overhead is included in products costs.

Prime costs are:

The sum of - direct labor - direct materials

The variable costing method correctly identifies the additional variable costs that will be incurred to make one more unit. It also emphasizes the impact of fixed costs on profits.

The total amount of fixed FMOH appears explicitly on the income statement highlighting that the whole amount of FMOH must be covered for the company to be truly profitable.

Variable costing and Absorption costing:

The two general costing approaches used by manufacturing companies to prepare income statements

When using the high low method, the change in cost divided by the change in units equals:

The variable cost per unit

How can bar codes be used in accounting for manufacturing costs?

They allow direct labor costs to be automatically recorded and posted

Period costs are always expensed on the income statement in the period in which:

They are incurred

Which of the following is an attribute of companies that use job-order costing?

They make many different products

Companies often make mistakes when assigning costs to segments.

They omit some costs, inappropriately assign traceable fixed costs, and arbitrarily allocate common fixed costs. yet everything should be included.

Cost Distortion

This happens when some products are over-costed while other products are under-costed by the cost allocation system

Differences in net operating income between absorption costing and variable costing is due to the:

Timing of when fixed manufacturing overhead is expensed

Differences in net operating income between absorption costing and variable costing is due to the:

Timing of when fixed manufacturing overhead is expensed.

Fixed costs remain constant in _____ over the _____ range of activity.

Total Relevant

Smith, Inc. uses a job-order costing system with the predetermined overhead rate of $12 per machine-hour. The job cost sheet for Job #42A listed $12,000 in direct labor cost, $18,000 in direct materials cost, 1,200 direct labor-hours and 1,100 machine-hours. The total cost of Job #42A is $

Total cost of Job #42A = Direct materials + direct labor + predetermined overhead rate X actual machine-hours = $18,000 + $12,000 + ($12 per machine-hour X 1,100 machine-hours) = $43,200

Put the steps from the schedule of cost of goods manufactured in the order in which they appear. Deduct: Ending Work in process inventory Total manufacturing costs Add: Beginning work in process inventory Cost of goods manufactured

Total manufacturing costs Add: Beginning work in process inventory Deduct: Ending Work in process inventory Cost of goods manufactured

In the equation Y=a+bX, Y is the :

Total mixed cost

When computing a segment margin, only ___fixed costs are charged to the particular segment.

Traceable

When determining a segment margin, which fixed costs are charged to the segment?

Traceable

Arbot Co. manufactures appliances at 3 manufacturing facilities in the US. Each location has a plan manager who oversees the manufacturing process for that location. Segmented income statements are prepared for each plant and for each product manufactured in the plant. The salary of each plant manager is a:

Traceable fixed cost to the plant and a common fixed cost for the individual product lines made in the plant

Bart's Inc. operates retail stores in various cities. Segmented income statements are prepared for each store and for each product line in each store. The property tax for the store is a(n) ___ fixed cost for the store, and a(n) ___ fixed cost for each product line sold in the store.

Traceable; Common

Bart's Inc. operates retail stores in various cities. Segmented income statements are prepared for each store and for each product line in each store. The property tax for the store is a(n) __________ fixed cost for the story and a(n) __________ fixed cost for each product line sold in the store.

Traceable; Common

ABC Costing -Assigns only O/H consumed by the products

Traditional Costing -Assigns all O/H

ABC Costing -Traces shipping costs related to the products

Traditional Costing -Treats shipping costs as period expenses

ABC Costing -Uses volume and non-volume related allocation bases

Traditional Costing -Uses primarily volume-related bases

Which costing method assigns only manufacturing costs to products?

Traditional absorption costing

General rule

Treat as traceable costs only those costs that would disappear over time if the segment itself disappeared.

Absorption Costing

Treats all manufacturing costs as product costs, regardless of whether they are variable or fixed. The cost of a unit of product under the absorption costing method consists of direct materials, direct labor and BOTH variable and fixed manufacturing overhead.

A mixed cost has a minimum cost of having a service available and ready for use.

True

Mixed costs contain both fixed and variable cost elements.

True

Period costs are expensed in the same period in which they are incurred.

True

Sales commissions are period costs.

True

True or False: under absorption costing, fixed overhead is treated like a variable cost because a portion of the total cost is allocated to each unit produced, rather than being expensed as one large sum.

True

True or false: In an automated environment, using traditional allocation bases based on volume may distort unit product costs.

True

True or false: activity-based costing can be used for process improvement.

True

True or false: as the number of activities increases, the cost to implement an ABC system also increases.

True

When mixed costs are represented by a straight-line, the steeper the slope, the higher the variable cost per unit.

True

The equation for a straight-line can be used to express the relationship between mixed costs and the level of activity.

Ture

one mistake companies make when preparing segmented income statements is arbitrarily assigning __________ fixed costs to segments

UNTRACEABLE

When the number of units produced equals the number of units sold:

Under both absorption costing and variable costing, all fixed overhead incurred flows to the income statement; Absorption costing net income is equal to variable costing net income

BASIC EXAMPLE: Determining a Absorption Costing Company's Unit Product Costs

Unit Product Cost = DM+DL+Var. Manu.OH+Fixed Manu.OH Fixed Manu.OH = Total Fixed Manufacturing Overhead / number of units produced

Under absorption costing, fixed manufacturing overhead costs flow to the income statement when:

Units are sold

When using absorption costing, fixed manufacturing overhead cost per unit = Total fixed manufacturing overhead divided by:

Units produced

Segment contribution margin equals segment revenue minus the _______ expenses for the segment

VARIABLE

The use of ______ costing can lead to the omission of segment costs because non-manufacturing costs are NOT included as costs of a product

VARIABLE

Direct costing or marginal costing are other terms for ___ costing.

Variable

Segment contribution margin equals segment revenue minus the __________ expenses for the segment.

Variable

Which type of cost changes in total, in direct proportion to chages in activity level?

Variable

the number of units produced does not affect net operating income when using _______ costing

Variable

Fixed manufacturing overhead is treated as a period cost and expensed in full each period.

Variable costing

Fixed manufacturing overhead is treated as a period cost and expenses in full each period

Variable costing

Contribution margin

Variable costing income statements are based upon a __________ format

Period

Variable costing treats fixed manufacturing overhead as a(n) _____ cost

Independent Variable

Variable that causes some other variables to change.

Costs are separated between variable and fixed expenses when using ___ costing, whereas ___ costing separates costs between product and period

Variable; absorption

Which accounts are debited in the journal entry to record manufacturing labor costs? Manufacturing overhead & salaries/wages payable WIP & manufacturing overhead Salaries/wages payable WIP & salaries/wages payable

WIP & manufacturing overhead

Advantage of ABC Costing

Weeds out non-value adding activities (i.e., waste activities) in a business (production) process

When should a segment be discontinued?

When the segment CM doesn't cover the traceable fixed costs When the segment margin is negative

When should a segment be discontinued?

When the segment margin is negative; When the segment contribution margin doesn't cover the traceable fixed costs

absorption costing & variable costing net operating incomes = SAME

When the units produced and the units sold are equal - no change in inventories occurs

Units of product that are only partially complete are contained in _____ _____ _____ inventory.

Work in process

what account is debited fro the issuance of direct materials into production?

Work in progress raw materials

Is selling expense example of yellow cost?

Yes

Can a company be too lean?

Yes, you can lose customers when: - There is not enough inventory to purchase - There are not enough parts to make the product which increases the manufacturing cycle time

Costs that can be traced directly to a segment: a. should not be allocated to other segments b. should be allocated to all segments b. may be treated as common costs

a

In segmented reporting, what are the two kinds of fixed costs? a. traceable and common b. general and common c. manufacturing and traceable d. manufacturing and general

a

Manufacturing cost per unit of a product under variable costing are: a. direct labor, direct materials, and variable overhead b. direct materials, direct labor, variable overhead and variable selling and administrative expenses c. direct labor, direct materials and all manufacturing overhead d. direct labor, direct materials and fixed overhead

a

Segment break-even calculations include: a. only traceable fixed expenses b. only common fixed expenses c. both traceable and common fixed expenses

a

Under both variable costing and absorption costing, variable and fixed administrative costs are treated as a. period costs b. product costs

a

Variable costing treats ________ manufacturing costs as product costs a. only variable b. no c. only fixed d. all

a

When a segment cannot cover its own costs, that segment should: a. probably be dropped b. recalculate its segment margin without including common fixed costs c. be combined with another profitable segment

a

When constructing segmented reports: a. some costs are not traceable to particular segments b. all costs should be allocated to the various segments c. allocating common costs to segments improves segment analysis

a

Which of the following statements is correct regarding segmented reporting? a. traceable fixed costs are charged to segments, but common fixed costs are not b. both traceable and common fixed costs are charged to segments in order to calculate the segment margin c. fixed costs are not charged to segments because only variable costs are used to calculate the segment margin d. common fixed costs are charged to segments, but traceable fixed costs are not

a

When should a segment be discontinued? a. when the segment margin is negative b. when the segment contribution margin doesn't cover the traceable fixed costs c. when the segment margin is positive, but doesn't cover the common fixed costs d. when the segment contribution margin covers the traceable fixed costs, but doesn't cover the common fixed costs

a & b

Which of the following approaches may be used internally by manufacturing companies for costing products for the purposes of valuing inventory and cost of goods sold? a. variable costing b. absorption costing c. statement costing d. fixed costing

a & b

Discontinuing a profitable segment results in: a. the loss of the segment's revenues b. reduced common fixed costs for the company c. a reduction in the overall profits of the company

a & c

When should a segment be discontinued? a. when the segment contribution margin doesn't cover the traceable fixed costs b. when the segment margin is positive, but it doesn't cover the common fixed costs c. when the segment margin is negative d. when the segment contribution margin covers the traceable fixed costs, but doesn't cover the common fixed costs

a & c

Which type of company would be most likely to use job-order costing

a construction company

an ideal allocation base should be:

a cost driver

a cost driver is

a factor that causes overhead costs to occur

common fixed cost

a fixed cost that supports the operation of more than one segment, but is not traceable in whole or in part to any one segment

common fixed cost

a fixed cost that supports the operations of more than one segment but is not traceable in whole or in part of any one segment, even if a segment were entirely eliminated there would be no change in a true common fixed cost

segment

a part of activity of an organization about which managers would like costs, revenue, or profit data. This chapter explains how to create contribution format income statements that report profit data for business segments, such as divisions, individual stores, geographic regions, customers, and product lines

Which of the following are advantages of using variable costing and the contribution approach for internal decision making? (Check all that apply.) a) It is easy to explain changes in net income. b) It enables CVP analysis. c) It supports decision making. d) It is required to be presented as part of GAAP financial statements.

a) It is easy to explain changes in net income. b) It enables CVP analysis. c) It supports decision making.

Common mistakes made by companies when assigning costs to segments include: a. arbitrarily allocating common fixed costs b. omitting costs that should be included c. inappropriately allocating variable costs d. inappropriately assigning traceable fixed costs

a, b, d

At the beginning of the year Champions, Inc. estimated that its total overhead costs would be $110,000 for the year. Its allocation base is direct labor hours, and it estimated it would use a total of 10,000 hours. By the end of the year, actual overhead costs were $115,000, and 10,200 labor hours were actually used. Based on this info, Champions' overhead for the year was: a. $2,800 underapplied b. $2,200 overapplied c. $5,000 underapplied d. neither overapplied nor underapplied

a. $2,800 underapplied

Based on the following information, calculate the predetermined overhead rate per direct labor dollar: -Estimated MO: $500,000 -Estimated DL cost: $250,000 -Actual MO: $720,000 -Actual DL cost: $300,000 a. $2.00 per direct labor dollar b. $2.88 per direct labor dollar c. $2.40 per direct labor dollar d. $1.67 per direct labor dollar

a. $2.00 per direct labor dollar

Applied manufacturing overhead is entered on what side of the Manufacturing overhead account? a. Always the credit side b. Always the debit side c. The debit side, if actual is greater than applied d. The credit side, if actual is greater than applied

a. Always the credit side

Why should the ideal allocation base drive overhead costs? a. Bases that do not drive overhead cost cause product costs to be distorted b. Bases that do not drive overhead cost cannot be used to calculated an overhead amount c. Bases that do not drive overhead costs are difficult to keep track of

a. Bases that do not drive overhead cost cause product costs to be distorted

Which of the following are used to calculate goods available for sale on the schedule of cost of goods sold? (Select all that apply) a. Cost of goods manufactured b. Beginning finished goods inventory c. Cost of goods sold d. Ending finished goods inventory

a. Cost of goods manufactured b. Beginning finished goods inventory

Which of the following are used to calculate goods available for sale on the schedule of cost of goods sold? (select all that apply) a. Cost of goods manufactured b. Cost of goods sold c. Beginning finished goods inventory d. Ending finished goods inventory

a. Cost of goods manufactured c. Beginning finished goods inventory

Which of the following are included in the total cost of a job? (select all that apply) a. Direct labor cost b. Applied manufacturing overhead c. Nonmanufacturing cost d. Direct materials cost e. Actual manufacturing overhead

a. Direct labor cost b. Applied manufacturing overhead d. Direct materials cost

What categories of costs contain labor charges that cannot be easily traced to a job? (select all that apply) a. Indirect labor b. Manufacturing overhead c. Direct labor

a. Indirect labor b. Manufacturing overhead

What are materials requisition forms used for? (select all that apply) a. Making entries in the accounting records b. Summarizing the cost of a job c. Specifying the cost of materials to be ordered d. Controlling the flow of materials into production

a. Making entries in the accounting records d. Controlling the flow of materials into production

Which account is credited when overhead is applied? a. Manufacturing overhead b. Cost of goods sold c. Accounts payable d. Work in process

a. Manufacturing overhead

Which of the following statements are true? (select all that apply) a. Most manufacturing companies in the U.S. use direct labor as an overhead allocation base b. Activity-based costing is designed to more accurately match overhead costs to what causes them c. Due to changes in production, direct labor costs have increased and overhead costs have decreased d. Direct labor is an appropriate allocation base when it can be shown to drive costs

a. Most manufacturing companies in the U.S. use direct labor as an overhead allocation base b. Activity-based costing is designed to more accurately match overhead costs to what causes them d. Direct labor is an appropriate allocation base when it can be shown to drive costs

Which of the following cost are charged directly to the income statement? a. Selling costs b. Manufacturing overhead c. Administrative costs d. Direct labor e. Direct materials

a. Selling costs c. Administrative costs

What account is debited for the issuance of direct materials into production? a. Work in process b. Raw materials c. Manufacturing overhead d. Accounts payable

a. Work in process

Manufacturing overhead consists of: a. all manufacturing costs other than direct labor and direct materials b. all indirect costs c. all manufacturing costs d. all costs other than direct labor and direct materials

a. all manufacturing costs other than direct labor and direct materials

Manufacturing overhead costs: (select all that apply) a. are indirect costs b. do not impact the average cost per unit c. tend to vary significantly, in total, from one period to the next d. consists of many different items

a. are indirect costs d. consists of many different items

A document that lists the type and quantity of each type of direct material needed to complete a unit of product is called a: a. bill of materials b. material requisition form c. job cost sheet

a. bill of materials

Gross margin is calculated by subtracting ________ from _________. a. cost of goods sold; sales b. selling and administrative expenses; sales c. fixed cost; sales d. variable cost; sales

a. cost of goods sold; sales

A cash payment of $400 was made for the monthly insurance premium on administrative office equipment. The journal entry to record this event would: a. debit insurance expense and credit cash b. debit depreciation expense and credit cash c. debit work in process and credit cash d. debit manufacturing overhead and credit cash

a. debit insurance expense and credit cash

The cost of jobs still unfinished at the end of a period are included in: a. ending work in process inventory b. beginning finished goods inventory for the next period c. the income statement d. cost of goods manufactured

a. ending work in process inventory

The United States requires absorption costing for: (select all that apply) a. external financial reports b. internal financial reports c. tax reports

a. external financial reports c. tax reports

A journal entry debiting Cost of goods sold and crediting Finished goods is made when: a. goods are sold b. the period is completed c. goods are started d. goods are finished

a. goods are sold

Typical cost drivers include: (Select all that apply) a. machine-hours b. computer time c. utilities cost d. flight-hours c. machine depreciation

a. machine-hours b. computer time c. flight hours

Actual overhead costs may not be proportional to the actual amount of the allocation base used because: (select all that apply) a. many actual overhead cost are fixed b. overhead costs are all variable costs c. the predetermined rate might not be estimated correctly d. overhead spending may not be under control

a. many actual overhead cost are fixed d. overhead spending may not be under control

A bill of materials contains the: (select all that apply) a. type of each direct material needed to complete a unit of product b. the quantity of materials to be drawn from the storeroom c. type of materials to be drawn form the storeroom d. job that will be charged for the cost of the materials e. quantity of each direct material needed to complete a unit of product

a. type of each direct material needed to complete a unit of product e. quantity of each direct material needed to complete a unit of product

Advocates of ____ costing believe fixed costs are an essential part of product production.

absorption

All manufacturing costs are assigned to products in ___ costing.

absorption

In order to comply with GAAP and IFRS, the ____ costing method must be used for external reporting in the United States.

absorption

Net income computed under ____ costing may not agree with the results of CVP analysis.

absorption

The use of ______ costing can lead to the omission of segment costs because nonmanufacturing costs are not included as costs of a product

absorption

all manufacturing costs, both fixed and variable, are assigned to products when using __ costing.

absorption

net income computed under ___________ costing may not agree with the results of CVP analysis

absorption

what kind of costing do most companies use in their management reports?

absorption

When using ____ costing changes in net operating income can be due to changes in ____ rather than changes in sales.

absorption inventories

Which of the following approaches may be used internally by manufacturing companies for costing products for the purposes of valuing inventory and cost of goods sold? (check all that apply) - Absorption costing - Variable costing - Statement costing - Fixed costing

absorption costing variable costing

units produced < units sold

absorption costing NOI < variable costing NOI - inventories DECREASE

units produced = units sold

absorption costing NOI = variable costing NOI - NO CHANGE in inventories

units produced > units sold

absorption costing NOI > variable costing NOI - inventories INCREASE

The two general costing approaches used by manufacturing companies to value inventory and cost of goods sold are...

absorption costing and variable costing

When the number of units produced equals the number of units sold:

absorption costing net income is equal to variable costing net income under both absorption costing and variable costing, all fixed overhead incurred flows to the income statement.

_____ costing separates costs between ____ costs and selling and admin costs

absorption, product

Fixed MO costs are expensed as units are sold as part of the per unit product cost under _______ costing, bu tare expensed in full with the period costs under_______ costing

absorption, variable

Fixed manufacturing overhead costs are expensed as units are sold as part of cost of goods sold under _______ costing, and expensed in full with period costs under __________ costing

absorption; variable

For external reporting purposes, manufacturing companies generally prepare ___ costing income statements, but ____ costing is often used for internal reporting purposes.

absorption; variable

Which departments should be included in the design of an ABC system?

accounting; marketing; engineering

What is credited in the journal entry to record the purchases of materials? WIP accounts payable manufacturing overhead raw materials

accounts payable

An ABC ____ ___ report involves more overhead cost detail than a conventional ABC analysis.

action analysis

Which costs are assigned to cost objects and how difficult it would be to adjust the cost if there were a change in activity are shown on the ___ ___ report

action analysis

What report shows the costs assigned to cost objects and the difficulty in adjusting the cost for changes in activity?

action analysis report

In ABC, any event that causes consumption of overhead resources is an ___.

activity

Focusing on activities to eliminate waste, decrease processing time, and reducing defects is the basis of ___-___ ___.

activity based management

Overhead includes both manufacturing and non manufacturing costs under:

activity-based costing

Overhead is applied to products based on the :

actual allocation base incurred

match each event in the process of accounting for manufacturing overhead with the appropriate entry.

actual overhead is incurred - a job is completed - the periods ends - manufacturing overhead is closed * the concept of a clearing account. the manufacturing overhead account operates as a clearing account. ACTUAL factory overhead costs are DEBITED (expense, DEA|LOR)to the account as they are incurred throughout the year. when a job is completed (or at the end of an accounting period), overhead cost is applied to the job using the predetermined overhead rate, and Work in Process is debited and Manufacturing Overhead is credited. Manufacturing Overhead (a clearing account) 1. Actual overhead costs are charged to this account as they incurred throughout the period 2. Overhead is applied to Work in Process using the predetermined overhead rate. the predetermined overhead rate is based entirely on estimates of what the level of activity and overhead costs are expected to be, and it is established before the year begins. As a result, the overhead cost applied during a year will almost certainly turn out to be more or less than the actual overhead cost incurred.

Overhead is underapplied if:

actual overhead is more than applied overhead

To calculate adjusted cost of goods sold:

add underapplied overhead or subtract overapplied overhead from unadjusted cost of goods sold

How easily the cost could be adjusted to a change in activity is reflected in the ease of ___ code.

adjustment

Using the high-low method, the fixed cost is calculated...

after the variable cost per unit is calculated using either the high or low level of activity

what assumption underlies net present value analysis?

all cash flows generated by an investment project are immediately reinvested at a rate of return equal to the discount rate

costs assigned to a segment should include

all costs attributable to that segment from company's entire value chain

Under activity-based costing, overhead includes:

all indirect costs

what is the typical approach to allocating joint costs to products?

allocating the cost based on the relative sales value of the end products

An activity measure is an ___ base in an ABC system.

allocation

the process used to assign overhead costs to products is called overhead ___

allocation

the process used to assign overhead costs to products is called overhead ___________

allocation

the process used to assign overhead costs to products is called overhead ____________

allocation

A measure such as direct labor-hours or machine hours used to assign overhead costs to products and services is called a cost driver or a(n) ___________ __________

allocation base

Activity cost pool

amount of costs accumulated for a single activity

Duration driver

amount of time to perform an activity

Why do companies use a predetermined overhead rate rather than an actual overhead rate?

an actual overhead rate is not known until the end of the period

what are ways to calculate the benefit of selecting one alternative over another?

analysis that just looks at the relevant costs and benefits; the difference between the net operating income for the 2 alternatives; an analysis that looks at all costs and benefits and identifies those that are differential

order to create the equation used to calculate the simple rate of return

annual incremental net operating income/initial investment

when a project with a negative NPV has significant intangible benefits, the:

annual intangible benefit necessary to make the investment worthwhile should be calculated

The process used to assign overhead costs to products is called overhead __________

application

Which of the following would appear on a job cost sheet & in the WIP account? actual manufacturing overhead applied manufacturing overhead budgeted manufacturing overhead

applied manufacturing overhead

the total cost of a job is calculated by adding the total of direct labor cost, direct materials cost and

applied manufacturing overhead cost

the total cost of a job includes

applied manufacturing overhead, direct labor cost, direct materials cost

Selling and administrative expenses:

are always treated as period costs

selling and administrative expenses:

are always treated as period costs

indirect labor costs

are charged to the manufacturing overhead incurred account

Variable Costing FMOH

are considered to be period costs-just like selling and administrative costs and are taken immediately to the income statement as period expenses.

manufacturing overhead costs

are direct costs tend to remain relatively constant due to the presence of fixed costs. units produced fluctuate which causes the average cost per unit to vary consist of many different items

Red costs:

are the most difficult to adjust to changes in activity and require management action

joint costs incurred prior to the split-off point ___ relevant in decisions regarding what to do from the split-off point forward.

aren't

how all variable production costs are treated under variable costing

as PRODUCT costs

actual manufacturing overhead costs are recorded in the Manufacturing overhead account

as they are incurred

overhead application is the process of

assigning manufacturing overhead cost to jobs

Full absorption costing..

assigns all manufacturing costs to products and is required for external reporting.

Linearity Assumption

assumption that the relationship between two variables (X and Y) can be approximated by a straight line.

ABC isn't used for external reporting because ___ wouldn't be comfortable using allocation based on employee interviews

auditors

Which group is like to be uncomfortable using ABC allocations that are based on personnel interviews?

auditors

green costs:

automatically adjust to changes in activities

the unit product cost is the same as the

average product cost per unit total job cost divided by number of units

cost of capital

average rate of return that must be paid for long-term creditors and shareholders for use of their funds

a cost that can be eliminated by choosing one alternative over another is an ___ cost.

avoidable

A company with 3 sements has $10,000 in common fixed expenses. All 3 segments are at the break-even point. As a result, the company: a. has an overall net operating income of $10,000 b. has an overall net operating loss of $10,000 c. is at the break-even point

b

Costs should be allocated to segments for internal decision-making purposes: a. even when the cost is non-traceable, so that all costs will be considered in the decisions b. only when the allocation base actually drives the cost being allocated c. even if the allocation base doesn't actually drive the cost d. equally over all segments

b

Differences in net operating income between absorption costing and variable costing is due to the: a. format of the income statements b. timing of when fixed manufacturing overhead is expensed c. amount of sales revenue reported d. amount of selling and administrative cost expensed

b

How is the contribution format used in segment reporting different from a contribution income statement for the company as a whole? a. the contribution format income statement used by the entire company includes fixed manufacturing overhead in cost of goods sold b. fixed costs are divided into traceable and common costs, so that managers are only held accountable for the traceable costs of their segments c. the contribution format used for segmented reporting divides costs into their fixed and variable components

b

Net income computed under ______ costing may not agree with the results of CVP analysis a. variable b. absorption c. marginal d. direct

b

Net operating income under absorption costing is generally _________ net income under variable costing in periods in which inventory increases a. less than b. higher than c. equal to

b

Under absorption costing, fixed manufacturing overhead costs flow to the income statement when: a. the period has ended b. units are sold c. units are produced d. the fixed manufacturing overhead cost is incurred

b

When a segment cannot cover its own costs, that segment should: a. be combined with another profitable segment b. probably be dropped c. recalculate its segment margin without including common fixed costs

b

When inventory decreases, net operating income under absorption costing will be _____ cost of goods sold under variable costing a. more than b. less than c. equal to

b

When there is no change in inventory, net operating income will be: a. higher under absorption costing than under variable costing b. the same under both absorption and variable costing c. higher under variable costing than under absorption costing

b

Which of the following statements regarding segmented reporting is incorrect? a. segmented reporting provides top management with cost, profit and investment performance data on the parts or activities of the organization b. segmented reporting is not useful for organizations with more than one product c. segments may be compromised of product lines, sales territories, or responsibility centers d. segmented reporting allows top management to evaluate the performance of lower level managers

b

Under absorption costing for segmented income statements can lead to: a. inconsistencies between internal and external reports b. under-costing of segments c. omission of upstream and downstream costs d. the need to maintain two costing systems

b & c

A variable costing income statement: a. does not include fixed manufacturing overhead, which is included on an absorption costing income statement b. calculates contribution margin while the absorption costing income statement calculates gross margin c. is constructed exactly like an absorption costing income statement d. focuses on fixed and variable expenses, while an absorption costing income statement focuses on period and product costs

b & d

Absorption costing and variable costing net operating income will be equal when: a. there is a change in ending, but not beginning, inventory b. the number of units produced equals the number of units sold c. the change in beginning inventory is greater than the change in ending inventory d. there is no beginning and no ending inventory

b & d

When a segment is eliminated, a: a. common fixed cost will disappear b. traceable fixed cost will disappear c. traceable fixed cost will remain unchanged d. common fixed cost will remain unchanged

b & d

The number of units produced equals the number of units sold: a. absorption costing total expense is less than variable costing total expense b. absorption costing net income is equal to variable costing net income c. absorption costing total expense is greater than variable costing total expense d. absorption costing net income is less than variable costing net income e. under both absorption costing and variable costing, all fixed overhead incurred flows to the income statement f. absorption costing net income is greater than variable costing net income

b & e

When the number of units produced equals the number of units sold: a. absorption costing total expense is greater than variable costing total expense b. absorption costing net income is equal to variable costing net income c. absorption costing total expense is less than variable costing total expense d. absorption costing net income is greater than variable costing net income e. absorption costing net income is less than variable costing net income f. under both absorption costing and variable costing, all fixed overhead incurred flows to the income statement

b & f

Product costs under absorption costing are: a. variable selling and administrative b. direct labor c. fixed manufacturing overhead d. direct materials e. fixed selling and admin f. variable manufacturing overhead

b, c, d, f

A company estimated its manufacturing overhead would total $500,000 and that it would use 200,000 direct labor hours for the year. Actual manufacturing overhead for the year was $625,000, and 260,000 direct labor hours were actually used. Based on this information, calculate the amount that overhead was overapplied or underapplied? a. $125,000 overapplied b. $25,000 overapplied c. $25,000 underapplied d. $187,000 underapplied

b. $25,000 overapplied

Given the following, calculate total manufacturing costs applied to jobs: DM: $40,000 DL: $100,000 MO applied: $120,000 Beg. WIP inventory: $30,000 End WIP inventory: $12,000 a. $302,000 b. $260,000 c. $278,000 d. $242,000

b. $260,000

At the beginning of the year JVL, Inc., estimated that its total overhead costs would be $120,000 for the year. Its allocation base in direct labor hours, and it estimated it would use a total of 12,000 hours. By the end of the year, actual overhead costs were $111,000, and 10,800 labor hours were actually used. Based on this information, JVL's overhead for the year was: a. $12,000 underapplied b. $3,000 underapplied c. $9,000 overapplied d. neither overapplied nor underapplied

b. $3,000 underapplied

The cost of a completed job on the job cost sheet consists of: a. Applied direct materials, applied direct labor, and applied overhead costs b. Actual direct materials, actual direct labor, and applied overhead costs c. Applied direct materials, applied direct labors, and actual overhead costs d. Actual direct materials, actual direct labor, and actual overhead costs

b. Actual direct materials, actual direct labor, and applied overhead costs

Actual manufacturing overhead is entered on what side of the Manufacturing overhead account? a. Always the credit side b. Always the debit side c. The debit side, if actual is greater than applied d. The credit side, if actual is greater than applied

b. Always the debit side

What kinds of manufacturing costs are assigned to units of product in absorption costing? a. Only variable manufacturing costs b. Both variable and fixed manufacturing costs c. Neither variable nor fixed manufacturing costs d. Only fixed manufacturing costs

b. Both variable and fixed manufacturing costs

How are manufacturing cost that cannot be traced to a particular product assigned to products and services? a. By adding a markup to direct labor costs b. By averaging across time and across products c. By determining how much of the cost was actually caused by a particular product

b. By averaging across time and across products

On which financial statement do selling and administrative costs first appear? a. Statement of owners' equity b. Income statement c. Statement of cash flows d. Balance sheet

b. Income statement

If underapplied overhead is closed out to Cost of goods sold, will cost of Goods sold be increased or decreased? a. Decreased b. Increased

b. Increased

Which method is used by companies that make many different products each period? a. Process costing b. Job-order costing

b. Job-order costing

Why have direct labor costs decreased relative to overhead as a component of product costs? (select all that apply) a. Labor has become more unionized b. Production processes have become more automated c. Products have grown more sophisticated and complex d. More full-time labor is being used

b. Production processes have become more automated c. Products have grown more sophisticated and complex

A journal entry that debits manufacturing overhead and credits accounts payable could record which of the following transactions? (check all that apply) a. Depreciation on factory equipment b. Rent expense on factory equipment c. Factory utilities expense d. The purchase of indirect materials

b. Rent expense on factory equipment c. Factory utilities expense

Which of the following is not of the categories into which manufacturing costs are generally classified? a. Direct labor b. Selling & administrative expenses c. Direct materials d. Manufacturing overhead

b. Selling & administrative expenses

Which of the following would be classified as manufacturing overhead? (select all that apply) a. Direct materials b. The factory supervisor's salary c. The CEO's salary d. Office equipment depreciation e. Factory insurance

b. The factory supervisor's salary e. Factory insurance

Which of the following would not be considered a job in a service firm that uses job-order costing? a. A client at a law firm b. The tax department in an accounting firm c. A patient in a hospital d. A repair job at an auto repair shop

b. The tax department in an accounting firm

How can bar codes be used in accounting for manufacturing costs? a. They allow indirect costs to be automatically recorded and posted b. They allow direct labor costs to be automatically recorded and posted c. They allow indirect costs to be easily traced to jobs d. They reduce the amount of time direct labor spends on jobs

b. They allow direct labor costs to be automatically recorded and posted

Is actual manufacturing overhead debited or credited to the manufacturing overhead account? a. credited b. debited

b. debited

To calculate the unit product cost using the job cost sheet: a. add direct labor to manufacturing overhead and divide by the number of units produced b. divide the total job cost by the number of units produced c. multiply the total job cost by the number of units produced d. add direct labor to direct materials and divide by the number of units produced

b. divide the total job cost by the number of units produced

To calculate a predetermined overhead rate, divide estimated manufacturing overhead by: a. actual manufacturing overhead b. estimated allocation base c. estimated direct labor hours d. estimated units of production

b. estimated allocation base

What kind of costs are assigned to units of product in absorption costing? (select all that apply) a. fixed selling and administrative costs b. fixed manufacturing costs c. variable selling and administrative costs d. variable manufacturing costs

b. fixed manufacturing costs d. variable manufacturing costs

Cost of goods manufactured: a. is the same as cost of goods sold b. includes all manufacturing cost of goods finished during the period c. is generally recorded as an asset on the balance sheet

b. includes all manufacturing cost of goods finished during the period

Predetermined overhead rates: (select all that apply) a. are used to apply direct labor costs to jobs b. make it easier to apply overhead to jobs c. require an estimated total overhead cost and estimated total allocation base d. are computed before each job

b. make it easier to apply overhead to jobs c. require an estimated total overhead cost and estimated total allocation base

The manufacturing overhead account contains: a. a single kind of indirect cost b. many different kinds of indirect costs c. a single kind of direct costs d. many different kinds of direct costs

b. many different kinds of indirect costs

The predetermined overhead rate is multiplied by the actual allocation base incurred by a job to find: a. actual overhead b. overhead applied to the job c. the predetermined overhead rate for the job d. the total cost of the job

b. overhead applied to the job

Total manufacturing overhead costs tend to: a. vary greatly with production b. remain fairly constant c. be impossible to assign to jobs d. be easily traceable to jobs

b. remain fairly constant

Which of the following costs would NOT be classified as manufacturing overhead? a. factory utilities b. tires used to produce vehicles c. a factory supervisor's salary d. depreciation on machinery

b. tires used to produce vehicles

When a job is completed, its cost are transferred OUT of: a. manufacturing overhead b. work in process c. cost of goods sold d. finished goods

b. work in process

Why should the ideal allocation base drive overhead costs?

bases that do not drive overhead costs cause product costs to be distorted

Setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of ___-level activities

batch

why must future cash flows relating to a capital investment be discounted when calculating the net present value of the investment?

because of the time value of money, future cash flows must be discounted to be comparable to other cash flows

When is the predetermined overhead rate calculated?

before the period begins

Which of the following are used to calculate goods available for sale on the schedule of cost of goods sold? ending finished goods inventory beginning finished goods inventory cost of goods manufactured cost of goods sold

beginning finished goods inventory cost of goods manufactured

A shift from product costing to a focus on cost________ is the key to making most managerial decisions.

behavior

Comparing the performance within an organization to that of other similar organizations is called:

benchmarking

CVP analysis requires costs be broken down...

between variable and fixed costs --> which is NOT DONE in absorption costing

What document lists the type and quantity of each type of direct material needed to complete a unit of product?

bill of materials

Before a deciding to drop a product line:

both costs that can be avoided and costs that will continue need to be identified

What kinds of manufacturing costs are assigned to units of product in absorption costing? Only fixed manufacturing costs both fixed & variable manufacturing costs only variable manufacturing costs Neither variable or fixed manufacturing costs

both fixed & variable manufacturing costs

the machine or process that is limiting overall output is called a ___.

bottleneck

How are manufacturing costs that cannot be traced to a particular product assigned to products and services?

by averaging across time and across products

how are manufacturing costs that cannot be traced to a particular product assigned to products and services?

by averaging across time and across products

Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will ______ as the number of units produced increases a. decrease in total b. remain the same in total c. increase in total

c

Absorption costing net operating income may not agree with the net operating income calculated for CVP analysis due to the way in which __________ is handled in absorption costing a. fixed selling and administrative expenses b. variable manufacturing overhead c. fixed manufacturing overhead d. direct labor cost

c

Decision-making problems that could occur when using absorption costing include inappropriate _______ decisions, and decisions made to ______ products that are, in fact, profitable a. production; focus upon b. strategy; produce c. pricing; drop d. reporting; add

c

Net operating income is less under absorption costing than under variable costing when inventory for the period a. increases b. remains the same c. decreases

c

Under variable costing the cost of a unit of inventory does not contain: a. direct materials b. direct labor c. fixed manufacturing overhead d. variable manufacturing overhead

c

Calculate the cost of goods available for sale: -COGM: $234,000 -Beg. FGI: $18,000 -End. FGI: $24,000 a. $240,000 b. $228,000 c. $252,000 d. $258,000

c. $252,000 Goods available for sale = $234,000 + $18,000 = $252,000

Calculate the cost of goods available for sale: -COGM: $410,000 -Beg. FGI: $110,000 -End. FGI: $125,000 a. $425,000 b. $395,000 c. $520,000 d. $535,000

c. $525,000 Goods available for sale = $410,000 + $110,000 = $520,000

A journal entry that debits Salaries expense and credits Salaries and wages payable would record: a. Assembly workers' wages b. Maintenance salaries c. Administrative salary cost d. Factory supervisors' salary costs

c. Administrative salary cost

Which of the following would be considered direct materials in a service firm that uses job-order costing? a. Beds in a hospital b. Tools in an auto repair shop c. Paperwork at a law firm d. Scissors at a hair salon

c. Paperwork at a law firm

A journal entry that debits Finished goods and credits work in process records the: a. beginning of a job b. sale of a job c. completion of a job d. end of a period

c. completion of a job

A company incurred $10,000 in direct labor costs and $8,000 in indirect labor costs. The journal entry to record this transaction would: a. debit Salaries and Wages payable $18,000 and credit Work in process $8,000 and Manufacturing overhead $10,000. b. debit Work in process $8,000 and Manufacturing overhead $10,000 and credit Salaries and wages payable $18,000 c. debit Work in process $10,000 and Manufacturing overhead $8,000 and credit Salaries and wages payable $18,000 d. debit Salaries and wages payable $18,000 and credit Work in process $10,000 and Manufacturing overhead $8,000

c. debit Work in process $10,000 and Manufacturing overhead $8,000 and credit Salaries and wages payable $18,000

A total of $10,000 in manufacturing overhead was applied to Job #40. The journal entry to record this would: a. debit Cost of goods sold $10,000 and credit Work in process $10,000 b. debit Cost of goods sold $10,000 and credit Manufacturing overhead $10,000 c. debit Work in process $10,000 and credit Manufacturing overhead $10,000 d. debit Manufacturing overhead $10,000 and credit Work in process $10,000

c. debit Work in process $10,000 and credit Manufacturing overhead $10,000

The journal entry to record depreciation on factory equipment would: a. debit work in process and credit depreciation expense b. debit work in process and credit accumulated depreciation c. debit manufacturing overhead and credit accumulated depreciation d. debit manufacturing overhead and credit depreciation expense

c. debit manufacturing overhead and credit accumulated depreciation

The journal entry to record the recognition of accrued property taxes on a company's production facility would be to: a. debit work in process and credit manufacturing overhead b. debit manufacturing overhead and credit accounts payable c. debit manufacturing overhead and credit property taxes payable d. debit works i process and credit property taxes payable

c. debit manufacturing overhead and credit property taxes payable

In a system that uses multiple predetermined overhead rates, overhead is applied: a. before production begins b. at the end of each period c. in each department as jobs proceed through the department d. at the end of the total production process

c. in each department as jobs proceed through the department

Average manufacturing overhead cost per unit usually varies from one period to the next because: a. it usually contains many variable costs, which vary from one period to the next b. the makeup of manufacturing overhead changes from period to period c. it usually contains fixed costs, which remain constant in total even when production changes

c. it usually contains fixed costs, which remain constant in total even when production changes

A job cost sheet contains: (select all that apply) a. selling costs charged to the job b. the selling price of the job c. materials costs charged to that job d. manufacturing overhead costs charged to the job e. labor costs charged to the job

c. materials costs charged to that job d. manufacturing overhead costs charged to the job e. labor costs charged to the job

When calculating cost of direct materials on the schedule of cost of goods manufactured, the cost of indirect materials must be: a. subtracting from beginning raw materials inventory b. added to beginning raw materials inventory c. subtracted from raw materials used in production d. added to raw materials used in production

c. subtracted from raw materials used in production

Absorption IS

can be confusing and easily misinterpreted, due to how inventory is deferred. Sometimes there are more units produced than sold which may indicate negative figures (wrong interpretation)

use of absorption costing

can lead to omission of segment costs --> bc nonmanufacturing costs ARE NOT INCLUDED as costs of a product

joint costs:

can't be avoided once a process is started; irrelevant in decisions regarding what to do with a product after split-off

how managers plan significant investments in projects with long-term implications is called ____ ___.

capital budgeting

the payback method, net present value method, and internal rate of return method all focus on analyzing the ___ ___ associated with capital investment projects

cash flows

allocation bases that do not drive overhead costs

cause product costs to be distorted

principle difference between variable costing & absorption costing

centers on whether fixed MO costs should be included in product costs

To avoid mistakes when absorption costing is used, readers of financial statements should be alert to

changes in inventory levels. Under absorption costing, if inventories increased, FMOH are deferred in inventories, which in turn decreases net operating income. If inventories decreases, FMOH are released from inventories, which decreases net income.

Underapplied or overapplied manufacturing overhead can be disposed of by:

closing it out to Cost of goods sold or allocating it among Work in process, Finished goods, and Cost of goods sold

A fixed cost that supports the operations of more than one segment, but is not traceable in whole or part to any one segment is a ___________ fixed cost

common

One mistake companies make when preparing segmented income statements is arbitrarily assigning ______ fixed costs to segments

common

if a segment is eliminated, ________ fixed costs that are not traced to the segment will not change

common

when interest is paid on interest it is called ___ interest.

compound

Which of the following is NOT a common mistake made in preparing segmented income statements

computing contribution margin instead of gross margin

Manufacturing overhead costs

consist of many different items are indirect costs

Finished Goods inventory`

consists of complete units that have not yet been sold

work in progress

consists of units that are only partially complete

when a limited resource of some type restricts a company's ability to satisfy demand, the company has a ___.

constraint

The financial statement that organizes costs by their behavior instead of by their function is the..

contribution format income statement

A business segment should only be dropped if a company can avoid more in fixed costs than it gives up in:

contribution margin

Sales revenue minus variable costs is..

contribution margin

Variable costing net income may be computed by multiplying the number of units sold by the ____ ____ per unit and subtracting total ____ costs.

contribution margin fixed

when a constraint exists, companies need to focus on maximizing

contribution margin per unit of constraint

Variable costing net income may be computed by multiplying the number of units sold by the _______ ________ per unit and subtracting total ______ costs.

contribution margin, fixed

Variable costing net income may be computed by multiplying the number of units sold by the _____ _______ per unit and subtracting total ______ expenses

contribution margin; fixed

Variable costing net income may be computed by multiplying the number of units sold by the _____ _____ per unit and subtracting total ___ expenses.

contribution, margin, fixed

An activity ___ pool relates to a single activity measure in the ABC system.

cost

The key to most managerial decision is understanding...

cost behavior.

A factor that causes overhead costs is a cost driver predetermined overhead rate cost object manufacturing cost

cost driver

A factor that causes overhead costs is called a:

cost driver

Activity measure

cost driver

Full Absorption Costing

costing method required for external reporting (GAAP) in which product costs reflect the full cost of manufacturing.

Variable Costing

costing method used for internal reporting that classifies costs as either variable or fixed. Can be used to analyze many managerial decisions.

Step Costs

costs that are fixed over some range of activity and then increase in a step-like fashion when a capacity limit is reached.

Mixed Costs

costs that have both a fixed component and a variable component; also known as semi variable costs.

the schedule of cost of goods summarizes

costs that remain in Finished goods inventory and that have been transferred to Cost of Goods Sold. schedule of cost of goods manufactured has 3 elements: materials labor manufac overhead *summarizes the portions of those costs that remain in ending Work in Process inventory and that are transferred out of Work in Process into finished goods. schedule of cost of goods sold also contain 3 elements of product costs direct mat direct labor manu overhead. -summarizes the portions of thsoe costs that remain in ending Finished Goods inventory and that are transferred out of Finished Goods into Cost of Goods sold.

Actual manufacturing overhead was $50000, while overhead applied to jobs was $45000. The entry to dispose of underapplied or overapplied would: credit manufacturing overhead $50000 credit manufacturing overhead $5000 debit manufacturing overhead $5000 debit manufacturing overhead $50000

credit manufacturing overhead $5000

working capital

current assets minus current liabilities

A cost pool including costs to entertain clients and make sales calls is a ___ activity.

customer-level

Segmented income statements: a. may be prepared for the various departments in the company, but not for specific product lines b. are best used to determine which locations are profitable, rather than which product lines are profitable c. should only be used for profit centers d. may be prepared for activities at many levels in a company

d

SPS Products has two divisions - Catalog Sales and Online Sales. For the last quarter Catalog sales segment margin was ($5,000). Online sales were $100,000. Online Sales contribution margin was $60,000, and its segment margin was $40,000. If Catalog Sales are discontinued, it is estimated that online sales will increase by 10%. Discontinuing Catalog Sales should increase company profits by: a. $9,000 b. $6,000 c. $5,000 d. $11,000

d (100,000 x 10% x 60,000/100,000) 6,000+5,000 saved from stopping catalog sales = 11,000

Why do companies use a predetermined overhead rate rather than an actual overhead rate? a. A predetermined overhead rate is easier to use b. A predetermined overhead rate is more accurate c. An actual overhead rate can never be calculated d. An actual overhead rate is not known until the end of the period

d. An actual overhead rate is not known until the end of the period

Which of the following is only true in a multiple predetermined overhead rate system? a. Multiple types of overhead are included to calculate the predetermined overhead rate b. Overhead is applied multiple times throughout the period c. Each category of overhead may have its own predetermined overhead rate d. Each production department may have its own predetermined overhead rate

d. Each production department may have its own predetermined overhead rate

A journal entry that debits Work in Process and Manufacturing overhead and credits Raw materials records the: a. application of manufacturing overhead b. purchase of materials c. completion of goods d. issuance of materials

d. Issuance of materials

Why is the unit product cost different from the cost that would be incurred if another unit were produced? a. There would be no additional cost to produce another unit b. The cost that would be incurred if another unit were produced cannot be calculated c. The predetermined overhead rate changes with each unit produced d. The cost to produce another unit is the incremental or marginal cost

d. The cost to produce another unit is the incremental or marginal cost

What is underapplied or overapplied overhead? a. Overhead applied to work in process b. The sum of overhead applied to work in process and actual overhead c. Actual overhead d. The difference between overhead applied to work in process and actual overhead

d. The difference between overhead applied to work in process and actual overhead

Which of the following would not be considered a direct labor cost in a service firm that uses job-order costing? a. The salary of an attorney at a law firm b. The salary of a surgeon at a hospital c. The wages of technicians at an auto repair shop d. The salary of the manager at a hair salon

d. The salary of the manager at a hair salon

When only a portion of units involved in a job are sold, what accounting entry occurs? a. Unsold units are transferred to another job b. The entire cost of the job is transferred from finished goods to cost of goods sold c. The cost is held in the finished goods account until all units involved in the job are sold d. The unit product cost is used to calculate the amount that will be transferred from finished goods to cost of goods sold

d. The unit product cost is used to calculate the amount that will be transferred from finished goods to cost of goods sold

Put the steps from the schedule of goods manufactured in the order in which they appear: a. Cost of goods manufactured b. Add: Beginning work in process inventory c. Deduct: Ending work in process inventory d. Total manufacturing costs

d. Total manufacturing costs b. Add: Beginning work in process inventory c. Deduct: Ending work in process inventory a. Cost of goods manufactured

When are direct materials cost recorded on the job cost sheet? a. When the job is sold to a customer b. When the job is complete c. When the requisition form is submitted to the storeroom clerk d. When direct materials are issued to the job

d. When direct materials are issued to the job

Which of the following would not be a good allocation base for manufacturing overhead? a. units of product b. direct labor hours c. machine hours d. accounting hours

d. accounting hours

Overhead is overapplied if: a. actual overhead is more than applied overhead b. adjusted cost of goods sold is more than unadjusted cost of goods sold c. cost of goods manufactured is less than cost of goods sold d. actual overhead is less than applied overhead

d. actual overhead is less than applied overhead

When are the actual manufacturing overhead costs recorded in the Manufacturing Overhead account? a. at the end of the period b. as the allocation base is used on a job c. when the job is complete d. as they are incurred

d. as they are incurred

The journal entry to record shipping goods to customers includes a debit to: a. work in process b. finished goods c. sales revenue d. cost of goods sold

d. cost of goods sold

In June, $3,000 of prepaid factory insurance expired. The journal entry to record this even would: a. debit Work in process and credit Prepaid insurance b. debit Prepaid insurance and credit Manufacturing overhead c. debit Prepaid insurance and credit Work in process d. debit Manufacturing overhead and credit Prepaid insurance

d. debit Manufacturing overhead and credit Prepaid insurance

The journal entry to record shipping goods to customers includes a credit to: a. work in process b. manufacturing overhead c. cost of goods sold d. finished goods

d. finished goods

A journal entry that debits Raw Materials and credits Accounts Payable is recording the: a. completion of goods b. issuance of materials into production c. sale of goods d. purchase of materials

d. purchase of materials

The average manufacturing overhead cost per unit tends to: a. remain fairly constant b. contain direct materials costs c. be more than direct materials cost per unit d. vary from one period to the next

d. vary from one period to the next

Automation in manufacturing has led to:

decrease in direct labor as a percentage of total cost; increase in overhead costs

when inventory increases, the higher net operating income that results from using absorption costing(rather than variable costing) occurs due to the fixed manufacturing overhead:

deferred in the inventory account on the balance sheet

when inventory increases, the higher net operating income that results from using absorption costs (rather than variable costing) occurs due to the fixed manufacturing overhead

deferred in the inventory account on the balance sheet

murphy company has 3 departments, and uses a multiple predetermined overhead rate system. Department A manufactures parts in a highly automated process, then department B assembles the parts by hand, department C places completed units in a heat chamber to sterilize them before they are shipped out. Match each department with an appropriate overhead allocation rate

deparment a - machine hours (they are highly automated) department b - direct labor hours (labor-driven) department c - batches (process is applied in batches)

Cost Behavior

description of how total costs change when some measure of activity changes.

Unit Contribution Margin

difference between sales price and variable cost per unit; indicates how much each additional unit sold will contribute to fixed costs and profit

Contribution Margin

difference between sales revenue and variable costs

the net present value of a project is:

difference between the present value of cash inflows and present value of cash outflows for a project; used in determining whether or not a project is an acceptable capital investment

what are synonyms for avoidable cost?

differential cost; incremental cost

What should be included in the analysis when making a decision?

differential costs; opportunity cost; relevant costs; avoidable costs

Labor costs that are easily traced to a job are called _________ labor costs. (enter only one word per blank)

direct

labor costs that are easily traced to a job are called __ labor costs

direct

__ materials are recorded on job cost sheets, and __ materials are charged to the overhead account

direct indirect

what is the difference between direct labor and indirect labor?

direct labor can easily be traced to jobs, while indirect labor cannot

In the 19th and 20th centuries:

direct labor hours was a satisfactory overhead allocation base

What makes up the manufacturing cost per unit of a product under variable costing?

direct labor, variable manufacturing overhead, and direct materials BUT NOT fixed selling and admin, variable selling and admin, and fixed manufacturing overhead

In the ease of adjusting coding scheme, what are usually considered Yellow costs?

direct labor; factory utilities

In the ease of adjustment coding scheme, what is usually considered Yellow costs?

direct labor; factory utilities

which of the following are included in the total cost of a job?

direct material direct labor APPLIED manufacturing overhead *actual manufacturing overhead = applied manufacturing overhead, rather than actual manufacturing overhead, is included in the total cost of a job.

total manufacturing costs is calculated by

direct materials+direct labor+total MOH applied

the present value of an amount to be received in the future is also known as the ___ ___ of the future cash receipt.

discounted value

calculating the present value of money is referred to as ___ cash flows.

discountign

finding the present value of a future cash flow is called ____.

discounting

A journal entry that includes manufacturing overhead and cost of goods sold is recorded to: dispose of underapplied or overapplied overhead recognize the sale of goods recognize the completion of goods apply manufacturing overhead to jobs

dispose of underapplied or overapplied overhead

companywide breakeven point

divide sum of the company's traceable fixed costs and common fixed costs by the company's overall contribution margin ratio (company's traceable fixed costs + common fixed costs) / company's overall CM ratio

To calculate the unit product cost using the job cost sheet:

divide the total job cost by the number of units produced

to calculate the unit product cost using the job cost sheet

divide the total job cost by the number of units produced

suppose that a project's net present value is negative, but the project would provide intangible benefits that haven't yet been estimated. to estimate the annual value of intangible benefits needed to accept the project, __ the negative net present value excluding intangible benefits by the ___.

divide; present value factor for an annuity

product costs under variable costing...

does NOT contain any FIXED MO cost

because of the time value of money, projects that promise ___ returns are preferable to those that promise the opposite.

earlier

what is an advantage of buying a part instead of making it?

economies of scale can result in higher quality and lower costs from suppliers

Activity-based management is focused on:

eliminating waste; reducing defects

absorption costing and variable costing net operating income will be:

equal when the number of units produced equals the number of units sold AND equal when there is no beginning and no ending inventory

Absorption costing and variable costing net operating income will be...

equal when there is no beginning and no ending inventory equal when the number of units produced equals the number of units sold

a predetermined overhead rate is calculated by dividing the __ total manufacturing overhead by the __ total amount of the allocation base

estimated estimated

to calculate a predetermined overhead rate, divide estimated manufacturing overhead by

estimated allocation base

A predetermined overhead rate is calculated by dividing the __________ total manufacturing overhead by the _________ total amount of the allocation base.

estimated; estimated

When there is no change in inventory, net operating income will be:

exactly the same under both absorption costing and variable costing

when there is no change in inventory, net operating income will be:

exactly the same under both absorption costing and variable costing

A product profitability report:

excludes costs not caused by specific products

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

f

Types of costs that might be included in a cost pool based on order size include:

factory supplies; equipment depreciation

which of the following costs would NOT be classified as manufacturing overhead?

factory utilities tires used to produce vehicles**** depreciation on machinery a factory supervisor's salary

Which of the following is a cost that car manufacturers incur that can be directly traced to the product?

factory-installed GPS system

which of the following is a cost that car manufacturers incur that can be directly traced to the product?

factory-installed gps system

True or false: opportunity costs aren't found in accounting records because they aren't relevant to decisions.

false

True or false: the benefits of increased accuracy from ABC always outfights the costs

false

true or false: when a capital investment decision is being made between 2+ alternatives, the project with the shortest payback period is always the most desirable investment.

false

True of false: cost, profit, and investment centers are segments, but sales territories, manufacturing plants and service departments are not segments

false, a segment is any part or activity of an organization about which managers would like cost, revenue, or profit data

True of false: when calculating the segment margin, both traceable and common fixed costs are charged to the segment

false, only the traceable fixed costs are charged to the segment

True or false: it is easy to determine whether a cost should be classified as traceable or common

false, sometimes the determination is difficult

the basic premise of the payback method is the ___, the more desirable the investment.

faster the cost of the investment is recovered

The journal entry to record shipping goods to customers includes a credit to: finished goods WIP manufacturing overhead cost of goods sold

finished goods

completed units that have not yet been sold are found in __ __ inventory

finished goods

when a job is completed, its costs are transferred into:

finished goods a transfer of costs is made within the costing system that parallels the physical transfer of goods in the finished goods warehouse. The costs of the completed job are transferred out of the Work in Process account and into the Finished Goods account. *cost of goods sold. cost are transferred to Cost of Goods when a job is sold, not when it is completed.

Differences between variable and absorption costing net income exist because under absorption costing some ____ manufacturing overhead cost is capitalized in inventory rather than expensed.

fixed

one of the great dangers in allocating common ___ costs is that such allocations can make a product line look less profitable than it really is.

fixed

Net operating income is lower under absorption costing (than under variable costing) when inventory decreases because ____ manufacturing overhead deferred in previous periods is released from inventory to the ____ statement in the cost of goods sold account.

fixed income

absorption costing net operating income may not agree with net operating income calculated for CVP analysis due to the way in which ______________ is handled in absorption costing

fixed MO

What makes up the manufacturing cost per unit of a product under absorption costing?

fixed MO, variable MO, DM, and DL

Absorption Costing...

fixed MOH is treated as part of the per unit product cost and is expensed as units are sold.

In a least-squares regression line, the vertical intercept (a) of the line represents the total.....

fixed cost

traceable fixed cost

fixed cost that is incurred because of the existence of a segment - if segment had never existed --> the fixed cost would not have been incurred - if the segment were eliminated --> the fixed cost would disappear ex: - salary of the Fritos product manager at PepsiCo = traceable fixed cost of the Fritos business segment of PepsiCo - depreciation cost on equipment used to manufacture Corvettes = traceable fixed cost of GM's Corvette division

how is the contribution format used in segment reporting different from a contribution income statement for the company as a whole?

fixed costs are divided into traceable and common costs, so that managers are only held accountable for the traceable costs of their segments

costs NOT assigned to a segment under contribution approach?

fixed costs that are only traceable to the company as a whole

Finish the sequence... sales, variable expenses, contribution margin,

fixed expenses and net operating income.

what kinds of costs are assigned to units of product in absorption costing?

fixed manufacturing costs variable manufacturing costs

absorption costing net operating income may not agree with the net operating income calculated for CVP analysis due to the way in which ______ is handled in absorption costing.

fixed manufacturing overhead

When using absorption costing, what is the question used to compute the amount of fixed manufacturing overhead in unit product costs

fixed manufacturing overhead cost per unit= total fixed manufacturing overhead/units produced

variable costing

fixed manufacturing overhead is treated as a period cost and expensed in full each period

absorption costing

fixed manufacturing overhead is treated as part of the per unit product cost and expensed as units are sold

Variable costing of a unit of inventory does not include

fixed manufacturing overhead.

net operating income is lower under AC when inventory decreases because _____ MO deferred in previous periods is released from inventory to the ____ statement in the cost of goods sold account.

fixed, income

Net operating income is lower under absorption costing (than under variable costing) when inventory decreases because _______ manufacturing overhead deferred in previous periods is released from inventory to the _______ statement in the cost of goods sold account.

fixed; income

typical cost drivers include

flight-hours, machine-hours, computer time

The variable costing net operating income

for each period can always be computed by multiplying the number of units sold by the contribution margin per unit and then subtracting total fixed costs.

segment margin

found by subtracting TRACEABLE FIXED COSTS of a segment from segment's CONTRIBUTION MARGIN CM - traceable fixed costs - useful in assessing long-run profitability of a segment

salvage value

funds gained from the sale of a capital asset

initial investment

funds needed to purchase a capital asset or being a capital investment project

absorption costing income statements

generally used for external reports (chapter 3)

which of the following would not be a good allocation base for manufacturing overhead?

good allocation base are: units of products labor hours machine hours

R Square

goodness of fit measure from a regression model that tells managers how much of the variability in the dependent (Y) variable is explained by the independent (x) variable.

Scattergraph

graph of the relationship between two variables, such as the total cost (y) and activity level (x)

Net operating income under absorption costing is generally ____ net income under variable costing in periods in which inventory increases.

greater than

what is net operating income?

gross margin - selling and administrative expenses

A company with three segments has $10,000 in common fixed expenses. All three segments are at the break-even point. As a result, the company:

has an overall net operating loss of $10,000

managers may choose to retain an unprofitable product line because it:

helps sell other products; attracts customers

Manufacturing companies that benefit the most from activity-based costing are those where overhead costs are a ----------- percentage of total product cost and where there is ------------ diversity among the various products they produce.

high, considerable

When using a traditional cost system, standard, ___-volume products are generally overcosted and custom, ___-volume products are often undercosted.

high; low

the rule used when comparing competing investments is the ____ project profitability index, the more desirable the project.

higher

When units produced exceeds units sold, net income will generally be..

higher under absorption costing than under variable costing

to maximize total contribution margin when a constrained resource exists, produce the products with the:

highest contribution margin per unit of the constrained resource

Summary of differences

how they treat fixed manufacturing overhead.

The action analysis report:

identifies costs that have been assigned to a product; provides better information for decision making than a traditional cost system; shows how difficult it would be to adjust costs given changes in activities

The first major step when implementing an ABC system is:

identify the activities

when making a capital budgeting deacon, it is most useful to calculate the payback period:

if a company is "cash poor"; as part of the screening process

when the total amount of the cost will be the same regardless of the alternatives selected in a decision, what should be done about the cost in the decision analysis?

ignore the cost

the simple rate of return:

ignores the time value of money; fluctuates from year to year along with fluctuations in revenue and expense

Common mistakes made by companies when assigning costs to segments include

inappropriately assigning traceable fixed costs, omitting costs that should be included, arbitrarily allocating common fixed costs

Absorption Costing FMOH

included as part of the costs of work in process inventories. When units are completed, these costs are transferred to finished goods and only when the units are sold to these costs flow through the income statements as part of Costs of Goods Sold.

Computing overhead costs to be assigned to products for an action analysis report:

includes a cooler-coding scheme to help with adjustments; results in a cost matrix

cost of goods manufactured

includes all manufacturing costs of goods finished during the period

In absorption costing only

includes only manufacturing costs.

manufacturing overhead

includes some materials and some labor, is an indirect cost, consists of only manufacturing costs

what is the best way to make use of a constrained resource?

increase the capacity of the bottleneck

typical cash inflows from a project include:

increased revenues; released working capital; salvage value

What kind of cost is manufacturing overhead?

indirect

when a product is past the split-off point, but isn't yet a finished product, it's called an ___ product.

intermediate

as it applies to sell or process further decisions, which term refers to a product that is in the process of being made?

intermediate product

the ___ rate of return focuses on cash flows, while the ___ rate of return on revenue and expense.

internal; simple

In ABC, first-stage allocations are usually based on the results of:

interviews with employees

When using absorption costing and explaining changes in operating income, financial statement users need to be aware of changes in ____ levels.

inventory

When using absorption costing and explaining changes in operating income, financial statement users need to be aware of changes in _______ levels.

inventory

using the following items to create the equation used to calculated the payback period when annual net cash inflow is the same every year.

investment required/annual net cash inflow

capital budgeting decisions:

involve an immediate cash outlay in order to obtain a future return; require a great deal of analysis prior to acceptance

when making decisions, managers should ignore ___ costs.

irrelevant

A common fixed cost

is a fixed cost that supports the operations of more than one segment, but it is not traceable in whole or part to any one segment. Even if the segment were entirely eliminated. Example: Salary of the CEO of General Motors

Segment

is a part or activity of an organization about which managers would like cost, revenue or profit data. This chapter explains how to create contribution format income statements that report profit data for business segments, such as divisions, individual stores, geographic regions, customers, and product lines.

the overhead entered on the job cost sheet ___ the actual amount of overhead caused by the job

is not

the overhead entered on the job cost sheet _______ the actual amount of overhead caused by the job.

is not

The segment margin

is obtained by deducting the traceable fixed costs of segment from the segment's contribution margin. It represents the margin available after a segment has covered all of its own costs. The best guage of the long run profitability segment because it includes only those costs that are caused by the segment. if a segment cannot cover its own costs it should be dropped.

when using net present value to compare projects, the total cost approach:

is the most flexible method available to compare projects; includes all cash inflows and outflows under each alternative

when the outcomes of the net present value method and the internal rate of return method don't agree:

it is best to rely on the net present value method

What are advantages of using VC and the contribution approach for internal decision making?

it is easy to explain changes in net income, it enables CVP analysis, it supports decision making

which of the following are true of manufacturing overhead?

it must be an indirect cost manufacturing overhead can be variable or fixed it can include materials and labor it must be a manufacturing cost

Average manufacturing overhead cost per unit usually varies from one period to the next because:

it usually contains fixed costs, which remain constant in total even when production changes

the costs incurred up to the split-off point in a process in which 2+ products are produced from a common input are known as ___ costs.

joint

the split-off point is the point in the manufacturing process at which the ___ products can be recognized as separate products.

joint

2 or more products produced from a common input are:

joint products

a job cost sheet contains

labor costs charged to the job manufacturing overhead costs charged to the job material costs charged to the job

In the 19th and 20th centuries, cost systems relied on allocation bases such as:

labor hours and machine hours

a SERVICE firm that would most likely use job-order costing is a

law practice

External reports are ___ detailed than internal reports.

less

what may be advantages of making a part rather than buying it?

less dependable on outside suppliers; smoother flow of parts and materials for production

When inventory decreases, net operating income under absorption costing will be _________ _________ cost of goods sold under variable costing.

less than

if a company has more than one potential constraint, the proper combination of products can be found by use of a quantitate method known as ___ ___.

linear programming

widely used allocation bases in manufacturing are

machine hours, direct labor hours, units of product, direct labor cost

Which of the following is an example of an indirect labor cost?

maintenance

a decision to carry out one of the activities in the value chain internally, rather than to buy externally from a supplier is called a ___ or ___ decision

make; buy

In traditional costing, ___ costs are assigned to products.

manufacturing

absorption costing =

manufacturing (product costs) & selling and administrative (period costs)

manufacturing overhead consists of all

manufacturing costs other than direct labor and direct materials

Factory labor charges that cannot be easily traced to a job are treated as:

manufacturing overhead

What account is debited for the issuance of indirect materials? raw materials accounts payable manufacturing overhead WIP

manufacturing overhead

labor charged that cannot be easily traced to a job are considered

manufacturing overhead, indirect labor

Costs assigned and/or traced when computing product margin in a traditional cost system are:

manufacturing overhead; direct material; direct labor

To avoid confusion

many companies use absorption costing through their segmented income statements.

The manufacturing overhead account contains

many different kinds of indirect costs

The manufacturing overhead account contains:

many different kinds of indirect costs

Under activity-based costing, non manufacturing costs:

may be allocated to products based on cause

Under activity-based costing, nonmanufacturing costs:

may be allocated to products based on cause

Segmented income statements:

may be prepared for activities at many levels in a company

costs that are relevant in a given decision situation:

may not be relevant in another decision situation

if a cost is traced to a segment using ABC, it:

may or may not be an avoidable cost of the segment

an allocation base is a

measure of activity used to assign overhead costs to products and services

High-Low Method

method of estimating cost behavior using the two most extreme activity levels (X values) to estimate fixed and variable costs.

the required rate of return is the ___ rate of return a project must yield to be acceptable.

minimum

Compared to traditional systems, activity-based costing uses ___ cost pools and unique measures of activity.

more

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

more complex, but more accurate

in periods in which inventory decreases, cost of goods sold under absorption costing will be ______ cost of goods sold under variable costing.

more than

one dollar earned today is worth:

more than one dollar earned at future point in time

Contribution Income Statement

net operating income is constant. The number of unit produced does not affect net operating income.

what are the most common measurement used to rank acceptable investment projects?

net present value and internal rate of return

2 capital budgeting approaches that use discounted cash flows are the __ ___ value method and the ___ ___ of return method

net present; internal rate

Transaction driver

number of times an activity occurs

For what reasons is an ABC system more costly to maintain than traditional costing systems?

numerous activity measures must be collected and checked; numerous activity measures must be entered into system

For what reasons in ABC system more costly to maintain than traditional costing systems?

numerous activity measures must be entered into system; numerous activity measures must be collected and checked

segment margin

obtained y deducting the traceable fixed costs of a segment from the segment's contribution margin. It represents the margin available after a segment has covered all of its own costs. This is the best gauge of the long-run profitablilty of a segment because it includes only those costs that are caused by the segment

A traceable fixed cost

of a segment is a fixed cost that is incurred because of the existence of the segment-if the segment had never existed, the fixed cost would not have been incurred; and if the segment were eliminated, the fixed cost would disappear. Example: The maintenance cost for the Building in which Boeing 747s are assembled is a traceable fixed cost of the 747 business segment of Boeing.

differences in net operating income between super variable costing and variable costing occur bc

of treatment of direct labor costs under the two methods

the computation of a capital budgeting project's incremental net income includes:

one-time expenses; annual depreciation expense; annual revenues

Variable Costing

only those manufacturing costs that vary with output are treated as product costs. This would usually include direct materials, direct labor, and the variable portion of manufacturing overhead. FIXED MANUFACTURING OVERHEAD is not treated as a product cost under this method. Rather, FMO is treated as a period cost, and it is expensed in its entirely each period.

variable costing

only those manufacturing costs that vary with output are treated as product costs. This would usually include direct materials, direct labor, and the variable portion of manufacturing overhead. Fixed manufacturing overhead is not treated as a product cost under this method.

segment break-even calculations include:

only traceable fixed expenses

variable costing treats __________ manufacturing costs as product costs.

only variable

Costs should be allocated to segments for internal decision-making purposes:

only when the allocation base actually drives the cost being allocated

any final decision to drop or add a business segment is going to hinge primarily on the impact the decision will have on net ___ ___.

operating income

if a company has a resource that could be used for something else, the ___ cost is the profit that could be derived from the best alternative use of the resource.

opportunity

Activities that occur regardless of which customers are served, which products are produced or how many batches are run or units made are _____ - _____ activities.

organization; sustaining

working capital required is a cash ___, but working capital released is a cash ___.

outflow; inflow

Usually, traditional costing ___ high-volume products and ___ low-volume products.

overcosts; undercosts

In ABC, first-stage allocation assigns ___ costs to activity cost pools.

overhead

The POHR is multiplied by the actual allocation base in order to obtain: total cost of the job POHR for the job overhead applied to the job actual overhead

overhead applied to the job

If ABC isn't implemented correctly and organization-sustaining costs are included in product costs, then period costs will be ___ and margins will be ____.

overstated; understated

to keep track of labor time and costs, many firms have replaced:

paper time tickets with computerized systems

segment

part or activity of an organization about which managers would like cost, revenue, or profit data

the length of time that it takes for a project to recover its initial cost from the net cash inflows that is generates it the ___ ___.

payback period

To assist in 1st-stage allocation in ABC, employees designated as indirect factory workers should provide the:

percentage of employee time spend for each activity pool

Variable costing treats fixed manufacturing overhead as a _____ cost

period

Variable costing treats fixed manufacturing overhead as a _______ cost

period

Variable costing treats fixed manufacturing overhead as a(n) ____ cost.

period

variable costing treats fixed manufacturing overhead as a(n) _________ cost

period

An absorption costing income statement focuses on

period and product costs.

ABC uses more cost ___ than traditional costing.

pools

a normal costing system applies overhead by job by multiplying a __ __ rate by the __ amount of allocation base incurred by the job

predetermined overhead actual

What is the formula for applying overhead to a specific job?

predetermined overhead rate X amount of allocation base incurred by job

the formula for applying overhead to a specific job is

predetermined overhead rate x amount of allocation base incurred by job

A normal costing system applies overhead by job by multiplying a(n) __________ __________ rate by the ____________ amount of the allocation base incurred by the job

predetermined overhead; actual

the factor of the internal rate of return for a capital investment project is 4.329. if the equal annual cash flows for the project are expected to last 5 years, which of the following tables can be used to find the internal rate or return?

present value of an annuity

decision-making problems that occur as a result of treating fixed overhead similarly to a variable cost when using absorption costing include inappropriate ________ decisions, and decisions made to _______ products that are, in fact, profitable.

pricing drop

Decision-making problems that could occur as a result of treating fixed overhead similarly to a variable cost when using absorption costing include inappropriate _____ decisions, and decisions made to products that are, in fact, profitable .

pricing; drop

When a segment cannot cover its own costs, that segment should:

probably be dropped

When allocating fixed manufacturing overhead cost to units under absorption costing, the total fixed overhead costs must be divided by the number of units __________

produced

when allocating fixed manufacturing overhead costs to units under absorption costing, the total fixed overhead costs must be divided by the number of units __________

produced

What helps companies channel their resources into the most profitable growth opportunities?

product and customer profitability reports

The most common management reports using ABC data are:

product profitability; customer profitability

The most common management reports using ABC reports using ABC data are:

product profitability; customer profitability

Under activity-based costing ____ and ____ costs may be assigned to products on a cause-and-effect basis.

product; period

Activity-based costing only charges products for the cost of the capacity used because:

products are only assigned the costs of resources they actually use; results in a more stable unit product cost

why have direct labor costs decreased relative to overhead as a component of product costs

products have grown more sophisticated and complex

The most common reports prepared using ABC data are the product and customer ____ reports.

profitability

acceptable project with a net present value of zero

project promises a return equal to the required rate of return

acceptable project with a positive net present value

project promises a return greater than the required rate of return

unacceptable project with a negative net present value

project promises a return less than the required rate of return

the basic premise of the payback method is that the more ___ the cost of an investment can be recovered, the more desirable the investment is.

quickly

Relevant Range

range of activity over which assumptions about cost behavior are expected to hold true.

what is credited in the journal entry to record the purchase of materials?

raw material 1000 account payable 1000

what consist of any materials that are included in a finished product

raw materials. *direct materials become part of a finished product, but not all materials in a product are direct materials.

preference decisions

relate to selecting from among several acceptable alternatives

screening decisions

relate to whether a proposed project is acceptable

it is often possible for a manager to increase the capacity of a bottleneck, which is called ___ the constraint

relaxing

what involves increasing the capacity of a bottleneck?

relaxing the constraint

only rarely will enough information be available to prepare a detailed income statement for both alternatives in a decision. this makes isolating ___ costs desirable.

relevant

only those costs and benefits that differ in total between alternatives are ___ in a decision.

relevant

when planning a trip and making a decision to drive or take the train, the cost of car repairs and maintenance is a ___ cost.

relevant

When making a decision to either go to a movie or rent a DCD, choosing a movie instead of the DVD means that the cost of renting the DVD would be eliminated. This is an example of:

relevant cost; avoidable cost

The level of activity over which cost behavior assumptions are true is known as the..

relevant range

Cost assumptions are reasonably valid within...

relevant range of activity

variable costing income statements

rely on the contribution format, for internal decisions making purposes

Total manufacturing overhead costs tend to:

remain fairly constant

super variable costing & variable costing

report SAME NOI when - units produced = units sold

Yellow costs:

require management action in order to make adjustments to changes in activity

absorption costing is

required by GAAP and IFRS

CVP analysis

requires costs to be broken down into - variable expenses - fixed expenses hard to use in absorption costing bc costs aren't broken up into variable and fixed categories

CVP analysis

requires that we break costs down into their fixed and variable components

What is the benefit of a cross-functional team designing an ABC system?

resistance to change is reduced

it is profitable to continue processing a joint product after split-off point, so long as the incremental ___ from such processing exceeds the incremental processing cost incurred after the split-off point.

revenue

place these items from the income statement in the order in which they should appear

sales cost of goods sold gross margin selling and administrative expenses salaries expense depreciation expense advertising expense other expense net operating income 1. sales - 2. cost of goods sold = 3. gross margin 3. gross margin - 4. selling and administrative expenses = 5. net operating income

calculate gross margin on absorption costing income statement

sales - COGS = gross margin

Customer-level activities include:

sales calls; mailing catalogs

Formula for Contribution Margin;

sales revenue minus variable costs

what is gross margin?

sales-cost of goods sold

Individual customer ___ minus individual customer ___ equals customer margin.

sales; costs

what is not a typical cash outflow associated with an investment in equipment?

salvage value of old equipment

one of the two broad categories of capital budgeting decisions, a ___ decision, relates to whether a proposed project is acceptable based on a preset criterion.

screening

the 2 broad categories into which capital budgeting decisions fall are ___ and ___ decisions.

screening; preference

Activity rates are used to apply overhead costs to products and customers in the ___-stage allocation

second

ABC uses activity rates to apply overhead costs to products in ___ allocation

second-stage

A company's operations can be divided by product lines, geographical area, manufacturing plants, service centers or sales territories. The term used to describe these divisions is _______.

segment

segment margin =

segment CM - segment's TRACEABLE fixed costs

traceable fixed cost

segment is a fixed cost that is incurred because of the existence of the segment-if the segment had never exsted, the fixed cost would not have been incurred

segment CM

segment revenue - segment variable expenses

Chapter explains how the contribution format can be used to prepare

segmented income statements.

A company's operations can be divided by product lines, geographic areas, manufacturing plants, service centers, or sales territories, which are known as:

segments

a company's operations can be divided by product lines, geographical area, manufacturing plants, service centers or sales territories. The term used to describe these divisions is _________.

segments

deciding what to do with a joint product at the split-off point is a ___ or ___ ___ decision.

sell; process further

Which of the following costs are directly charged to the income statement? direct materials selling costs direct labor manufacturing overhead administrative costs

selling costs administrative costs

absorption costing

separates - product (manufacturing) costs from - period (selling & admin) costs - fixed MO costs expensed as units are sold as part of COGS - used by most companies for internal and external reporting - required by GAAP & IFRS

variable costing

separates - variable and - fixed CM = sales - variable expenses NOI = CM - fixed expenses treats direct labor as a variable product cost - categorizes costs based on cost behavior - fixed MO costs expensed are expensed in full with period costs

value chain

set of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market

what are ways to increase the capacity of a bottleneck?

shifting workers from processes that aren't bottleneck to the process that is bottleneck; investing in additional machines at the bottleneck

In the ease of adjustment coding scheme, what are considered Green costs?

shipping; direct materials

When a segment cannot cover its own costs on a properly constructed segmented income statement, then that segment:

should probably be dropped.

When constructing segmented reports:

some costs are not traceable to particular segments

when constructing segmented reports:

some costs are not traceable to particular segments

a 1-time order that isn't considered part of the company's normal ongoing business is referred to as ___ ___ decision.

special order

Least- Squares Regression

statistical method used to estimate cost behavior. It defines the best fitting line as the one that minimizes the sum of squared error.

Step-Variable Cost

step cost that is fixed over a narrow range of activity; typically treated as a variable cost because multiple steps are encountered across relevant range.

Step-Fixed Cost

step cost with relatively wide steps; typically treated as fixed within a relevant range.

the capacity of a bottleneck can be effectively increased by:

subcontracting some of the processing that would be done in that area; focusing business process improvement efforts on the bottleneck

To reconcile ABC product margin to net income:

subtract overhead costs not assigned to products

When calculating the cost of direct materials on the schedule of cost of goods manufactured, the cost of indirect materials must be: added to beginning raw materials inventory added to raw materials used in production subtracted from beginning raw materials inventory subtracted from raw materials used in production

subtracted from raw materials used in production

a cost that has already been incurred and can't be avoided regardless of what a manager decides to do is a ___ cost.

sunk

An ABC system usually ____ a traditional cost system

supplements

t/f one reason to use a predetermined overhead rate is to eliminate the effect of seasonal factors

t

Assigning costs to segment the key point is to resist the temptation to allocate costs

that are clearly common and will continue regardless of whether the segment exists or not. Any allocation of common costs to segments reduces the value of the segment margin as a measure of long run segment profitability and segment performance.

Why is the unit product cost different from the cost that would be incurred if another unit were produced?

the cost to produce another unit is the incremental or marginal cost

why is the unit product cost different from the cost that would be incurred if another (additional) unit were produced

the cost to produce another unit is the incremental or marginal cost

which of the following is an example of a traceable fixed cost for General Motors' Corvette Division?

the depreciation cost on the equipment used to manufacture the Corvettes

What is underapplied or overapplied overhead?

the difference between overhead applied to work in process and actual overhead

which of the following is an attribute of companies that use job-order costing

the make many different products

the required rate of return is:

the minimum rate of return a project must yield to be acceptable

the internal rate of return method indicates:

the rate of return promised by an investment project over its useful life

When there is no change in inventory, net operating income will be:

the same under both absorption costing and variable costing.

When using high low method, the difference in COST divided by the difference in ACTIVITY is..

the variable cost per unit

the most effective way to strengthen a chain is to focus on:

the weakest link

A document used to record how long workers spend on each job and task is called a(n) __________ _________

time ticket

differences in net operating income between absorption costing and variable costing due to

timing of when FIXED MO is expensed

Differences is net operating income between absorption costing and variable costing is due to the...

timing of when fixed manufacturing overhead is expensed

Which of the following costs would NOT be classified as manufacturing overhead?

tires used to produce vehicles (the cost of tires would be direct materials)

ABC can only be successful if it has full support from ___ ___.

top management

What are the same under both ABC and traditional costing?

total costs; net operating income; total sales

When using variable costing:

total fixed manufacturing overhead is expensed in the period incurred

when using variable costing

total fixed manufacturing overhead is expensed in the period incurred

allocating fixed MO costs under ABSORPTION costing

total fixed overhead rates / # of units produced

The segment margin equals the segment's contribution margin less the segment's ____ fixed costs.

traceable

The segment margin equals the segment's contribution margin less the segment's __________ fixed costs

traceable

When computing a segment margin, only _________ fixed costs are charged to the particular segment

traceable

when computing a segment margin, only ________ fixed costs are charged to the particular segment.

traceable

Bart's Inc. operates retail stores in various cities. Each store sells various products. Segmented income statements are prepared for each store. Within each store, segmented income statements are further broken down by product line. The property tax for the store will be a(n) ____ fixed cost for the store, but a(n) ____ fixed cost for each product line sold in the store.

traceable common

which of the following statements is correct regarding segmented reporting?

traceable fixed costs are charged to segments, but common fixed costs are not

dollar sales for segment to break even

traceable fixed expenses / segment CM ratio

Bart's Inc. operates retail stores in various cities. Segmented income statements are prepared for each store and for each product line in each store. The property tax for the store is a _______ fixed cost for the store, and a _______ fixed cost for each product line sold in the store.

traceable; common

Only direct materials, direct labor, and manufacturing overhead are assigned to products under a ____ costing system.

traditional

Which costing system doesn't assign selling and administrative costs to products when computing product margin?

traditional

What causes traditional and activity-based costing systems to report different product margins?

traditional cost systems allocate all manufacturing overhead costs to products; traditional cost systems allocate all of the manufacturing overhead costs to products using a volume-related allocation base; the ABC system assigns non manufacturing overhead costs to products on a cause-and effect basis as appropriate

Simple counts of the number of times an activity occurs are ___ drivers.

transaction

The term ___ ___ is also used when referring to an allocation base or activity measure in activity-based costing.

transaction/cost driver

selling & admin costs

treated as PERIOD COSTS under BOTH - absorption costing - variable costing

fixed manufacturing overhead

treated as a PERIOD cost in variable costing

absorption costing

treats all manufacturing as product costs, regardless of whether they are variable or fixed. The cost of a unit of product under the absorption costing method consists of direct materials, direct labor, and both variable and fixed manufacturing overhead.

manufacturing overhead costs consist of all manufacturing costs other than direct materials and direct labor

true

true or false: in order for a series of cash flows to be an annuity, the cash flows must be identical amounts

true

true or false: mingling irrelevant and relevant costs may cause confusion and distract attention from critical information.

true

true or false: the monthly fee that a student pays to park at school isn't relevant when deciding whether to take a train or drive for a weekend trop to visit an out-of-town trip.

true

Contribution Margin Income Statement

type of income statement that separates costs into variable or fixed costs; used to address many managerial problems

When the number of units produced equals the number of units sold...

under both absorption costing and variable costing, all fixed overhead incurred flows to the income statement absorption costing net income is equal to variable costing net income

Power to run production equipment would be an ___-level activity.

unit

When the units produced exceeded the

unit sales and hence inventories increase, net operating income is higher under absorption costing than under variable costing. This happens because it is deferred in inventories under absorption costing.

Under absorption costing, fixed manufacturing overhead costs flow to the income statement when

units are sold

under absorption costing, fixed manufacturing overhead costs flow to income statement when:

units are sold

super variable costing will have higher NOI than variable costing when

units produced > units sold

What pieces of information are provided in product and customer profitability reports?

unprofitable product lines; profitable product lines; unprofitable customers

Allocating __________ fixed costs to a segment may cause an otherwise profitable segment to appear unprofitable.

untracealbe

building segmented income statements

use CONTRIBUTION format bc - it separates fixed from variable costs - enables calculation of a contribution margin traceable fixed costs should be SEPARATED from common fixed costs to enable calculation of a segment margin

Scattergraphs are..

used to help determine if the linear assumption is reasonable a way to diagnose cost behavior

Process costing

used when: 1) a company produces many units of a single product 2) one unit of product is indistinguishable from other units of product 3) the identical nature of each unit of product enables assigning the same average cost per unit ex: companies that would use this- -Charmin toilet tissue (paper manufacturing); Kraft macaroni (food manufacturing); Coca-cola (mixing and bottling beverages); Exxon petroleum products

An activity-based costing system:

uses numerous overhead cost pools; may exclude some manufacturing costs from product costs

High Low Method...

uses only two data points and calculates the line based on the most extreme activity data points

number of units produced DOES NOT affect net operating income when

using VARIABLE costing

a set of activities ranging from development to production to after-sales service is called:

value chain

Segment contribution margin equals segment revenue minus the ___ expenses for the segment.

variable

Segment contribution margin equals segment revenue minus the ____ expenses for the segment.

variable

Segment contribution margin equals segment revenue minus the _________ expenses for the segment

variable

The number of units produced does not affect net operating income when using ________ costing

variable

direct costing or marginal costing are other terms for ______ costing

variable

segment contribution margin equals segment revenue minus the ____ expenses for he segment

variable

the number of units produced does not affect net operating income when using _______ costing

variable

The use of ____ costing can lead to the omission of segment costs because nonmanufacturing costs are not included as costs of a product

variable note: This is also true for absorption costing which is widely used for external reporting.

variable costing =

variable & fixed

When preparing a contribution margin income statement

variable and fixed costs are listed in separate sections of the statement AND cost of goods sold consists of only variable manufacturing costs

When preparing a segment income statement using the contribution format:

variable and fixed costs are listed in separate sections of the statement; cost of goods sold consists of only variable manufacturing costs

The slope (b) of the regression line represents the...

variable cost per unit of activity

what kinds of costs are assigned to units of product in absorption costing

variable manufacturing costs fixed manufacturing costs

Dependent Variable

variable that changes in response to some other variable.

_____ costing separates costs between variable and fixed, whereas _____ costing separates costs between product and period

variable, absorption

Costs are separated between variable and fixed expenses when using _________ costing, whereas _______ costing separates costs between product and period

variable; absorption

The two general costing approaches used by manufacturing companies to value inventory and cost of goods sold are ____________ costing and _________ costing

variable; absorption

The average manufacturing overhead cost per unit tends to:

vary from one period to the next

which term refers to a company that is involved in more than 1 activity in the value chain?

vertical integration

Traditional cost systems allocate all manufacturing costs using ___ allocation bases.

volume-related

Costs that can be easily traced to individual products include:

warranty repair costs; shipping costs; sales commission

When are direct materials costs recorded on the job cost sheet?

when direct materials are issued to the job

when should a special order be accepted?

when the incremental revenue from the special order exceeds the incremental costs of the order

when should a segment be discontinued?

when the segment margin is negative AND when the segment contribution margin doesn't cover the traceable fixed costs

company wide breakeven sales

will always be HIGHER than the sum of the segment breakeven sales

Redeploying resources is only beneficial if the resources are shifted to the:

work center at full capacity

units of product that are only partially complete are contained in __ __ __ inventory

work in process

select the accounts that are included when the allocation method is used to close out the under applied or over applied remaining in manufacturing Overhead at the end of he period

work in progress finished goods cost of goods sold *based on percentages, the underapplied/overapplied overhead. the first step in the allocation process was to determine the amount of overhead applied in each of the accounts.

a company incurred $10000 in direct labo costs and 8000 in indirect labor costs. the journal entry to record this transaction would:

works in progress 10000 manufacturing overhead 8000 salaries and wages payable 18000 DEBIT works in process 10000 manufacturing overhead 8000 CREDIT salaries and wages payable 18000

In the ease of adjustment coding scheme, ___ costs can adjust in response to changes in activity, but require management action.

yellow

Is building lease example of red cost?

yes

Is shipping cost example of yellow cost?

yes