Chapter 2 Practice

Find: @ 300k units A) Prime Cost per unit B) Contribution Margin per unit C) Gross Margin per unit D) Conversion Cost per unit E) Variable Cost per unit F) Full Absorption Cost per unit G) Variable production Cost per unit H) Full Cost per unit

A) $19 = Direct + Direct B) $16 = Sales price - Variable costs C) $13 = Sales price - Full Absorption D) $26 = Manu. Overhead fixed & variable + direct labor E) $35 = Variable costs F) $38 = Direct Labor & Material + Fixed & Variable overhead G) $29 = Variable cost per unit + Variable Marketing & Admin H) $47 = Fixed & Variable manufacturing & selling

The process of assigning indirect costs is called cost

Allocation

Calculate Ending finished goods inventory

Beg. Bal + Finished Goods balance + COGM - COGS

Calculate direct materials put into production

Beg. direct materials inventory + Purchases - Ending direct material inventory

Sales price - Variable costs per unit.

Contribution Margin

The way costs respond to changes in activity levels is called

Cost behavior

Beg. direct materials + Purchases - Ending balance + Direct Labor + Manufacturing Overhead + Beg. WIP - Ending WIP

Cost of Goods Manufactured

Beg. direct materials + Purchases - Ending balance + Direct Labor + Manufacturing Overhead + Beg. WIP - Ending WIP + Beg. Finished Goods - Ending Finished Goods

Cost of Goods sold

Any cost that can be directly (unambiguously) related to a cost object at reasonable cost.

Direct Cost

Labor that can be identified directly with the product at reasonable cost.

Direct Labor

Product costs that can be feasibly identified with units of production.

Direct Manufacturing costs

Materials that can be identified directly with the product at reasonable cost.

Direct Materials

Product costs that can be identified with units at a relatively low cost are ________ manufacturing costs and all other product costs are ________ manufacturing costs.

Direct, Indirect

The two types of product costs are, _________ manufacturing costs and _________ manufacturing costs

Direct, Indirect

T/F Efficiency in operations is measured by considering a retailer's cost of goods sold.

False

True or false: The excess of operating revenues over the operating costs incurred to generate those revenues is net income.

False

Common approaches for determining product costs

Full Absorption Variable Managerial

Sum of all costs of manufacturing and selling a unit or product (includes both fixed and variable costs).

Full Cost

All variable and fixed manufacturing costs; used to compute a product's inventory value under GAAP

Full absorption cost

the inventoriable cost for external financial statements & is required by GAAP

Full absorption costs

Revenue - Cost of goods sold on income statements. Per unit : Sales price - Full absorption cost per unit.

Gross Margin

Any cost that cannot be directly related to a cost object.

Indirect costs

All production costs except direct labor and direct materials.

Manufacturing Overhead

Costs required to obtain customer orders are _______ costs and costs required to manage the organization are __________ costs.

Marketing, Administration

The ________ requires that the costs incurred to generate a particular revenue should be recognized as expenses in the same period that the revenue is recognized.

Matching Principle

Excess of operating revenues over the operating costs necessary to generate those revenues.

Operating Profit

Forgone benefit from the best (forgone) alternative course of action.

Opportunity Cost

Past, present, or future cash outflow.

Outlay Cost

Costs recognized for financial reporting when incurred.

Period Cost

Nonmanufacturing costs are also called __________ costs and manufacturing costs are also called ___________ costs.

Period, Product

Companies with low overhead costs focus on managing ______ costs, whereas companies with high overhead costs focus on managing ______ costs.

Prime, Conversion

The sum of direct materials and direct labor equals __________ costs and the sum of direct labor and manufacturing overhead equals ___________ costs

Prime, Conversion

Costs assigned to the manufacture of products and recognized for financial reporting when sold.

Product Cost

How should the wages of a sheet metal worker in a fabrication plant be classified?

Product Cost

Costs assigned to units of production and expensed when the units are sold are ________ costs, where as _________ costs are expensed as incurred

Product, Period

T/F Distinguishing between manufacturing and nonmanufacturing costs can be difficult.

True

T/F For managerial purposes, managers often assign nonmanufacturing costs to products.

True

T/F Gross margin reflects the ability of a wholesaler to price products.

True

T/F Nonmanufacturing costs are expensed as incurred for financial accounting purposes.

True

T/F Retailers have an entire category of amounts that do not appear on service company income statements.

True

True or false: For a manufacturer, finished goods inventory is optional.

True

True or false: Whether a cost is direct or indirect depends on the cost object.

True

Product costs for unsold units are ______.

assigned to inventory under both absorption and variable costing

The amount available to cover fixed expense and earn a profit is the

contribution margin

Sum of direct labor and manufacturing overhead.

conversion costs

The difference between full cost and full absorption cost is

fixed and variable selling costs are included in full cost but not in full absorption cost

All product costs except direct costs.

indirect manufacturing costs

To calculate net income, operating profit is adjusted for ______.

interest expense, extraordinary items, other required regulatory adjustments

Any new costs incurred when adding a product are considered product costs under ___________ costing

managerial

Sum of direct materials and direct labor.

prime costs

Beginning work in process inventory plus total manufacturing costs equals ______.

resources put into production during the year

Direct materials and sales commissions are most likely _________ costs, whereas many manufacturing overhead costs such as rent and supervisor salaries are _________ costs

variable, fixed