Cost Accounting Exam 1 (Chapters 1, 2, 3, 4, and 7)

Selling price per unit= 23 VC per unit: DM- 4 DL- 1.60 MOH- 0.40 Selling costs: 2.1 Fixed Costs- 100,000 12,000 units sold Contribution margin per unit?

23- 4 - 1.6 - .4 - 2.1 = 14.90

Define strategy and list two strategies

strategy- specifies how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives. Describes how a company will compete Strategy 1- Quality product/service at low price Strategy 2-Unique product/service at high price

DM standard- 10 yards at $5 per yard DL standard- 5 hrs at $10 UP= 1,500 DM: 14,000 of fabric costing 72,000 DL = 7,600 hours costing 83,600 a- DM price and efficency variance b- DL price and efficency variance

DM actual unit cost 14,000/72,000 = 5.14/yard DL actual rate: 83,600/7,600 = 11.00/hr a- PV= 14,000 (5.14 - 5.00) = 1,960 U EV= 5.00 x (14,000 - (1,500 x 10)) = 5,000 F b- PV= 7,600 (11-10)= 7,600 U EV= 10 x (7,600 - (1,500 x 5))= 1,000 U

Sales= 90,000 VC= 14,000 FC = 16,000 OI= 60,000 promotional expense= 1,000 in september If sales double in October, what is the effect on variable cost.

They would also double, from 14,000 to 28,000. (note= the promotional expense is a variable cost that is included in the 14,000)

Financial accounting

provides info to external decision makers (investors, creditors). Presents a fair picture of the financial condition of the company. Must comply with GAAP. Is audited

Management Accounting

provides info to internal decision makers (top execs, mgrs, sales reps, and production supervisors). Help them predict and evaulate results. Reports are often generated and broken down into smaller divisions. No GAAP rules

SP = 30/unit Manu. VC= 10/unit S/A VC= 4/unit Manu. FC = 70,000 Admin. FC= 30,000 Produce a flexible budgeted based on 10,000, 15,000, and 20,000 units. Show the contribution margin also.

10,000: Sales= 300,000 Man. VC= 100,000 S/A VC= 40,000 TVC= (140,000) CM= 160,000 Man. FC= (70,000) Adm. FC= (30,000) OI= 60,000 15,000: Sales: 450,000 Man VC: 150,000 S/A VC: 44,000 TVC: (194,000) CM: 256,000 Man. FC: (70,000) Adm FC: (30,000) OI: 156,000 20,000: Sales: 600,000 Man VC: 200,000 S/A VC: 236,000 TVC: (248,000) CM: 352,000 Man. FC: (70,000) Adm VC (30,000) OI: 252,000

What is benchmarking and how can it be useful to a company?

It is the continuous process of comparing the levels of performance in producing products and services and executing activities against the best levels of performance among competing companies or companies with similar processes. Companies can examine aspects of their own operations in comparison to similar operations and see if they are operating at a disadvantage. Benchmarking may provide targets and opportunities to cut costs, and might even show where they have a competitive advantage over similar companies.

Describe job costing and process costing and when each would be appropriate.

Job costing accumulates costs for specific jobs. Process costing computes and allocates an equal amount of cost to each product. Job costing should be used when unique products are being made, while process costing is applied when production is standardized.

4 standards of ethical conduct for management accountants

1- Competence- appropriate level of professional expertise by continually developing knowledge and skills 2- Confidentiality- refrain from using confidential information for unethical or illegal advantage 3- Integrity- abstain from engaging in or supporting any activity that might discredit the profession 4- Credibility- commnicate info fairly and objectively

You are entry level mgmt accountant. Your immediate supervisor is involved in a significant fraud case. Describe your steps.

1- Consult internal company procedures, and make sure they are followed 2- Present the facts to the next higher managerial level 3- If your immediate superior is the CEO or equivalent, the acceptable reviewing authority could be the audit committee, executive committee, board of directors, board of trustees, or owners. 4- Clarify relevant ethical issues with an objective advisor (possibly the Institute of Mgmt Accountant hotline) 5- Consult your personal attorny about your own rights and responsibilities 6- If the situation isn't resolved, resign and write an informative letter to an appropriate representative of the organization. Perhaps notify other parties.

Three types of manufacturing costs?

1- Direct Material- acquistion costs of all materials that become part of the cost object (Work In Process and than finished goods) and can be feasibly traced to the cost object. 2- Direct Manufacturing Labor- the compensation of all manufacturing labor that can be traced to the cost object in an economically feasible way. 3- Indirect Manufacturing Costs- all manufacturing costs that are related to the cost object but can't be traced to it in an econmically feasible way

What are the factors that affect the classification of a cost as direct or indirect?

1- Materiality (smaller the amount of a cost, the more immaterial it is, and less likely it is economically feasible to trace it to a cost object) 2- Available info-gathering tech (improving tech makes it possible to consider more costs as direct) 3- Design of operations (easier to classify cost as direct if a company's facility is used exclusively for a specific cost object

Functions: 1- purchasing 2- billing 3- shipping 4- customer support 5- personnel 6- customer service Cost Drivers a- # of employees b- # of shipments c- # of customers d- # of invoices e- # of desktop computers f- # of purchase orders Match them

1= f 2= d 3= b 4= e 5= a 6= c

Competitive Advantage from having a successful cost management program

3 broad outcomes: 1- Costs are reduced with no loss in value (CA= lower price, no loss in profit or same price and increased profit) 2- Customer vlue is increased with no change in cost (CA- increased customer satisfaction and increased loyalty and demand) 3- Customer value increased and costs are reduced (CA= same as 1 and 2)

What is meant by breakeven point? Why should a manger be concerned about the breakeven point and what helps them study the breakeven analysis?

At the breakeven point revenue equals total costs, and operating income is 0. It helps determine when a business will be profitable.

Auto Tires has been in the tire business for four years. It rents a building but owns all of its equipment. All employees are paid a fixed salary except for the busy season (April-June), when temporary help is hired by the hour. Utilities and other operating charges remain fairly constant during each month except those in the busy season. Selling prices per tire average $75 except during the busy season. Because a large number of customers buy tires prior to winter, discounts run above average during the busy season. A 15% discount is given when two tires are purchased at one time. During the busy months, selling prices per tire average $60. The president of Auto Tires is somewhat displeased with the company's management accounting system because the cost behavior patterns displayed by the monthly breakeven charts are inconsistent; the busy months' charts are different from the other months of the year. The president is never sure if the company has a satisfactory margin of safety or if it is just above the breakeven point. a. Why might it be difficult to use CVP? b. How can this info be better formatted?

Because the assumptions of the CVP model do not hold true for auto tire, as the cost and revenueis not linear. The costs and revenues behave differently during the busy months. The accountant would want to present two different sets of information for the different seasons.

Formula for COGS in a manufacturing entity?

COGS = COG manufactured + Beginning FG inventory - Ending FG Inventory (COGM = Beg RM + Purchases- End RM - Ind. Mat. Used + DL + MOH + Beg WIP - End WIP)

Cost accounting provides info for both mgmt accountng and financial accounting professionals. Explain.

Cost actg is the process of measuring, analyzing, and reporting financial and nonfinancial info related to the costs of acquiring or using resources. Calculating product cost meets both financial actg's inventory-valuation needs and mgmt actg's decision making needs in terms of deciding how to price products

Differences between direct and indirect costs

Direct Costs- traced easily to the product manufactured or the service rendered. Ex- Direct Material, direct manufacturing labor Indirect Costs- not easily identified with individual products, usually assigned using allocation formulas. Ex- plant supervisor's salary, cost of machines used to produce more than one type of product

Units Sold= 100 FC = 22,000 TVC for 100 units= 30,000 SP= 1,200. How would profit be affected if sales volume drops by 10%

First calculate Profit for 100 bottles: (1,200 * 100) - (22,000 + 30,000) = 68,000 Now calculate reduced sales 100* (1-10%) = 90 Variable cost per unit= 30,000/100= 300 VC at 90 unit= 300*90 = 27,000 Profit at 90 bottles (1,200 * 90) - (22,000 + 27,000)= 59,000 Change in profit= 68,000 - 59,000 = 9,000

Difference between an inventoriable and period cost. Potential problems of an inaccurate classification.

Inventoriable Cost- all costs of a product that are assets in the balance sheet when incurred and become COGS when the product is sold. Period Cost- expenses of the accounting period in which they are incurred. COGS includes all manufacturing costs (DM/DL/MOH) that are inventoriable costs incurred to produce them. Period costs are on the income statement other than COGS. An inaccurate classification could lead to violations of the matching principle (costs used in producing revenue should be matched with the revenue on the income statement). This could result in misstated net income.

Explain the different levels of variance. Also provide an example

Level 0- Difference between actual OI and planned OI in a static budget Level 1- Difference between the static budget and actual results that make up OI. Examples would be US, Rev, Costs, CM Level 2- Divides level 0 variance into sales volume variance and flexible-budget variance. SV is the diff. between the flexible budget amount and the static budget amount. Flexible-Budget Var. is an actual result and the corresponding flexible budget amount based on the actual output level in the budget period. Level 3- Includes price variances that reflect the differnece between the actual input price and the budgeted input price, such as the DM price variance, the DL rate variance, and the VOH rate variance. This also includes efficiency rariances that reflect the difference between an actual input quantity and a budgeted input quantity.

Discuss the cost-benefit approach guideline management accountants use to provide value in strategic decision making

Resources should be spent if the expected benefits to the company exceed the expected costs. This is a useful approach to making resource allocation decisions.

Explain the difference between static budget and flexible budget. Also explain the variance for both.

Static budget is based on the level of output planned at the start of the period. A flexible budget calculates budgeted revenue and budgeted costs based on actual output. A static budget variance is the difference between the actual results and the corresponding budgeted amounts in the static budget. A flexible-budget variance is the difference between an actual result and the corresponding flexible-budget amount based on the actual output in the budgeted period.

Describe variable and fixed costs. Explain why the distinction is important.

Total Variable costs change with differing units of production, while fixed costs do not. At a per unit level, it is opposite, as fixed costs per unit decrease with increased production while variable costs per unit are constant. It is essential to understand whether a costs is variable or fixed in order to successfully create a reliable budget.

produces= 2,000 glasses/month Following per unit data based on 1,000 units produced: DM= 200 DL= 40 Variable Overhead= 70 Fixed Overhead = 50 Total Manu. Costs= 360 Plant has capacity for 3,000 glasses. Supervisor's salary = 15,000 a- Total cost of producing 2,000 glasses b- Total cost of producing 1,600 glasses c- Per unit cost when producing 1,600 glasses

a- (200 + 40 + 70) x 2000 + (50 x 1000) = 670,000 b- (200 + 40 + 70) x 1,600 + (50 x 1,000) = 546,000 c- 546,000/1,600 = 341.25 per unit

Indirect Manu. Costs= 300 million allocated to each product on the basis of DL costs Summary Data: DM- 4,600,000 DL- 1,700,000 Indirect- 4,750,000 Units produced- 40,000 a- Compute manufacturing cost per unit b- If units reduce to 30,000 next month, would unit costs likely be higher or lower?

a- (4,600,000 + 1,700,000 + 4,750,000)/40,000 = 276.25 b- They would increase likely as the fixed costs will be spread over fewer units.

Archambeau Products Comapny manufactures office furniture, and has 3 cost categories: 1- Cost tracing to the furniture 2- Cost allocation of an indirect manu. cost to the furniture 3- Nonmanufacturing Assign the costs of: a- Carpenter wages b- Depreciation- building c- Glue for assembly d- Lathe department supervisor e- Lathe depreciation f- Lathe maintance g- Lathe operator wages h- Lumber i- Samples for trade shows j- Metal brackets for drawers k- Factory washroom supplies

a- 1 b- 3 c- 2 d- 2 e- 2 f- 2 g- 1 h- 1 i- 3 j- 1 k- 2

SP= 100 UVC= 50 + comission of 10% FC- Manu= 1,250 FC- Nonman = 2,500 a- contribution margin per unit b- Breakeven points (units) c- How many for pretax income to be 7,500

a- 100 - 50 - 100*.1 = 40 b- 100N - 50N - 10N - 1,250 - 2,500 = 0 40N = 3,750 N= 93.75, so 94 units c- 100N - 50N - 10N - 1,250 - 2,500 = 7,500 N= 281.25 so 282

Chief Manufacturing uses machine hours as the single indirect cost rate to allocate overhead costs Estimates provided are for the coming year for the company and for the somerset high school science jacket Company Jacket DM- 25,000 600 DL- 5,000 200 MOH- 20,000 MachineHrs 40,000 800 a- Determine the annual MOH cost allocation rate. b- Determine the amount of manufacturing overhead costs allocated to the jacket. c- Determine the estimated total manufacturing costs allocated to the jacket

a- 20,000/40,000 = .5 per month b- 800 * .5 = 400 c- 500 + 200 + 400 = 1,100 (it's what the problem says?)

100,000 units produced Costs: Sandpaper- 32,000 Materials handling- 320,000 Coolants and lubricants- 22,400 Indirect manu labor- 275,200 DL- 2,176,000 DM 1/1/18- 348,000 FG 1/1/18- 672,000 FG 12/31/18- 1,280,000 WIP 1/1/18- 96,000 WIP 12/31/18- 64,000 Leasing costs- plant- 384,000 Dep. equipment- 224,000 Property taxes- equipment- 32,000 Fire insurance- equipment- 16,000 DM purchases- 3,140,000 DM 12/31/18- 280,000 Sales Revenue- 12,800,000 Sales commissions- 640,000 Sales Salaries- 576,000 Advertising costs- 480,000 Administration costs- 800,000 a- amount of DM used b- what manu. costs were added to WIP during 2018? c- What is the cost of goods manufactured in 2018? d- what is COGS for 2018?

a- 348,000 + 3,140,000 - 280,000 = 3,208,000 b- 3,208,000 + 2,176,000 + 32,000 + 320,000 + 22,400 + 275,200 + 384,000 + 224,000 + 32,000 + 16,000 = 6,689,600 c- 6,689,600 + 96,000 - 64,000 = 6,529,600 d- 6,529,600 + 672,000 - 1,280,000 = 5,921,600

Rev - 4,500 Manufacturing VC- 900 Nonmanufacturing VC- 810 Fixed manufacturing- 630 Fixed Nonmanufacturing- 545 a- Contribution margin b- Contribution margin percentage c- Gross Margin d-Gross Margin percentage e- Operating Income

a- 4,500- 900 - 810 = 2,790 b- 2,790/4,500 = 62% c- 4,500 - 900 - 630 = 2,970 d- 2,970/4,500 = 66% e- 4,500 - 900 - 810 - 630 - 545 = 1,615

UP = 2,000 DM purchased and used: Standard Cost = 4.00/unit Total Actual Cost = 9,000 Materials flexible budget efficiency variance = 500 U DL: SC= 5 spades per hour at 20.00/hr AC= 21.00/hr Labor efficency variance= 500 F a. What is the standard DM amount per spade? b. Standard cost allowed for all units produced c. Total DM flexible budget variance d. DM flexible-budget price variance e. Total acual cost of DL f. Labor Price Variance

a- 4.00 b- 2,000 * 4 = 8,000 c- 9,000 - 8,000 = 1,000 U d- (9,000 - 8,000) - 500 = 500 U e- Standard Labor cost of actual hours= ((2,000/5)*20) - 500 F = 7,500 actual hours= 7,500/20 = 375 Total actual costs = 375 * 21 = 7,875 f- 375 x (21-20) = 375 U

(A R) (F V) (F B) (S-V V) (S B) Units: 112,500 112,500 103,125 Rev: 42,080 1,000F (a) 1,400U (b) VC: (C) 200U 15,860 2,340F 18,200 FC 8,280 860 U 9,140 9,140 OI 17,740 (D) 16,080 (E) 15,140 f- What is the total static budget variance?

a- 42,080 - 1,000 = 41,080 b- 41,080 + 1,400 = 42,480 c- 15,860 + 200 = 16,060 d- 17,740 - 16,080 = 1,660 F e- 16,080 - 15,140 = 940F f- 17,740 - 15,140 = 2,600 F

Two departments Department 100: Budgeted Allocation bases of 4,000 machine hours Budgeted MOH = 57,500 DM purchased = 111,000 DM used= 32,500 DL= 52,500 Indirect Labor= 11,000 Indirect Materials used= 7,500 Lease = 16,250 Utillities= 1,000 800 machine hours incurred Department 200: Budgeted allocation base of 8,000 DL hours Budgeted MOH- 62,500 DM purchased- 177,500 DM used- 13,500 DL - 53,500 Indirect Labor- 9,000 Indirect Materials used- 4,750 LEase- 3,750 Utilities- 1,250 300 labor hours incurred a- Budgeted MOH rate for each department b- Journal entries for Department 100 c- What is the total cost of the job?

a- 57,500 / 4,000 = 14.375 per machine hour for Dpt 100 62,500/8,000 = 7.8125 per labor-hours b- 1- Raw Materials 110,000 (DR) AP- 110,000 (CR) 2- WIP 32,500 (DR) MOH 7,500 (DR) Raw Materials 40,000 (CR) 3- WIP 52,500(DR) MOH 11,000 (DR) Wages Payable 63,500 (CR) 4- MOH 17,250 (DR) Lease Payable 16,250 (CR) Utilities Payable 1,000 (CR) 5- WIP (14.375 * 800) 11,500 (DR) MOH 11,500 (CR) c. 32,500 + 13,500 + 52,500 + 53,500 + (14.375 x 800) + (7.8125 x 300) = 165,844

Sales (8,000 units) - 160,000 Variable Expenses - (68,000) Contribution Margin - 92,000 Fixed Expenses - (50,000) Net Income= 42,000 a- Contribution Margin per unit b- If sales double, what is TVC c- If sales are doubled, what is TFC d- If 20 more units are sold, profits will increase by? e- Breakeven points (unit) f- TOI = 60,000 g- Revenue needed for Target After Tax Income of 35,000 (TR = 30%)

a- 92,000/8,000 = 11.5 b- 68,000 * 2 = 136,000 c- 50,000 d- 11.5 * 20 = 230 e- 50,000 / 11.50 = 4,348 f- (50,000 + 60,000)/11.50 = 9,566 g- 35,000/(1-.30) = TOI of 50,000 (50,000 + 50,000)/.5625 = 177,778 (.5626 = 92,000/160,000)`

Pay rate = 25/hr assuming 8 working hrs per day and 5 working days per week. Paid 1.5 times for overtime. One week she works 48 hours. a- Total compensation? b- What is recorded as direct manufacturing labor? c- Manufacturing overhead costs

a- DL (40 x 25) + Overtime Premium (8 x 37.50)= 1,300 b- 48 x 25 = 1,200 c- 8 x 12.50 = 100

sales= 1,000,000 vc= 250,000 fc= 200,000 property taxes decrease by 15,000 next year a- operating income and breakeven point this year b- BEP next year

a- OI = 1,000,000 - 250,000 - 200,000 = 550,000 Contribution Margin ratio = (1,000,000-250,000)/1,000,000 = .75 Breakeven sales= 200,000/.75 = 266,667 Next Year's BEP- (200,000 - 15,000)/.75 = 246,667

Butler hospital (basic services) wants to estimate the cost for each patient's stay. Classify costs as direct or indirect and fixed or variable. a- electronic monitoring b- meals for patients c- nurse's salary d- parking maintenance e- security

a- d/v b- d/v c- i/f d- i/f e- i/f

Classify cost items of Ripon Printers into a value chain function (R&D, Design of products and processes, production, marketing (incl. sales), distribution, or cus. service) a- cost of customer order forms b- cost of paper used in manfacturing of books c- cost of paper used in packing cartons to ship books d- cost of paper used in display at national trade show e- depreciation of trucks used to transport books to college bookstores f- cost of the wood used to manufacture paper g- salary of the scientists attempting to find another source of printing ink h- cost of designing the book size so that a standard-sized box is filled to capacity

a- marketing b- production c- distribution d- marketing e- distribution f- production g- research and development h- design of products and processes

Avg SP= 30 Avg Cost= 18 3 different rent options 1- Fixed 15,000/month 2- Base rent of 9,000 + 10% of revenue 3- Base rent of 4,800 + 20% of revenue (up to a max rent of 25,000) a- breakeven point and monthly rent paid for all options b- At which sales level is each option preferable

a1- 30x - 18x -15,000 = 0 12x = 15,000 BEP= 1,250 rent = 15,000 a2- 30x - 18x - (.10 x 30x) - 9,000 = 0 9x = 9000 BEP= 1,000 rent = 9,000 + (30 x 0.1 x 1,000)= 12,000 a3- 30x - 18x - (0.2 x 30x) - 4,800 = 0 6x= 4,800 BEP = 800 Rent = 4,800 + (.2 x 30 x 800)= 9,600 b- From 0 to 1,400, option 3 is best From 1,401 to 2,000, option 2 is best From 2,000+, option 1 is best

Lucas Manu. has 3 cost objects: 1- physical buildings and equipment 2-use of buildings and equipment 3-availability and use of manu. labor Assign overhead costs to cost objects a- depreciation on buildings and equipment b- lubricants for machines c- property insurance d- supervisors salaries e- fringe benefits f- property taxes g- utilities required

a= 1 b= 2 c= 1 d= 3 e= 3 f= 1 g= 2