Cost Acct Midterm - Chapters 1-3

24(Ch 2)

(A) Cardboard = $0.40/unit Cloth = $1/unit Plastic = $0.50/unit Straight-line depreciation = $0.60/unit Salaries = $1.60/unit Utilities = $0.30/unit (B) cost behavior (C) Each cost would increase due to the increase of the cost per unit

30(Ch 3) a) What amount of overhead was applied to production in each of the 3 months? b) What was the underapplied or overapplied overhead for each of the 3 months and for the first quarter?

(A) January = 250% x $180,000 = $450,000 February = 250% x $165,000 = $412,500 March = 250% x $170,000 = $425,000 (B) January: Actual = $440,000 Applied = $450,000 Actual < Applied $450,000 - 440,000 = $10,000 overapplied February: Actual = $420,000 Applied = $412,500 Actual > Applied $420,000 - 412,500 = $7,500 underapplied March: Actual = $421,000 Applied = $425,000 Actual < Applied $425,000 - 421,000 = $4,000 overapplied First Quarter = $10,000 overapplied + 4,000 overapplied - 7,500 underapplied = $6,500

31(Ch 3) a) What is the cost formula for utility expense? b) What is the budgeted utility cost for September 2014 if 31,250 machine hours are projected?

(A) b = (Cost at High Act. Lvl - Cost at Low Act. Lvl) / (High Act. Lvl - Low Act. Lvl) = ($12,200 - $11,720) / (34,000 - 31,000) = $0.16 per machine hour High level of activity: TVC = $0.16(34,000) = $5,440 Low level of activity: TVC = $0.16(31,000) = $4,960 High level of activity: a = $12,200 - $5,440 = $6,760 Low level of activity: a = $11,720 - 4,960 = $6,760 Formula: y = $6,760 + $0.16X (B) y = $6,760 + $0.16X = $6,760 + $0.16(31,250) = $6,760 + 5,000 = $11,760

29(Ch 3) Monthly OH cost = $42,900 + $6 per DL hours (Fixed costs = $42,900; Variable costs = $6 per unit) Expected annual capacity = 78,000 DL hours One unit = 1.5 DL hours a) Determine the total overhead to be applied per unit of product in 2013. b) Prepare journal entries to record the application of overhead to Work in Process Inventory and the incurrence of $128,550 of actual overhead in January 2013, when 6,390 direct labor hours were worked. c) Given the actual direct labor hours in (b), how many units would you have expected to be produced in January?

(A) Number of units = 78,000 DL hours / 1.5 hours = 52,000 units Total OH per unit = Variable cost per unit + Fixed Cost per unit = $6 + ($42,900/52,000) = $6.83 (B) Expected Monthly Overhead Cost = $42,900 + $6(6,390) = $81,240 Actual Monthly Overhead Cost = $128,550 Actual OH Cost > Expected OH Cost = Underapplied Debit: Work in Process Inventory $47,310 ($128,550 - 81240) Credit: Manufacturing Overhead Control $47,310 (C) Expected Monthly Overhead Cost = $42,900 + $6(6,390) = $81,240

28(Ch 3) Why are departmental predetermined OH rates more useful for managerial decision making than plantwide OH rates? Why do firms use separate variable and fixed rates rather than a total overhead rate?

-Because most manufacturing companies make many different kinds of the products, calculation of a plantwide determined OH rate generally does not provide the most useful information. -Firms use separate variable and fixed rates because some processes change/vary per unit while others remain the same regardless of the number of units being produced.

8(Ch 1) What is a balanced scorecard? How is a balanced scorecard more useful than return on investment in implementing and monitoring strategy in a global economy?

A balanced scorecard (BSC) is a framework that translates an organization's strategy into clear and objective performance measures (both leading and lagging) that focus on customers, internal business processes, employees, and shareholders. A BSC is more useful than return on investment because it provides a means by which actual businesses outcomes can be evaluated against performance targets. The BSC also includes short- and long-term, internal and external, and financial and nonfinancial measures to balance management's view and execution of strategy. BSC has more to offer and, therefore, is more effective than a return on investment.

27(Ch 3) Discuss the reasons a company would use a predetermined overhead rate rather than actual overhead to determine cost of products or services.

A company may use a predetermined overhead rate instead because it is preferable to have a close estimate as opposed to waiting until the end of the year to calculate their actual overhead rate. Also, it's more difficult to pinpoint the exact actual allocation of overhead costs.

3(Ch 1) What is organizational strategy? Why would each organization have a unique strategy or set of strategies?

A company's organizational strategy is its plan for how the firm will fulfill its goals and objectives by developing its resources to create value for customers and shareholders. Each organization would have a different set of strategies in order to target the different needs and wants of their customers and shareholders.

4(Ch 1) What is a core competency, and how do core competencies impact the feasible set of alternative organizational strategies?

A core competency is any critical function or activity in which an organization seeks a higher proficiency than its competitors, making that function or activity the root of competitiveness and competitive advantage. Core competencies impact the feasible set of alternative organizational strategies in many ways. For example, they design the competitive positions and strategies strength that exist on corporate.

2(Ch 1) Why is a mission statement important to an organization?

A mission statement expresses the purposes for which the organization exists, what the organization wants to accomplish, and how its products and services uniquely meet its targeted customers' needs. It is important that companies are reminded why their organization exists and what their goals are because this is what helps make the company successful.

7(Ch 1) What is an organization's value chain, and how does it interface with strategy?

An organization's value chain is a set of value-adding functions or processes that convert inputs into products and services for company customers. Companies have to strategize their value chain in order to satisfy their customers.

5(Ch 1) Differentiate between authority and responsibility. Can a manager have one without the other? Explain.

Authority refers to the right of an individual or team to use resources to accomplish a task or achieve an objective. Responsibility is the obligation of an individual (or team) to accomplish a task or achieve an objective. In other words, responsibility is expected to be fulfilled, whereas authority is more of a choice. While it may be possible for someone to have one without the other, for the most part a manager would have both. Managers tend to have responsibilities to fulfill as well as authority over others.

13(Ch 2) What are conversion costs? Why are they called this?

Conversion costs are the sum of direct labor and overhead costs. They're called this because they're costs that are incurred to *convert* materials into products.

9(Ch 2) Why is it necessary to specify a cost object before being able to distinguish between a direct cost and an indirect cost?

Costs of making a product or performing a service are appropreiately labeled product or service costs. The costs associated with any cost object can be classified according to their relationship to the cost object.

10(Ch 2) Why is it necessary for a company to specify a relevant range of activity when making assumptions about cost behavior?

Every organizational cost will change if sufficient time passes or if an extreme shift in activity level occurs. Thus, to properly identify, analyze, and use cost behavior information, a relevant range is specified.

6(Ch 1) "If an organization can borrow money or sell stock, it does not have a capital constraint." Is this statement true or false? Discuss the rationale for your answer.

I don't believe this is necessarily true. To my understanding, if a company has capital constraint, they have money left over for spending. If a company chooses to spend their capital on borrowing money or selling stock, it can still have some remaining capital constraint.

14(Ch 2) How does an actual costing system differ from a normal costing system? What advantages does a normal costing system offer?

In an actual cost sysrem, actal direct material and drect labor costs are accumulated in Work in Process Inventory as the costs are incurred. A normal cost system combines actual direct material and direct labor costs with overhead that is assigned using a predetermined rate(s).

11(Ch 2) How do a product cost and a period cost differ?

Product costs are related to making or acquiring the products or providing the services thst directly generate the revenues of an entity. Period costs are related to business functions other than production, such as selling and administrative.

1(Ch 1) Flexibility is said to be the hallmark of modern management accounting, whereas standardization and consistency describe financial accounting. Explain why the focus of these 2 accounting systems differs.

The focus of these two accounting systems differ because financial accounting is directed more towards external information needs, meanwhile managerial accounting is directed more towards internal needs. Financial accountants provide information to external parties such as investors and creditors. Financial accounting complies with GAAP, and therefore is standard and consistent from company to company. Managerial accountants provide information to internal parties such as managers. Since managerial accounting is kept within the company, it can be more flexible to fit the company's own needs.

12(Ch 2) Why must the word "cost" be accompanied by an adjective to be meaningful?

The term "cost" must be defined more specifically before "the cost" of a product or service can be determined and communicated to others. Therefore, a clarifying adjective is generally used to specify the type of cost being considered.

26(Ch 3) What is the difference between variable and mixed costs, considering that both change in total with changes in activity levels?

Variable costs will always change proportionately to units. In other words, variable costs are constant on a per-unit basis. On the other hand, mixed costs have both a variable component and a fixed component, so these costs vary, but not proportionately, with changes in activity.

15(Ch 2) (a) Indicate whether the following incurred cost is *direct or indirect* to the Accounting Department: *Accounting facility salaries*

a) indirect

25(Ch 2)

a) insurance firm b) receptionist c) head surgeon or manager d) Head surgeon or manager e) doctor f) head surgeon g) scientists h) doctor(s) i) doctor j) surgeon k) nurse l) doctor/nurse m) doctor/nurse n) hostipal staff

16(Ch 2) (b) Indicate whether the following incurred cost is *direct or indirect* to the Accounting Department: *Accounting chairperson's salary*

b) indirect

17(Ch 2) (c) Indicate whether the following incurred cost is *direct or indirect* to the Accounting Department: *Cost of computer time of university server used by members of the department*

c) direct

18(Ch 2) (d) Indicate whether the following incurred cost is *direct or indirect* to the Accounting Department: *cost of office assistant ...

d) indirect

19(Ch 2) (e) Indicate whether the following incurred cost is *direct or indirect* to the Accounting Department:

e) direct

20(Ch 2) (f) Indicate whether the following incurred cost is *direct or indirect* to the Accounting Department:

f) direct

21(Ch 2) (g) Indicate whether the following incurred cost is *direct or indirect* to the Accounting Department:

g) indirect

22(Ch 2) (h) Indicate whether the following incurred cost is *direct or indirect* to the Accounting Department:

h) direct

23(Ch 2) (i) Indicate whether the following incurred cost is *direct or indirect* to the Accounting Department:

i) direct