Fundamental Managerial Accounting Concepts
True or false: Finished goods inventory includes completed products that have already been sold to customers.
False
When under or overapplied overhead is not significant, most companies normally assign that total amount of overhead correction directly to
cost of goods sold.
Cost of goods sold accounts include the cost of materials, labor and a(n) __________ amount of overhead.
estimated
Paying cash for manufacturing overhead is an asset __________ transaction.
exchange
Paying cash for manufacturing overhead is an asset________ transaction.
exchange
Paying cash for raw materials is an asset __________ transaction.
exchange
Ventra paid $1,000 cash to purchase production supplies. This transaction is an asset __________ transaction.
exchange
Ventra paid production workers $2,500 cash. This transaction is an asset ___________ transaction.
exchange
paying cash for manufacturing overhead is an asset ________ transaction.
exchange
Ventra paid $1,000 cash to purchase production supplies. This transaction is an asset
exchange transaction.
If the amount of overapplied or underapplied overhead is significant, it must be allocated proportionately between work in process inventory, _________ goods inventory and cost of goods sold accounts.
finished
If the amount of overapplied or underapplied overhead is significant, it must be allocated proportionately between work in process inventory,____________ goods inventory and cost of goods sold accounts.
finished
Which inventory account would include a product that is complete and waiting to be sold?
finished goods inventory
Unlike manufacturing companies, service companies do not have (Select all that apply.)
finished goods. work in process.
Beginning raw materials inventory __________ purchases __________ ending raw materials inventory equals direct raw materials used.
plus, less
Product costs are expensed as cost of goods sold when the
product is sold.
Which of the following is an inventory account for a manufacturing company? (Select all that apply.
raw materials Finished Goods Work in process
In a company where production exceeds sales, which costing method would produce a higher amount of net income?
Absorption
Ring Company had beginning finished goods of $10,000. During the period, the company produced goods that cost $200,000. If the ending balance in the Finished Goods Inventory account was $45,000, the amount of cost of goods sold was:
$165,000 Cost of goods sold = Beginning finished goods + Cost of goods manufactured − Ending finished goods Cost of goods sold = $10,000 + $200,000 − $45,000 = $165,000
Ring Company had beginning finished goods of $50,000. During the period, the company produced goods that cost $150,000. If the ending balance in the Finished Goods Inventory account was $25,000, the amount of cost of goods sold was:
$175,000 Cost of goods sold = Beginning finished goods + Cost of goods manufactured − Ending finished goods Cost of goods sold = $50,000 + $150,000 − $25,000 = $175,000
Sam Company produces race cars. This year costs for the race cars included: Direct materials $2,500 per car Direct labor $3,500 per car Variable overhead $1,500 per car Fixed overhead $10,000,000 Assume that Sam produces 10,000 race cars and sells 5,000 race cars at a sales price of $14,000 per car. What is gross margin using absorption costing?
$27,500,000
At the beginning of the year, Ventra expected to produce 12,000 jewelry boxes and estimated overhead costs of $40,320. Actual overhead costs ended up being $44,000 and Ventra only produced 11,000 jewelry boxes. Based on the information given, what is the predetermined overhead rate?
$3.36 Predetermined Overhead Rate = Estimated Overhead Costs/Estimated units of production $40,320/12,000 = $3.36
During the year, Sam Company made 600 boxes for a cost of $6,000. The company transferred 400 boxes from finished goods inventory to cost of goods sold. What is the value of the inventory transferred from finished goods to cost of goods sold?
$4,000--$6,000/600=$10 $10*400=$4000
At the beginning of the year, Ventra expected to produce 10,000 jewelry boxes and estimated overhead costs of $40,000. Actual overhead costs ended up being $45,000 and Ventra only produced 9,000 jewelry boxes. Based on the information given, what is the predetermined overhead rate?
$4.00 Predetermined Overhead Rate = Estimated Overhead Costs/Estimated units of production $40,000/10,000 = $4.00
Sam Company produces race cars. This year costs for the race cars included: Direct materials $2,000 per car Direct labor $3,000 per car Variable overhead $1,000 per car Fixed overhead $10,000,000 Assume that Sam produces 10,000 race cars and sells 6,000 race cars at a sales price of $14,000 per car. What is gross margin using absorption costing?
$42,000,000
Ventra Company estimates for the current accounting period that its overhead costs will amount to $510,000 and that it will work 85,000 direct labor hours. If actual overhead costs for the year amounted to $530,000 and actual labor hours amounted to 87,000, then overhead would be:
$8,000 Predetermined overhead rate= Estimated overhead/estimated hours $510,000/85,000 = $6 per direct labor hour Predetermined overhead rate * Actual hours= Applied overhead $6 per direct labor hour * 87,000 actual hours= $522,000 applied overhead Compare $522,000 applied overhead to $530,000 actual overhead and overhead was underapplied by $8,000.
Which of the following statements about the schedule of cost of goods manufactured and sold is correct? (Select all that apply.)
*The schedule is an internal document which is not presented with the company's financial statements. *The schedule of cost of goods manufactured and sold indicates the amount of direct raw materials used during the period.
Which of the following formulas can be used to calculate cost of goods manufactured?
*Total manufacturing costs plus beginning work in process inventory less ending work in process inventory *Total work in process inventory less ending work in process inventory
Ventra paid $1,000 cash to purchase production supplies. What effect will the transaction have on the financial statements? (Select all that apply.)
Cash decreases Production supplies increases Total assets are unchanged
Ventra Company manufactures jewelry boxes. Ventra Co. paid $26,500 cash to purchase raw materials. Recognizing this transaction will have what effect on the financial statements? (Select all that apply.)
Cash decreases Raw materials inventory increases
Ventra paid production workers $2,500 cash. What effect will the transaction have on Ventra's financial statements? (Select all that apply.)
Cash decreases Work in process inventory increases Total assets are unchanged
Which of the following is an example of a service company?
Delta Airlines
What is the effect on net income when a company recognizes $1,000 of estimated manufacturing overhead?
No effect on net income
Ventra Company placed $1,100 of raw materials into the production process of making jewelry boxes. The boxes are not completed. What is the effect on the financial statements? (Select all that apply.)
Raw materials inventory decreases Work in process inventory increases
What is the correct formula for cost of goods manufactured?
Total manufacturing costs plus beginning work in process inventory less ending work in process inventory
True or false: Under variable costing, the income statement is prepared using a contribution margin approach.
True
If production exceeds sales, ___________ costing produces a higher amount of net income.
absorption
_______costing may motivate managers to overproduce in order to increase profits. (Enter only one word.)
absorption
Recognizing estimated manufacturing overhead costs is a(n)
asset exchange transaction
When is the difference between actual and estimated overhead corrected?
at year-end
Transferring inventory from finished goods to cost of goods sold will____________stockholders' equity.
decrease
Transferring inventory from finished goods to cost of goods sold will
decrease finished goods inventory
Transferring the total cost of dog toys made in January from work in process to finished goods inventory will
decrease work in process inventory increase finished goods inventory
Raw materials available for use less ending raw materials inventory equals
direct raw materials used.
On the income statement, cost of goods sold is subtracted from sales revenue to determine
gross margin
The amount of product cost transferred to the Cost of Goods Sold account is expensed on the __________ statement. (Enter only one word.)
income
Placing $1,100 of raw materials into the production process will cause raw materials inventory to decrease and work in process inventory to _______________. (Enter only one word.)
increase
Selling inventory for cash will
increase net income.
Actual overhead costs are recorded as _______________ in the manufacturing overhead account.
increases
During the year, Oliver Company paid cash for monthly rent cost on its manufacturing facilities. Oliver Company will record this transaction by decreasing cash and
increasing manufacturing overhead.
Generally accepted accounting principles require that all product costs, both variable and fixed, be reported as _______ until the products are sold. (Enter only one word.)
inventory
In practice, raw materials, work in process and finished goods are frequently combined and reported as a single amount called _________ on the balance sheet. (Enter only one word.)
inventory
In practice, raw materials, work in process and finished goods are frequently combined and reported as a single amount called__________ on the balance sheet. (Enter only one word.)
inventory
Lumber, metals and chemicals used to make the company's products are examples of raw materials __________________. (Enter only one word.)
inventory
What type of accounts are raw materials, work in process and finished goods?
inventory
Actual overhead costs are accumulated in
manufacturing overhead
Raw materials inventory would include
materials used to make the company's product.
On the income statement, selling and administrative expenses are subtracted from gross margin to equal
net income
Paying cash for manufacturing overhead will
not effect net income
Transferring the total cost of dog toys from work in process inventory to finished goods inventory will
not impact net income.
If more overhead has been applied than was actually incurred then overhead was ________. (Enter only one word.)
overapplied
If more overhead has been applied than was actually incurred then overhead was _____________. (Enter only one word.)
overapplied
The Hamilton Company planned to produce 150,000 units during 2017. At that production volume, the company estimated that its overhead costs would amount to $637,500. Assume that actual output totaled 150,000 units as expected but actual overhead costs amounted to $600,000. By how much was overhead, over or underapplied?
overapplied by $37,500 Allocated overhead = $4.25 × 150,000 = $637,500. Overhead was overapplied by $37,500 ($600,000 - $637,500).
Absorption costing may motivate managers to increase profitability by
overproducing inventory
Work in process inventory includes________ completed products. (Enter only one word.)
partially
A __________ company does not maintain a finished goods inventory account.
service
Unlike manufacturing companies, ____________________ companies do not have Work in Process and Finished Goods inventory accounts. (Enter only one word.)
service
Cost of goods ________ is equal to: cost of goods available for sale - ending finished goods.
sold
Cost of goods ___________ is equal to: cost of goods available for sale - ending finished goods.
sold
Generally accepted accounting principles require that all product costs, both variable and fixed, be reported as inventory until the products are
sold to customers.
Selling inventory for cash is an asset ________ transaction.
source
Selling inventory for cash is an asset __________ transaction.
source
Claire Corporation estimated total overhead cost would be $23,000, but actual overhead costs were $26,500. This indicates Claire spent $3,500 more than expected for overhead cost. This type of variance is known as a(n):
spending variance
The manufacturing overhead account is a __________ asset account. (Enter only one word.)
temporary
When estimated manufacturing overhead costs are recognized
total assets are not affected
True or false: Companies do not adjust for the difference between estimated overhead costs and actual overhead costs on an interim basis.
true
If less overhead was applied than was actually incurred then overhead was__________ . (Enter only one word.)
underapplied
The Hamilton Company planned to produce 150,000 units during 2017. At that production volume, the company estimated that its overhead costs would amount to $637,500. Assume that actual output totaled only 145,000 units but the actual overhead cost incurred was $637,500 as expected. By how much was overhead, over or underapplied?
underapplied by $21,250 Predetermined overhead rate = $637,500/150,000 = $4.25 per unit. Allocated overhead = $4.25 × 145,000 = $616,250. Overhead was underapplied by $21,250 ($637,500 - $616,250).
When the actual volume is less than the expected volume, the volume variance is _____________. (Enter only one word.)
unfavorable
Generally accepted accounting principles will not permit a company to report their financial statements using _________ costing. (Enter only one word.)
variable
Under_________ costing, inventory includes only variable product costs. (Enter only one word.)
variable
Absorption costing produces a higher amount of net income
when production exceeds sales.
Which inventory account includes the value of partially completed products?
work in process
Which account is estimated overhead cost applied to throughout the year?
work in process inventory