Accounting II exam#3

cost object

A cost object may be a product, a sales territory, a department, or an activity, such as research and development.

(Ex. 15-1) Indicate whether each of the following costs of an automobile manufacturer would be classified as direct materials cost, direct labor cost, or factory overhead cost: A. Depreciation of robotic assembly line equipment B. V8 automobile engine C. Steering wheel D. Wheels E. Painting safety masks for employees working in the paint room F. Salary of test driver G. Glass used in the vehicle's windshield H. Wages of an assembly line worker

A.) Overhead B.) Materials C.) Materials D.) Materials E.) Overhead F.) Overhead G.) Materials H.) Labor

(Ex. 15-3) which of the following items are properly classified as part of factory overhead for Ford Motor Company, a maker of heavy automobiles and trucks? A. Plant manager's salary at Buffalo, New York, stamping plant, which manufactures auto and truck subassemblies B. Depreciation on Flat Rock, Michigan, assembly plant C. Dividends paid to shareholders D. Machine lubricant used to maintain the assembly line at the Louisville, Kentucky, assembly plant E. Leather to be used on vehicles that have leather interiors F. Depreciation on mechanical robots used on the assembly line G. Consultant fees for a study of production line efficiency H. Dealership sales incentives I. Vice president of human resources' salary J. Property taxes on the Dearborn, Michigan, headquarters building

A.) Yes (manager is generally overhead) B.) Yes C.) No D.) Yes E.) No (materials) F.) Yes G.) Yes H.) No (labor) I.) No (labor) J.) No

WIP formula

Beginning WIP + materials + direct labor + overhead ______________________ = Total production - ending WIP _________________________ = Cost of goods manufactured (CGM)

Finished goods formula

Beginning finished goods + cost of goods manufactured (CGM) _____________________________________________ = Available - Finished goods _____________________________________________ = CGS

(Ex. 15-4) Classifying costs as product or period costs A. Research and development costs B. Depreciation on sewing machines C. Fabric used during production D. Depreciation on office equipment E. Advertising expenses F. Repairs and maintenance costs for sewing machines G. Salary of production quality control supervisor H. Utility costs for office building I. Sales commissions J. Salaries of distribution center personnel K. Wages of sewing machine operators L. Factory janitorial supplies M. Chief financial officer's salary N. Travel costs of media relations employees O. Factory supervisors' salaries P. Oil used to lubricate sewing machines Q. Property taxes on factory building and equipment

A.) Period cost B.) Product cost C.) Product cost D.) Period cost E.) Period cost F.) Product cost (overhead) G.) Product (overhead) H.) Period I.) Period J.) Period K.) Product L.) Product M.) Period N.) Period O.) Period P.) Product Q.) Product

factory overhead cost (MOH)

Costs other than direct materials and direct labor that are incurred in the manufacturing process (indirect costs) Some factory overhead costs include the following: ▪▪ Heating and lighting the factory ▪▪ Repairing and maintaining factory equipment ▪▪ Property taxes on factory buildings and land ▪▪ Insurance on factory buildings ▪▪ Depreciation on factory plant and equipment

Examples of stakeholders

Employees Shareholders Customers Managers Suppliers

Formula to figure out Net Income

Sales - CGS ___________ = Gross Profit - operating expenses _______________________________ = Net Income

direct labor cost

The cost of employee wages that is an integral part of the finished product Examples include: direct labor cost includes the wages of the employees who cut each guitar out of raw lumber and assemble it. Other examples of direct labor costs include mechanics' wages for repairing an automobile, machine operators' wages for manufacturing tools, and assemblers' wages for assembling a laptop computer.

direct materials cost

The cost of materials that are an integral part of the finished product. Examples include: direct materials cost includes the cost of the wood used in producing each guitar. Other examples of direct materials costs include the cost of electronic components for a television, silicon wafers for microcomputer chips, and tires for an automobile.

feedback

allows management to isolate areas for further investigation and possible remedial action. It may also lead to revising future plans.

Direct Costs

are identified with and can be traced to a cost object. For example, as shown in Exhibit 5, the cost of wood (materials) used by Legend Guitars in manufacturing a guitar is a direct cost to a guitar

indirect costs

cannot be identified with or traced to a cost object. For example, as shown in Exhibit 6, the salaries of the Legend Guitars production supervisors are indirect costs of producing a guitar. Although the production supervisors contribute to the production of a guitar, their salaries cannot be identified with or traced to any individual guitar.

conversion cost

direct labor + overhead

Product cost

direct materials + direct labor + manufacturing overhead

example of indirect cost

manufacturing overhead

management by exception

philosophy of controlling by comparing actual and expected results is called

Applied Overhead formula (Exercise problem on the study sheet)

predetermined overhead rate (PDOHR) x actual activity level

Period cost

selling expenses + administrative expenses

prime costs

which consist of direct materials and direct labor costs

5 basic management process

▪▪ Planning ▪▪ Directing ▪▪ Controlling ▪▪ Improving ▪▪ Decision making

Managerial Accounting

-information is designed to meet the specific needs of a company's management. This information includes the following: ▪▪ Historical data, which provide objective measures of past operations ▪▪ Estimated data, which provide subjective estimates about future decisions

flow of manufacturing cost

Raw materials work in process (WIP) finished goods cost of goods sold (CGS)

Predetermined overhead rate formula (PDOHR) (Exercise problem on the study sheet)

Total Estimated overhead costs / Total Estimated activity