Basic Cost Management Concepts

Calculate cost of goods sold using the following information: Inventory type January 1 December 31 Raw Materials $3,200 $2,800 Work-in-Process $1,200 $ 950 Finished-Goods $ 500 $ 650 Other information: Direct labor $10,200; manufacturing overhead $8,400; purchases of raw materials $45,800; total manufacturing costs $64,800.

$64,900 Correct. COGM = 1,200 + 64,800 − 950 = $65,050; COGS = 500 + 65,050 − 650 = $64,900.

Using the following information, calculate cost of goods manufactured: Inventory type January 1 December 31 Raw Materials $3,200 $2,800 Work-in-Process $1,200 $ 950 Finished-Goods $ 500 $ 650 Other information: Direct labor $10,200; manufacturing overhead $8,400; purchases of raw materials $45,800; total manufacturing costs $64,800.

$65,050 Correct. COGM = 1,200 + 64,800 − 950 = 65,050

Using the following information, calculate cost of goods manufactured: Inventory type January 1 December 31 Raw Materials $3,200 $2,800 Work-in-Process $1,200 $ 950 Finished-Goods $ 500 $ 650 Other information: Direct labor $10,200; manufacturing overhead $8,400; purchases of raw materials $45,800; total manufacturing costs $64,800. Multiple choice question.

$65,050 Correct. COGM = 1,200 + 64,800 − 950 = 65,050

Using the following information, calculate cost of goods manufactured: Inventory type January 1 December 31 Raw Materials $3,200 $2,800 Work-in-Process $1,200 $ 950 Finished-Goods $ 500 $ 650 Other information: Direct labor $10,200; manufacturing overhead $8,400; purchases of raw materials $45,800; total manufacturing costs $64,800.

$65,050 Correct. COGM = 1,200 + 64,800 − 950 = 65,050.

The product cost for a merchandising retailer or wholesaler includes

-Shipping costs paid by the acquiring retailer or wholesaler for inventory -Purchase of inventory cost

Which of the following are true?

-The word cost can have different meanings depending on the context used -A cost is a sacrifice made to achieve a particular purpose -Classified cost data may be appropriate for one use inappropriate for another

The thee categories of manufacturing costs are

-direct material -direct labor -overhead

Manufacturing overhead includes

-indirect materials -indirect labor -factory depreciaiton

The terms _____ cost and ____ cost are used to describe the timing with which various expense are recognized

1. Product 2. Period

A cost that is significant and can be traced to a particular service or product is a(n) Blank______.

A cost that is significant and can be traced to a particular service or product is a direct cost.

The total manufacturing cost divided by the number of units manufactured is called the Blank______ cost per unit.

Average

True or False: Raw material is another term for direct material

False: There is a difference. Before material is entered into the production process, it is classified as raw material. After it is entered into the production process, it is reclassified as direct material

True or false: A cost that is a direct cost in one department can be an indirect cost in another department.

Reason: Correct. Depending upon the department under consideration, a cost can be direct in one and indirect in another.

Identify which statements regarding costs in the service industry are correct.

Service firms can have direct materials. A cost that a manager can significantly influence is a controllable cost in both a service and a manufacturing firm.

Which of the following is true regarding managerial accounting information?

The benefit of the information should be weighed against the cost of obtaining and using the information

Conversion costs are

direct labor and manufacturing overhead

What are the three categories of manufacturing costs?

direct labor, manufacturing overhead, and direct materials

Materials that can be easily traced to a product are called

direct materials

Which of the following is the calculation of cost of goods manufactured?

direct materials + direct labor + manufacturing overhead + beginning work-in-process − ending work-in-process Correct. Direct materials + direct labor + manufacturing overhead + beginning work-in-process − ending work-in-process is the calculation of cost of goods manufactured.

Prime costs are Blank______.

direct materials and direct labor

Objectives of a cost management system include Blank______.

evaluating new activities that can improve organizational performance determining the efficiency and effectiveness of all major activities measuring the unused capacity of resources

Manufactured goods that are completed and ready for sale are called

finished-goods inventory

Another term for gross profit

gross margin

The amount of revenues left after deducting just the costs that have been classified as cost of sales is called

gross profit

Time that is not spent productively by an employee due to such events as equipment breakdowns or new setups is classified as

idle time

Operating expenses are shown on the _____ _______

income statement

Production department supervisors, quality control inspectors, and assembly plant security guards are classified as

indirect labor

Materials that become an integral part of the finished product but are insignificant in cost are often classified as

indirect material

Cost of materials that are required for the production process but do not become an integral part of the finished product are called

indirect materials

Another term for product cost is

inventoriable cost

Idle time Blank______.

is caused by equipment breakdowns or new setups should be classified as overhead

Using an activity-based costing system to improve the operations of an organization is called activity-based

management

The cost of goods completed and transferred from work-in-process to finished-goods inventory is cost of goods

manufactured

All costs of production other than direct labor and direct materials are classified as

manufacturing overhead

Cost of operating service departments that support manufacturing are classified as ____

manufacturing overhead

Indirect labor is classified as part of

manufacturing overhead

The cost of idle time and overtime premiums paid to factory works is classified as

manufacturing overhead

Another term for operating income

operating profit

The product cost for a manufacturer includes

-Overhead incurred to manufacture the product (The product cost for a manufacturer includes overhead incurred to manufacture the product) -Labor costs of production employees

The main difference between service production costs and manufactured product costs is that service departments costs:

Are period costs

Prime costs + conversion costs = Total manufacturing costs.

False Since prime costs and conversion costs both include direct labor, prime + conversion cost do not equal total manufacturing costs.

Which of the following is shown on the balance sheet of a merchandising company?

Inventory

Which of the following statements is correct?

Raw material is reclassified as direct material when it enters the production process

Calculate cost of goods sold using the following information: Raw Materials -January 1: $3,200 -December 31: $2,800 Work-In-Process -January 1: $1,200 -December 31: $950 Finished-Goods -January 1: $500 -December 31: $650 Other information: Direct labor $10,200; manufacturing overhead $8,400; purchases of raw materials $45,800; total manufacturing costs of $64,800.

Reason: Correct. COGM = 1,200 + 64,800 − 950 = $65,050; COGS = 500 + 65,050 − 650 = $64,900.

Which of the following statements is true?

The cost of sales is an expense.

True or false: The benefit of information should always be weighed against the cost of obtaining the information

True Correct. While some management accountants want to make sure nothing is overlooked, information overload needs to be avoided. The benefit of information should always exceed the cost.

An opportunity cost is Blank______.

a benefit that is sacrificed with the choice of one course of action over another

A sunk cost is Blank______.

a cost that has been incurred in the past

In keeping with the focus on activities, managerial accountants have developed a system for determining the cost of goods or services called

activity based

A cost driver is Blank______.

an activity or event that causes costs to be incurred

The total manufacturing cost divided by the number of units manufactured is called the

average cost per unit

A cost that a manager can significantly influence is a(n) Blank______ cost.

controllable

A resources expended or given up to achieve a particular purpose is an a(n)

cost

A characteristic of an activity that causes costs to be incurred is an

cost driver

An entity, such as a product, service, or department, to which a cost is assigned is called a(n)

cost object

The total cost of goods completed and transferred from work-in-process to finished-goods inventory is called Blank______.

cost of goods manufactured (The total cost of goods completed and transferred from work-in-process to finished-goods inventory is called cost of goods manufactured.)

Once inventory is sold, product costs become

cost of goods sold

A variable cost is a(n) Blank______.

cost that changes, in total, in direct proportion to a change of activity

The amount by which a cost changes under alternative courses of action is a(n)

differential cost

A cost that can be traced to a particular cost object is called a(n)

direct cost

Cost of salaries and wages for personnel who work directly the manufactured products is classified as

direct labor costs

The costs of fringe benefits for assembly line workers are

direct labor costs

Service firms such as lawyers and CPAs can have Blank______.

direct labor costs direct material costs

The cost incurred when an assets is used to generate revenue is called a(n)

expense

Cost of activities that can be eliminated with no deterioration of product quality, performance, or perceived worth are called

non-value added costs

The profit remaining from revenues after deducting both cost of sales and all period costs related to operations, but not the effects of financing, taxes, or other unusual business events is called

operating income

A benefit that is sacrificed when the choice of one action precludes taking an alternative course of action is called a(n)

opportunity cost

Costs incurred in the past that will not change based on future action are

sunk costs

Direct materials are materials

that are physically incorporated into the finished products and are easily traceable to the product

A differential cost is Blank______.

the amount by which a cost differs under alternative courses of action

A cost that a manager cannot influence significantly is a(n) Blank______ cost.

uncontrollable

A cost that changes, in total, in direct proportion to a change of activity is a(n) Blank______cost.

variable

Inventory that is only partially completed at the balance sheet date is called

work-in-process