D196 ALL
Which statement best characterizes the elements and purposes of a balance sheet?
A balance sheet portrays the financial condition of a company at a point in time.
What is the purpose of a classified balance sheet?
A classified balance sheet distinguishes between current and long-term assets.
Four tax consulting companies serve very different sets of customers. Which of these four tax consulting companies is most likely to use a process system in determining the cost of each customer engagement?
A company that serves tax customers who are middle-income individuals who all have basically the same tax issues
Lucas works for a professional consulting firm. He has been asked to compare his firm's financial performance to the performance of another firm. Which company should Lucas use as a benchmark for his company's performance
A consulting firm
What is a period cost?
A cost associated with activities occurring outside the factory
For which company below is job order costing the appropriate costing methodology?
A manufacturer of custom-designed furniture
What is an important difference in the cost accounts of a merchandising company compared to a manufacturing company?
A merchandising company has no raw materials inventory or work-in-process inventory.
What is process costing?
A method of product costing in which costs are accumulated by process and averaged over all products made during a period
What is a cost driver?
A numerical measure reflecting the amount of a cost associated with a particular overhead cost activity
What is a statement of cash flows?
A report of the operating, investing, and financing cash flows of a company over a period of time
What is an income statement?
A report of the revenues and expenses of a company during a period
Which statement best characterizes the elements and purposes of a statement of retained earnings?
A statement of retained earnings portrays the accumulated profits or losses of a company at a point in time.
Which phrase below describes job order costing?
A system in which manufacturing costs are accumulated by separate product orders or batches (a method where production expenses are added up by various product orders or batches)
Which item below is a liability?
Accounts payable
Sara is frustrated with her company's costing system. She suspects that too much overhead cost is being allocated to generic, simple products, and too little overhead cost is being allocated to custom-designed, complex products. The existing overhead allocation system is very traditional, with overhead being allocated strictly based on the number of direct labor hours.
Activity-based costing
What is manufacturing overhead?
All manufacturing costs that are not classified as either direct materials or direct labor
What costs are included in manufacturing overhead?
All manufacturing costs that are not classified as selling, general, or administrative
What is work-in-process inventory?
All material on the factory floor that is not yet completed
A manufacturing company that produces custom snowmobiles must determine a systematic and rational way to allocate overhead costs. How should the company allocate overhead costs?
Allocate costs with a predetermined overhead rate based on budgeted overhead costs.
Companies that use process costing do not specifically identify the costs associated with each job or order being produced. Instead, these companies compute costs on a different basis. What is this basis?
Amount of cost associated with work done for a particular period of time
What is an asset?
An economic resource that is owned or controlled by a company
Paradigm Toys is a manufacturing company that produces stuffed animals. In one step of the manufacturing process, raw materials such as fabric, thread, and polyester filling are moved from the warehouse to the production floor. What would be the effect of this event on the company's books?
An increase in work-in-process inventory
How often is the Form 10-K filed?
Annually
What information should be included on the balance sheet?
Assets and liabilities
Why do the notes to the financial statements contain a summary of significant accounting policies?
Because accounting involves making assumptions, estimates, and judgments
Why do the notes to the financial statements contain additional information about summary totals?
Because one summary number in the financial statements represents literally thousands of individual items
One important result of using an ABC system is more accurate product costing. What is another important result of using an ABC system?
Better decisions made
Yoshida Company manufactures cell phones. Which item is a product cost for Yoshida Company?
Bonuses paid to the phone assemblers who work on the production line
Which types of costs does a manufacturer have?
Both product and period costs
Which types of costs does a merchandiser have?
Both product and period costs
Maria just started a cosmetics company. She purchases makeup and nail polish from a wholesale distributor and sells these products on social media. Which costs will Maria's new company have?
Both product costs and period costs
Which of these activities is an investing activity?
Buying buildings
In an ABC system, how are the costs belonging to a cost pool identified?
By carefully analyzing what activities cause the need for each specific overhead cost
How is a common-size income statement created?
By dividing all income statement amounts for a given year by sales for that year
Which resource or tool is used to identify unique companies in the SEC's 10-K filing database?
Central Index Key (CIK)
Which types of companies can be compared using vertical analysis?
Companies that provide the same types of goods or services
Which activity involves the process of tracking the actual performance of a company?
Controlling
A successful law firm called Kim and Lee provides legal services to large corporations and employs over 100 attorneys to represent clients. The firm does not purchase products to sell to its clients but focuses solely on providing legal counsel. Which line item must be absent from the firm's income statement?
Cost of goods sold
How is an activity rate computed in an ABC system?
Cost pool divided by number of cost driver events
After reviewing the job order costing plan, Eva wonders if she should go another direction for Gold Leaf Trophies. She is now trying to determine the cost of producing each order the company receives for custom-manufactured trophies. Eva can easily trace the direct materials and the direct labor costs associated with each custom-manufactured trophy. What would be the first step for Eva to consider in implementing an ABC overhead system to allocate overhead to each trophy?
Determine exactly what activities cause overhead costs for each trophy.
Which product costs are substantial in both a service company and a manufacturing company?
Direct labor and overhead
What are the three categories of manufacturing costs?
Direct materials, direct labor, and manufacturing overhead
What is the definition of vertical analysis of financial statements?
Displaying each line item as a percentage of another for comparison to other companies in the industry
Which section of the SEC's website contains Company Annual Report on Form 10-K filings?
EDGAR
What is the definition of financial statement analysis?
Examining both the relationships among financial statement numbers and the trends in those numbers over time
Which statement correctly distinguishes the uses of financial accounting information from the uses of managerial accounting information?
Financial accounting information is prepared according to a generally accepted set of rules.
Leilani and Diego are discussing different types of businesses. They agree that, in terms of cost flows, there are many similarities between a manufacturer of cars, such as General Motors, and a consulting company, such as McKinsey. However, they also agree that there is one very important difference in the costs being incurred by General Motors and McKinsey. What is the important difference in the costs of GM as compared to McKinsey?
GM likely has relatively high materials costs, whereas the materials costs for a McKinsey are relatively low.
Eva is now giving serious thought to implementing an activity-based costing (ABC) system at the custom trophy manufacturer. She wants to make sure she has considered all relevant factors before making this decision. Which statement is correct with respect to implementing an ABC system at the trophy manufacturer?
Implementing an ABC system requires a more careful analysis of the factors that create overhead costs.
How does vertical financial statement analysis inform your understanding of a company's performance?
It tells you what questions you need to be asking about a company's performance
Smartistry produces custom photo albums, calendars, and stationery for customers. Which overhead allocation system should the company use?
Job order costing
What is a gain?
Making money from an activity outside the normal activities of a business
Which characteristic is a unique feature of management accounting information?
Management accounting information is composed of both financial and nonfinancial data.
Which statement about managerial accounting data is true?
Managerial accounting data are created based on competitive needs that are unique to the organization.
Which statement identifies a difference between managerial and financial accounting?
Managerial accounting has substantial competitive value, while financial accounting is not a competitive tool.
What is a characteristic of managerial accounting systems that is not also a characteristic of financial accounting systems?
Managerial accounting includes budget and forecast data.
Which group represents the primary users of managerial accounting information?
Managers
For some production processes, job order costing is the correct production costing system to use. With other production processes, process costing is more appropriate. For which product is process more appropriate?
Manufacturing identical residential refrigerators
In a job order costing system, how are factory supervisor wages classified?
Manufacturing overhead
What type of cost are the wages paid to a factory supervisor?
Manufacturing overhead
Why does the balance sheet not reflect the current value or worth of a company?
Many assets are recorded at cost, and some economic assets are not recorded at all.
Which type of business purchases finished goods for resale?
Merchandising
Which type of business is a typical retailer?
Merchandising business
Sophie has recently learned about activity-based costing (ABC). Sophie has determined that using an ABC overhead allocation system would result in basically the same pattern of overhead allocation as she is currently getting with her traditional system based on direct labor hours. Should Sophie go ahead and install an ABC system anyway?
No. The cost in terms of time and money would not be worth it.
In a job order costing system, some actual production costs are directly associated with a job or product or project. Which production cost is allocated rather than being directly associated with a job, product, or project?
Overhead
Which statement is correct with respect to activity-based costing (ABC) overhead allocation?
Overhead is allocated based on several different measures of activity.
How is overhead allocated in an ABC system?
Overhead per cost driver multiplied by the number of cost driver events
Company managers are important users of managerial accounting information. What are the three primary functions of company managers?
Planning, controlling, and evaluating
For some production processes, job order costing is the correct production costing system to use. With other production processes, process costing is more appropriate. For which process is process costing more appropriate?
Producing identical cans of paint
What is the sequence of the flow of costs through a manufacturing operation?
Purchase raw materials, transfer raw materials to production, add direct labor and manufacturing overhead costs, transfer the cost of completed goods to finished goods inventory, sell goods and transfer cost to cost of goods sold
What is the most common sequence of the flow of costs through a job order costing system?
Purchase raw materials, transfer raw materials to production, add direct labor and manufacturing overhead costs, transfer the cost of completed goods to finished goods inventory, sell goods and transfer cost to cost of goods sold.
How often is the Form 10-Q filed?
Quarterly
Eva has been asked to redesign Gold Leaf's old job order costing system. One of the first things Eva notices is that some items are not being recorded correctly. For example, the accounting flow of costs and the actual flow of costs in the production facility do not appear to match up. The raw materials inventory, for example, is incorrectly placed after the finished goods inventory. This is the first thing Eva wants to fix. In what order should Eva place the flow of materials costs through the rest of the production process?
Raw materials inventory, work-in-process inventory, finished goods inventory, cost of goods sold
Which item would be classified in the owners' equity section of the balance sheet?
Retained earnings
Which item below is a revenue item?
Sales
Which item is a product cost?
Sales and marketing salaries
Kamila Company has asked a local bank for a business loan. In order to process the loan application, the bank is requiring that Kamila provide an income statement for the most recent year. Here are some data from Kamila Company's financial statements. Using the data above from Kamila's financial statements, how would Kamila calculate gross profit?
Sales − cost of goods sold
Using the data above from Kamila's financial statements, how would Kamila calculate operating income?
Sales − cost of goods sold − operating expenses
Which of these activities is an operating activity?
Selling goods
Jack just started a business that develops websites for other businesses. Which type of organization is Jack's new business?
Service organization
What does long-run planning include?
Strategic planning and capital budgeting
What is the Securities and Exchange Commission (SEC)?
The U.S. government agency charged with regulating financial markets and ensuring the availability of reliable financial information
What is net income?
The amount by which revenues exceed expenses
What is the definition of expense?
The amount of assets consumed through business operations
The amount of work actually done in a process costing center for the period includes all units started and completed during the period. In addition, other work is included in the quantification of the work done during the period. What other work is included?
The amount of work done to complete the beginning work-in-process inventory and the amount of work done to start the ending work-in-process inventory
In an ABC system, what is a cost pool?
The collection of overhead costs associated with a specific overhead cost activity
What is included in the direct materials cost?
The cost of raw materials that are used directly in the manufacture of products
What is the purpose of the notes to the financial statements?
The notes present the assumptions needed to help explain financial statements.
Information about accounting policies and practices, including assumptions, estimates, and judgments, are included in which element of the financial statements?
The notes to the financial statements
What is owners' equity?
The residual amount representing the net assets available to another party after all obligations have been satisfied
What is the purpose of performing horizontal analysis of financial statements?
To highlight trends that may be occurring in the company over time
Gold Leaf Trophies has discovered an export market for one of the trophies they manufacture, which can be mass-produced. The manufacturing manager understands that process costing can be applied in this situation in order to measure the costs of mass-producing this particular trophy. How would production costs be assigned to this trophy using process costing?
Total manufacturing cost and total units of production would be used to assign production costs equally to identical trophies.
Vertical analysis allows an accountant to determine how expenses are changing relative to which line item on the income statement?
Total sales
There are three general types of overhead cost activities in an ABC system. What are those three general types of activities?
Unit-level, batch-level, and product-line
What is direct labor?
Wages of factory employees who work directly on the products manufactured
Which item is a period cost?
Wages of secretarial staff
Baby Jude Company manufactures car seats. Your colleague works in the sales and marketing department, and is trying to understand the differences between a product and a period cost for Baby Jude Company including examples for both. Which item is a period cost for Baby Jude Company?
Wages of the janitors in the executive office building
What is the appropriate situation in which to use process costing?
When a company produces a large volume of products using a series of uniform processes
When is job order costing NOT appropriate?
When a company produces products or services in a continuous process in which jobs or products or projects can't be specifically identified (When a business engages in continuous production of goods or services while making it impossible to identify individual goods, or projects)
When is vertical financial statement analysis most valuable?
When comparing companies in similar industries
An ABC overhead allocation system is not always substantially better than a traditional system. When does a traditional overhead allocation system work well?
When the production process for each different product or project or process is basically the same
