Managerial accounting reports and information are used by external users and financial accounting by internal users.
Both financial and managerial accounting affect user's decisions and actions.
The concept of total quality management focuses on continuous improvement.
Just-in-time manufacturing is a system that acquires inventory and produces product only when needed for an order.
Costs may be classified by many different cost classifications.
Straight line depreciation, rent and manager salaries are examples of variable costs.
Cost concepts such as variable, fixed, mixed, direct and indirect apply only to manufacturers and not to service companies.
A variable cost changes in proportion to changes in the volume in activity.
Product costs are capitalized as inventory on the balance sheet and period costs are expenses on the income statement.
Selling and administrative expenses are normally period costs.
Prime costs consist of direct labor and factory overhead.
Last year, Flash Company sold 15,000 units of its only product. If sales decreased by 17% in the current year, how will total variable cost and total fixed cost be affected?
Total variable cost decreases, total fixed cost remains constant
Manufacturing costs other than direct materials and direct labor, and are not readily traceable to specific units or batches of production are called:
Classifying costs by behavior with changes in volume of activity involves:
Identifying fixed cost and variable cost.
A classification of costs that determines whether a cost is expensed to the income statement or capitalized to inventory is:
Product versus period.
Products that are in the process of being manufactured but are not yet complete are called:
Work in Process inventory.
A manufacturing company has a beginning finished goods inventory of $15,400, raw material purchases of $18,800, cost of goods manufactured of $34,100, and an ending finished goods inventory of $18,600. The cost of goods sold for this company is:
Beginning Finished Goods + Cost of Goods Manufactured - Ending Finished Goods = Cost of Goods Sold;
$15,400 + $34,100 − $18,600 = $30,900
The following information relates to the manufacturing operations of the JNR Printing Company for the year:
The raw materials used in manufacturing during the year totaled $128,000. Raw materials purchased during the year amount to:
Beginning Raw Materials + Purchases - Ending Raw Materials = Raw Materials Used
$ 67,000 + Purchases − $ 70,000 = $128,000;
Purchases − $3,000 = $128,000;
Purchases = $131,000.
Craigmont Company's direct materials costs are $3,700,000, its direct labor costs total $7,630,000, and its factory overhead costs total $5,630,000. Its prime costs total:
Prime Costs = Direct Materials + Direct Labor; $3,700,000 + $7,630,000 = $11,330,000.
Using the information below for Singing Dolls, Inc., determine cost of goods manufactured for the year:
Cost of Goods Manufactured = Costs Added + Beginning Work in Process - Ending Goods in Process
Cost of Goods Manufactured = ($14,300 + $28,300 + $7,300) + $53,600 − $38,800 = $64,700
If beginning and ending work in process inventories are $6,900 and $16,900, respectively, and cost of goods manufactured is $189,000, what is the total manufacturing cost for the period?
Manufacturing Costs + Beginning Work in Process − Ending Work in Process = Cost of Goods Manufactured; Manufacturing Costs + $6,900 − $16,900 = $189,000; Manufacturing Costs − $10,000 = $189,000; Manufacturing Costs = $199,000.
A company's prime costs total $3,900,000 and its conversion costs total $7,900,000. If direct materials are $1,450,000 and factory overhead is $5,450,000, then direct labor is:
Prime Costs = Direct Materials + Direct Labor; $3,900,000 = $1,450,000 + Direct Labor; Direct Labor = $2,450,000 OR Conversion Costs = Direct Labor + Factory Overhead; $7,900,000 = Direct Labor + $5,450,000; Direct Labor = $2,450,000.
Current information for the Healey Company follows:
All raw materials used were traceable to specific units of product. Healey Company's total manufacturing costs for the year are:
Total Manufacturing Costs = Raw Materials Used + Direct Labor + Factory Overhead
Raw materials used = Beginning Raw Materials Inventory + Raw Materials Purchases - Ending Raw Materials Inventory = $15,500 + $63,000 - $16,900 = $61,600
$61,600 + $44,300 + $30,300 = $136,200
The collection of cost sheets for unfinished jobs makes up a subsidiary ledger controlled by the Work in Process Inventory account in the general ledger.
Job cost sheets are used to track all of the costs assigned to a job, including direct materials, direct labor, overhead, and all selling and administrative costs.
Both direct and indirect labor costs are recorded on the individual job cost sheets.
The cost of all direct materials issued to production is debited to Work in Process Inventory.
The predetermined overhead rate is used to allocate overhead cost to jobs.
In a job order costing system, indirect labor costs are debited to the Factory Overhead account.
Direct materials and direct labor are examples of costs that are debited to the Factory Overhead account in a job costing system.
The schedule of cost of goods manufactured for a job costing system includes total actual factory overhead.
Features of a job costing system include all but which of the following:
A company that makes which of the following types of products would best be suited for a job costing system?
A job cost sheet shows information about each of the following items except:
The costs incurred by the marketing department in selling the job.
Portside Watercraft uses a job order costing system. During one month Portside purchased $153,000 of raw materials on credit; issued materials to production of $164,000 of which $24,000 were indirect. Portside incurred a factory payroll of $95,000, paid in cash, of which $25,000 was indirect labor. Portside uses a predetermined overhead rate of 170% of direct labor cost. The journal entry to record the application of factory overhead to production is:
Debit Work in Process Inventory $119,000; credit Factory Overhead $119,000.
The job order cost sheets used by Greene Company revealed the following:
Job No. 135 was completed during May and Jobs No. 134 and 135 were shipped to customers in May. What was the company's cost of goods sold for May and the Work in Process inventory on May 31?
Job A3B was ordered by a customer on September 25. During the month of September, Jaycee Corporation requisitioned $2,200 of direct materials and used $3,700 of direct labor. The job was not finished by the end of the month, but needed an additional $2,700 of direct materials and additional direct labor of $5,900 to finish the job in October. The company applies overhead at the end of each month at a rate of 150% of the direct labor cost incurred. What is the balance in the Work in Process account at the end of September relative to Job A3B?
DM $2,200 + DL $3,700 + OH ($3,700 * 1.5) = WIP for Job A3B $11,450
Work in process contains the sum of the costs on job cost sheets for jobs that are not yet complete.
The Work in Process Inventory account for DG Manufacturing follows. Compute the cost of jobs completed and transferred to Finished Goods Inventory.
The cost of units transferred to finished goods is:
$4,600 + $47,200 + $29,700 + $15,900 − FG = $9,100
FG = $88,300
Kayak Company uses a job order costing system and allocates its overhead on the basis of direct labor costs. Kayak Company's production costs for the year were: direct labor, $29,000; direct materials, $49,000; and factory overhead applied $5,900. The overhead application rate was:
OH rate = OH applied/Direct Labor Costs = $5,900/$29,000 = 20.34%
Clemmens Company applies overhead based on direct labor cost. Estimated overhead and direct labor costs for the year were $119,500 and $125,700, respectively. During the year, actual overhead was $108,100 and actual direct labor cost was $114,500. The entry to close the over- or underapplied overhead at year-end, assuming an immaterial amount, would include (Round predetermined overhead rate to nearest whole percentage.):
A credit to Cost of Goods Sold for $675.
OH = $119,500 / $125,700 = 95% of DLC
Minstrel Manufacturing uses a job order costing system. During one month Minstrel purchased $201,000 of raw materials on credit; issued materials to production of $198,000 of which $27,000 were indirect. Minstrel incurred a factory payroll of $153,000, paid in cash, of which $37,000 was indirect labor. Minstrel uses a predetermined overhead application rate of 150% of direct labor cost. If Minstrel incurred total overhead costs of $180,000 during the month, compute the amount of under- or overapplied overhead:
$180,000 − ($116,000 × 1.50) = $6,000
The managers of process operations focus on the series of repetitive processes, or steps, resulting in a noncustomized product or service.
In a process costing system costs are measured upon completion of each job.
Equivalent units of production refer to the number of units that could have been started and completed given the costs incurred during the period.
Equivalent units of production for direct materials and direct labor are usually the same.
Conversion cost per equivalent unit is the combined costs of direct materials and factory overhead.
In a process costing system, the purchase of raw materials is debited to the Raw Materials Inventory.
In a process costing system, the entry to record cost of materials assigned to a production department requires a debit to the Raw Materials Inventory account and a credit to the Work in Process Inventory account for that department.
If a department that applies process costing starts the reporting period with 40,000 physical units that were 80% complete with respect to direct materials and 50% complete with respect to direct labor, it must add 8,000 equivalent units of direct materials and 20,000 equivalent units of direct labor to complete them.
The cost of units transferred from Work in Process Inventory to Finished Goods Inventory is called the cost of goods manufactured.
Which of the following products is least likely to be produced in a process operations system?
Yamada Company applies factory overhead to its production departments on the basis of 90% of direct labor costs. In the Assembly Department, Yamada had $125,000 of direct labor cost, and in the Finishing Department, Yamada had $35,000 of direct labor cost. The entry to apply overhead to these production departments is:
Debit Work in Process Inventory—Assembly $112,500; debit Work in Process Inventory—Finishing $31,500; credit Factory Overhead $144,000.
Equivalent units of production are equal to:
The number of units that could have been started and completed given the costs incurred during the period.
A production department's output for the most recent month consisted of 10,000 units completed and transferred to the next stage of production and 10,000 units in ending Work in Process inventory. The units in ending Work in Process inventory were 50% complete with respect to both direct materials and conversion costs. There were 1,000 units in beginning Work in Process inventory, and they were 70% complete with respect to both direct materials and conversion costs. Calculate the equivalent units of production for the month, assuming the company uses the weighted average method.
The Fabricating Department started the current month with a beginning Work in Process inventory of $10,000. During the month, it was assigned the following costs: direct materials, $76,000; direct labor, $24,000; and factory overhead, 50% of direct labor cost. Also, inventory with a cost of $109,000 was transferred out of the department to the next phase in the process. The ending balance of the Work in Process Inventory account for the Fabricating Department is:
$10,000 + $76,000 + $24,000 + $12,000 - $109,000 = $13,000
The following refers to units processed by a breakfast cereal maker in August. Compute the total equivalent units of production with respect to conversion for July using the weighted-average inventory method.
In a process operation, the direct labor of a production department includes:
All labor used exclusively by that department, even if the labor is not applied to the product itself.
Dazzle, Inc. produces beads for jewelry making use. The following information summarizes production operations for June. The journal entry to record June production activities for direct labor usage is:
Debit Work in Process Inventory $160,000; credit Factory Payroll Payable $160,000.
Following is a partial process cost summary for Mitchell Manufacturing's Canning Department.
The total materials costs transferred out of the Canning Department should be:
50,000 units transferred out * 2.71 per EUP = $135,500
Andrews Corporation uses a process costing system for manufacturing. The following information is available for the February in its Polishing Department:
The cost per equivalent unit of production for conversion is:
Cost of beginning WIP $36,000 + costs incurred in February $520,000 = $556,000
Total cost $556,000/Equivalent units of production 95,000 = $5.85 cost per equivalent unit of production.
Total variable costs change in proportion to changes in volume of activity.
As the volume increases, fixed cost per unit of output remains constant.
Cost-volume-profit analysis requires management to classify all costs as either fixed or variable with respect to production or sales volume within the relevant range of operations.
The dollar amount of sales needed to achieve a target income is computed by dividing the sum of fixed costs plus the target income by the contribution margin ratio.
The contribution margin ratio is the percent of each sales dollar that remains after deducting the total unit variable cost.
The high-low method of deriving an estimated cost line uses all the data points available.
The break-even point is the sales level at which a company neither earns a profit nor incurs a loss.
To calculate the break-even point in units, one must know unit fixed cost, unit variable cost, and sales price.
A cost that changes in proportion to changes in volume of activity is a(n):
Which one of the following statements is not true?
Total variable costs decrease as the volume increases.
Select cost information for Seacrest Enterprises is as follows:
Based on this information:
Utilities expense is a mixed cost and rent expense is a fixed cost.
Which of the following costs are most likely to be classified as variable?
A target income refers to:
Income planned for a future period.
If a firm's forecasted sales are $250,000 and its break-even sales are $190,000, the margin of safety in dollars is:
$250,000 - $190,000 = $60,000
A firm expects to sell 25,000 units of its product at $11 per unit. Pretax income is predicted to be $60,000. If the variable costs per unit are $5, total fixed costs must be:
Pretax income = Contribution margin - Fixed costs
$60,000 = (25,000 * $6) - Fixed costs
$60,000 = $150,000 - Fixed costs
Fixed costs = $150,000 - $60,000
Fixed costs = $90,000
A firm expects to sell 25,000 units of its product at $11 per unit and to incur variable costs per unit of $6. Total fixed costs are $70,000. The total contribution margin is:
Contribution margin = Sales - Variable costs
(25,000 * $11) - (25,000 * $6) = $125,000
A product sells for $200 per unit, and its variable costs per unit are $130. The fixed costs are $420,000. If the firm wants to earn $35,000 pretax income, how many units must be sold?
Units required to earn target pre-tax income of $35,000 = ($35,000 + $420,000)/$70 = 6,500 units
Use the following information to determine the break-even point in units (rounded to the nearest whole unit):
Break-even point in units = Fixed costs/Contribution margin per unit
186,000/($14.50 - $7.50) = 26,571 units