ACC 406 Lecture Notes - Lecture 1: Fixed Cost, Variable Cost, Finished Good

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23 Nov 2016

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Price is what the customer is going to pay. Fixed cost total cost remains the same. Variable cost cost varies with activity level. Mixed cost both fixed and variable: starts with one cost and other costs are added on. Direct costs: easily and accurately traced to a cost object. Indirect cost: cannot be easily traced to a cost object. Prime cost = direct materials cost + direct labour cost. Conversion cost = direct labour cost + manufacturing overhead cost. Pg 63 #2-14: product cost = direct material + direct labour + manufacturing overhead. = 2,400,000: cost per unit = . 2-15: prime cost = 1. 44 million, prime cost per unit =. 1,440,000/19,200 : total conversion cost = 1. 2 million, conversion cost per unit . 50. Manufacturing operations: reports 3 types of inventory on bs. Ending inv in one month will represent beginning inv in next month. Any units completed will transfer from work-in- process inv to finished good inv.

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(TCO A) Wages paid to an assembly line worker in a factory are a(Points : 6) Prime Cost YES.....Conversion Cost YES. Prime CostYES.....Conversion Cost NO. Prime Cost NO....Conversion Cost NO.Prime Cost NO.....Conversion Cost YES. Question 2. 2. (TCO A) Thecosts of staffing and operating the accounting department atCentral Hospital would be considered by the department of surgeryto be (Points : 6) indirect costs. sunk costs. incremental costs.direct costs. Question 3. 3. (TCO A) The cost of lubricants used togrease a production machine in a manufacturing company is anexample of a(n) (Points : 6) period cost. direct material cost.indirect manufacturing cost. direct product cost. None of the aboveQuestion 4. 4. (TCO C) When the activity level is expected toincrease within the relevant range, what effects would beanticipated with respect to each of the following? (Points : 6)Fixed costs per unit decrease and variable costs per unit do notchange. Fixed costs per unit increase and variable costs per unitdo not change. Fixed costs per unit do not change and variablecosts per unit do not change. Fixed costs per unit do not changeand variable costs per unit increase. Question 5. 5. (TCO B) EmcoCompany uses direct labor cost as a basis for computing itspredetermined overhead rate. In computing the predeterminedoverhead rate for last year, the company included in direct laborcost a portion of indirect labor. The effect of thismisclassification will be to (Points : 6) overstate thepredetermined overhead rate. understate the predetermined overheadrate. have no effect on the predetermined overhead rate. Thiscannot be determined from the information given. Question 6. 6.(TCO B) Under a job-order costing system, the product beingmanufactured (Points : 6) is homogeneous. passes from onemanufacturing department to the next before being completed. can becustom manufactured. has a unit cost that is easy to calculate bydividing total production costs by the units produced. Question 7.7. (TCO B) The weighted-average method of process costing differsfrom the FIFO method of process costing in that theweighted-average method (Points : 6) can be used under anycost-flow assumption. does not require the use of predeterminedoverhead rates. keeps costs in the beginning inventory separatefrom current period costs. does not consider the degree ofcompletion of units in the beginning work-in-process inventory whencomputing equivalent units of production. Question 8. 8. (TCO C)The contribution margin ratio always decreases when the (Points :6) fixed expenses increase. fixed expenses decrease. variableexpenses as a percentage of net sales increase. variable expensesas a percentage of net sales decrease. Question 9. 9. (TCO C) Whichof the following would not affect the break-even point? (Points :6) Variable expense per unit Number of units sold Total fixedexpenses Selling price per unit Question 10. 10. (TCO D) In anincome statement prepared using the variable costing method, fixedmanufacturing overhead would (Points : 6) not be used. be used inthe computation of the contribution margin. be used in thecomputation of net operating income but not in the computation ofthe contribution margin. be treated the same as variablemanufacturing overhead.

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1. Sydney's Barbecue reported the following information:

Sydney's Barbecue
Period Ending December 31, 20XX

Manufacturing costs	$5,400,000
Units manufactured	$54,000
Beginning inventory in Units	$ 0

Note: 45,600 units sold during year at $300 per unit

What is the amount of ending finished goods inventory for theperiod ending December 31, 20XX?

	$860,000
	$830,000
	$840,000
	$850,000
	$820,000

2.Net income reported under absorption costing will exceed netincome reported under variable costing for a given period if

production equals sales for thatperiod.

variable overhead exceeds fixedoverhead for that period.

production exceeds sales for thatperiod.

sales exceed production for that period.

A company manufactures wallets. Last month's costs were aslisted below:

Direct materials	$246,000
Direct labor	$175,000
Manufacturing Overhead	$73,000

What were the conversion costs for the month?

$248,000

$494,000

$421,000

$246,000

4. Which of the following are classified as manufacturingoverhead?

Indirect labor and indirectmaterials

Direct materials and directlabor

Factory rent and direct labor

All materials

5.Baxter Company produces Frisbees using a three-step sequentialprocess that includes molding, coloring, and finishing. At whatstage would the sets be allocated Manufacturing Overhead?

When the Frisbees are in WIPInventory-Coloring

When the Frisbees are in WIPInventory-Finishing

When the Frisbees are in WIPInventory-Molding

All of the above

6.Which method are managers using when they use their judgmentto classify costs as variable, fixed, or mixed?

Low-high method

Regression analysis

Account analysis

High-low method

7.Which of the following is not a way in which management canuse job cost information?

Determining the balance in rawmaterials inventory

Preparing the financialstatements

Assessing and comparing theprofitability of each product type

Using the cost information in determining the bid price forcustom orders

8.A factory janitor's wages would be classified as _________when determining the cost of a manufactured product.

an indirect cost

a period cost

a direct cost

none of the above

Tall Timbers reports the following data for its first year ofoperation:

Work in process inventory, beginning	$ 0
Work in process inventory, ending	$50,200
Manufacturing overhead	$25,400
Direct materials used	$7,700
Direct Labor	$60,000
Finished goods inventory, beginning	$ 0
Finished goods inventory, ending	$20,000
Cost of goods manufactured	$42,900

What is the cost of goods sold?

$22,900

$76,000

$73,100

$42,900

10.

A deodorant manufacturer offers the following information:

WIP Inventory, January 1	0 units
Units started	33,600 units
Units completed and transferred out	11,200 units
WIP Inventory, December 31	22,400 units
Direct materials	$276,480
Direct labor	$585,000
Manufacturing Overhead	$328,920

The units in ending WIP Inventory were 60% complete formaterials and 40% complete for conversion costs.

On December 31, what are the total equivalent units for directmaterials?

47,040

33,600

20,160

24,640

11. How is the cost of indirect materials used in the factoryrecorded?

Credit to Raw Materials Inventoryaccount

Credit to Manufacturing Overheadaccount

Credit to Direct Materials Expenseaccount

Credit to Work-in-Process Inventory account

12. XYZ uses job costing. Actual manufacturing overhead for theperiod is $20,300 while allocated manufacturing overhead is$18,200. What entry will close the manufacturing overheadbalance?

	Debit the Cost of Goods Soldaccount and credit the Finished Goods Inventory account for$2,100.
	Debit the Manufacturing Overheadaccount and credit the Work-in-Process account for $2,100.
	Debit the Cost of Goods Soldaccount and credit the Manufacturing Overhead account for$2,100.
	Debit the Manufacturing Overhead account and credit the Cost ofGoods Sold account for $2,100.

1 An increase in fixed costs will cause the break-even point to decrease True False

2 Rental of equipment at $5,000 per month plus $6 for each machine hour used over 9,000 hours is a type of mixed cost. True False

3 Conversion costs are made up of direct labor and factory overhead True False

4 Which of the following would be classified as a variable cost?

Straight-line depreciation on production equipment

Copy lease payment of $500 per month plus $0.01 per copy

Fabric for use in quilts to be produced.

None of the above

5.Mixed costs:

have both the characteristics of fixed costs and variable costs.

change in relation to the passage of time.

cannot be accurately plotted on a graph.

None of the above

6 What is the correct formula to calculate the contribution margin ratio?

Fixed Costs / Unit Contribution Margin

(Sales - Variable Costs) / Sales

(Fixed Costs + Target Profit) / Unit Contribution Margin

None of the above

7 The budget process begins with which of the following?

Production budget

Sales budget

Cash Budget

Budgeted Income Statement

8 If the cost of materials purchased in the period is $200,000, and $185,000 is used in the manufacturing process, then:

the unused $15,000 is a period cost.

the unused $15,000 is part of work-in-process inventory in the period.

the unused $15,000 is classified as materials inventory

the unused $15,000 is part of finished goods inventory on the balance sheet.

9 Which statement(s) is True about the uses of managerial accounting?

Managerial accounting is used to support long-term planning decisions.

Managerial accounting helps a company evaluate the performance of company decisions.

Managerial accounting helps users run the day-to-day operations of the business.

All of the above

10 A budgeting system that requires managers to estimate sales and other operating expenses as though operations are being started for the first time is:

static budgeting.

flexible budgeting

zero based budgeting

None of the above

Fixed costs for Flag Stamp Co. are $250,000. The selling price per unit is $20.00, and variable costs are $15.00.

The contribution margin ratio is ? (state whole number only - no decimals).

Fixed costs for Flag Stamp Co. are $300,000. The selling price per unit is $20.00, and variable costs are $15.00. The break-even sales (in units) are ?

Assume sales are $750,000, variable costs are 70% of sales, and income from operations is $100,000. What is the contribution margin ratio and fixed cost, respectively?

The following costs were incurred in August:

Direct Materials $25,000

Direct Labor $20,000

Manufacturing (Factory) Overhead $25,000

Selling and Administrative Expenses $40,000

(1) What is the amount of the prime costs?

(2) What is the amount of the period costs?

(3) What is the amount of the conversion costs?

(4) What is the amount of the product costs?

If Ragged Edge Arts sells quilts and paintings, and it has estimated selling 50 quilts at $250 each and 42 paintings at $500 each, what are the estimated sales for next year?

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ACC 406 Lecture Notes - Lecture 1: Fixed Cost, Variable Cost, Finished Good

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