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ACC 117 Lecture Notes - Lecture 7: Income Statement

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tealmammoth179
24 Jul 2020
School
Tunxis Community College
Department
Accounting
Course
ACC 117
Professor
Muccino

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Document Summary

Firms operating in job-order industries produce a wide variety of services and products that are quite distinct from eachother. Unit costs are computed by dividing total job costs by total units produced by that job. Firms producing identical products or services can use process costing accounting system. Unit cost computed by dividing process costs for the period by units produced in the period. In normal costing, overhead must be estimated and applied to output. Overhead rate = estimated annual overhead / estimated annual activity level. Reconcile applied overhead with actual overhead and allocate difference to. Plantwide overhead rate: single overhead rate calculated using all estimated overhead for a factory and dividing by estimated activity for an entire plant. Departmental overhead rate: estimated overhead rate for a department divided by estimated activity from the same department. Unit costs = direct labour + direct materials + overhead. Work in progress: total of all job-order cost sheets for unfinished jobs.

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Related Questions

I. The basic parts of a joborder costing system are the:

A. Cost______________ and _________________ procedures.

B. ____________________ documents.

C. Accountsthat a company uses when it incurs costs for direct ____________,direct ________________, and ___________________.

II. Accounting for materialsrequires three types of entries.

A. With the ______________ of materials,debit Materials Inventory and credit Accounts Payable.

B. With the _______________ of directmaterials to ________________, debit Work in Process Inventory andcredit Materials Inventory.

C. With the transfer of__________________ materials to production, debit Overhead andcredit Materials Inventory.

III. Accounting for labor requirestwo types of entries.

A. For payroll costs incurred for_____________ labor, debit Work in Process Inventory and creditPayroll Payable.

B. For payroll costs incurred for_______________ labor, debit Overhead and credit PayrollPayable.

IV. Accounting for other overhead requires twotypes of entries.

A. Other overhead includes plant____________, property _____________, insurance, and_______________.

B. To record _____________ overhead costs,debit Overhead and credit Cash or Accumulated Depreciation.

C. To record _____________ overheadcosts, debit Work in Process Inventory and credit Overhead.

D. The actual (debits) and estimated(credits) overhead costs are ________________ at the end of theperiod to determine the accuracy of overhead costrecognition.

V. To recordthe transfer of ________________ units, debit Finished GoodsInventory and credit Work in Process Inventory.

VI. When a companyuses a perpetual inventory system, two accounting entries are madewhen products are sold.

A. To record the sold product’s________________, debit Accounts Receivable (or Cash) and creditSales.

B. To record the sold product’sassociated ____________, debit Cost of Goods Sold and creditFinished Goods Inventory.

VII. Each job in production has a job order_________________.

A. Hasspace for direct materials, direct labor, and overhead costs.

B. Includesthe job order number, product specifications, customer name, dateof order, projected completion date, and a cost summary.

C. Forincomplete jobs, they make up the _______________ ledger for theWork in Process Inventory account.

D. When ajob is completed, the costs are totaled on the_____________________.

1. Unit cost is computed to_____________ items in inventory.

2. Product ___________Cost = Total Costs for Job ÷ Number of Good Units Produced

VIII. Job order costing systems are also used in______________ organizations.

A. Job ordercost cards track ________________ contracts.

IX. Overhead costs are allocated in foursteps.

A. Step 1: _____________ the overheadrate.

1. A ________________ overheadrate is calculated as estimated overhead costs divided by estimatedcost driver activity.

B. Step 2:______________ the overhead rate.

1. Costs are assigned by multiplyingthe actual cost _____________ activity by the predeterminedoverhead rate.

C. Step 3:Record ________________ overhead costs

D. Step 4:_________________ applied and actual overhead amounts

1. Ifover- or underapplied amounts are minimal, credit or debit_________________.

2. Ifover- or underapplied amounts are material, adjustments should bemade to the inventory accounts affected.

X. The__________________ approach to applying overhead costs is to use asingle plantwide rate.

XI. The moreaccurate _____________________ approach to applying overhead costscreates many smaller activity pools and establishes separate ratesfor each pool.

1. Managerialaccounting:

A. is unregulated.

B. produces information that is useful only formanufacturing organizations.

C. is based exclusively on historical data.

D. is regulated by the Securities and Exchange Commission(SEC).

E. generally focuses on reporting information about theenterprise in its entirety rather than by subunits.

2. The estimatesused to calculate the predetermined overhead rate will

A. generallyprove to be incorrect to some degree.

B. usually result in a nonzero balance left in the manufacturingoverhead account at the

end of the year.

C. result in either overapplied or underapplied overhead.

D. be closed to cost of goods sold if there is under- oroverapplied overhead.

E.all of the above.

3. Which of the following is true regardingjob-order costing?

A. It is a type of product costing system whereby small numbers ofproducts are

produced in distinct batches.

B. It is used exclusively in manufacturing environments.

C. It is used for continuous mass production of products.

D. It would always be used in the food processing industry.

E. It is used exclusively for products of a similar nature.

4. Madison Inc. is an Advertising Agencythat uses a job-order cost system. Madison applies

overhead tojobs based on direct professional labor hours. At the beginning ofthe year,

overheadwas estimated to be $75,000, direct professional labor hours wereestimated to

be15,000, and direct professional labor cost was projected to be$225,000. During the year,

Madisonincurred actual overhead of $80,000, actual direct labor hours of14,500, and

actualdirect labor cost of $222,000. What was Madison’s over- orunder-applied overhead

during theyear?

A. $5,000 under-applied

B. $5,000 over-applied

C. $7,500 under-applied

D. $7,500 over-applied

E. $3,000 over-applied

5. In computing the marginin an ROI analysis, which of the following is used?

A. Sales in the denominator

B. Net operating income in the denominator

C. Average operating assets in the denominator

D. Residual income in the denominator

E. Average operating assets in the numerator

6. Consider the followinginformation:

Selling price per unit $25

Contribution margin $10

Fixedcosts $45,000

Refer to the above information. Whatis the number of units that must be sold to break even?

A.3,000

B.4,000

C.4,500

D.1,800

E.367

7. Refer to the given information in 6. above. To earn atargeted net profit of $50,000, the total

dollar value of sales must be atleast:

A. $ 8,000

B. $ 237,500

C. $ 112,500

D. $ 122,500

E $ 10,000

8. Variances are computed by takingthe difference between which of the following?

A. Product cost and period cost.

B. Actual cost and differential cost.

C. Price factors and rate factors.

D. Actual cost and standard cost.

E. Product cost and standard cost.

9. Most companies base thecalculation of the materials price variance on the:

A. number of units purchased.

B. number of units spoiled.

C. number of units that should have been used.

D. number of units actually used.

E. number of units to be purchased during the nextaccounting period.

10. Soderquist Corporation uses residual income toevaluate the performance of its divisions.

The company's minimumrequired rate of return is 11%. In April, the CommercialProducts

Division had averageoperating assets of $100,000 and net operating income of $9,400.What

was the CommercialProducts Division's residual income in April?

A.($1,600)

B. $1,600

C. $1,034

D. ($1,034)

E. $9,400

11. National Ceramics, Inc.,recently completed 45,000 units of a product that was expected toconsume four pounds of direct material per finished unit. Thestandard price of the direct material was $8 per pound. If the firmpurchased and consumed 186,000 pounds in manufacturing (cost =$1,534,500), the direct-materials quantity variance would befigured as:

A. $48,000F.

B. $48,000U.

C. $49,500F.

D. $49,500U.

E. none of the above.

12. Carolina Enterprises recentlyused 17,000 labor hours to produce 8,000 completed units. Accordingto manufacturing specifications, each unit is anticipated to taketwo hours to complete. The company's actual payroll cost amountedto $200,600. If the standard labor cost per hour is $12, Carolina'slabor rate variance is:

A. $2,000F.

B. $2,000U.

C. $3,400U.

D. $3,400F.

E. none of the above.

13. Smithfield Company collects20% of a month's sales in the month of sale, 70% in the month

following sale, and 6% in the second month following sale. Theremainder is uncollectible.

Budgeted sales for the next four months are:

January February March April

Budgeted sales……………. $200,000 $300,000 $350,000 $250,000

Cash collections in April are budgeted to be:
A. $321,000
B. $245,000
C. $320,000

D. $292,000

E. $313,000

14. Rand, Inc. had an unfavorable laborefficiency variance and an unfavorable materials quantity variance.Which department might be held accountable for these variances?

A. Purchasing, because bad materials can harm labor efficiency.

B. Production, because inefficient workers may use morematerials than allowed.

C. Purchasing and/or production.

D. Marketing.

E. Shipping

15. A static budget:

A. is based on one anticipated activity level.

B. is based totally on prior year's costs.

C. is based on a range of activity.

D. is preferred over a flexible budget in theevaluation of performance.

E. presents a clear measure of performance when plannedactivity differs from actual activity

16. Flexible budgetsreflect a company's anticipated costs based on variations in:

A. activity levels.

B. inflation rates.

C. managers.

D. anticipated capital acquisitions.

E. standards.

17. Grove Street Merchandisinganticipated selling 24,000 units of a major product and payingsales commissions of $5 per unit. Actual sales and salescommissions totaled 23,600 units and $120,360, respectively. If thecompany used a flexible budget for performance evaluations, GroveStreet would report a cost variance of:

A. $360U.

B. $360F.

C. $2,360U.

D. $2,360F.

E. some other amount not listed above.

18. Which of the following is not anexample of a responsibility center?

A. Cost center.

B. Revenue center.

C. Profit center.

D. Investment center.

E. Contribution center.

19. If the head of ahotel's food and beverage operation is held accountable forrevenues and costs, the food and beverage operation would beconsidered a(n):

A. cost center.

B. revenue center.

C. investment center.

D. profit center.

E. contribution center.

20. The ROIcalculation will indicate:

A. the percentage of each sales dollar that is invested inassets.

B. the sales dollars generated from each dollar ofincome.

C. how effectively a company used its investedcapital.

D. the invested capital generated from each dollar of income.

E. the overall quality of a company's earnings.

21. The City of Miami isabout to replace an old fire engine with a new vehicle in an effortto save maintenance and other operating costs. Which of thefollowing items, all related to the transaction, would not beconsidered in the decision?

A. Purchase price of the new vehicle.

B. Purchase price of the old vehicle.

C. Savings in operating costs as a result of the newvehicle.

D. Proceeds from disposal of the old vehicle.

E. Future depreciation on the new vehicle.

22. Which of the followingcosts can be ignored when making a decision?

A. Opportunity costs.

B. Differential costs.

C. Sunk costs.

D. Relevant costs.

E. All future costs.

23. Which of the following represents the correctorder in which the indicated budgets for a

manufacturingcompany would be prepared?

A.

Sales budget, cash budget, direct materials budget,direct labor budget

B.

Production budget, sales budget, direct materials budget, directlabor budget

C.

Sales budget, cash budget, production budget,direct materials budget

D.

Sales budget, direct materials budget, direct laborbudget, production budget

E.

Selling and administrative expense budget, cashbudget, budgeted income statement,

budgeted balance sheet

24. The following costs appear in Porter Company'sflexible budget at an activity level

of 15,000machine-hours:

TotalCost

Indirect materials……......... $7,800

Factory rent……………….. $18,000

Whatwould be the flexible budget amounts at an activity level of 12,000machine-hours

ifindirect materials is a variable cost and factory rent is a fixedcost?

IndirectMaterials Factory Rent

$7,800 $14,400

$7,800 $18,000

$6,240 $14,400

$6,240 $18,000

$7,020 $20,000


25. Which of the following conditions would causeabsorption-costing net income to be lower

than variable-costing net income?

A. Units sold exceededunits produced.

B. Units sold equaledunits produced.

C. Units sold were lessthan units produced.

D. Sales pricesdecreased.

E. Selling expensesincreased.

26. A new machinethat costs $80,800 is expected to save annual cash operating costsof

$20,000 over each of the next sevenyears. The machine's internal rate of return is:

A. approximately 12%.

B. approximately 14%.

C. approximately 16%.

D. approximately 18%.

E. some other figure not noted above.

27. Mount Royal Corporationhas two divisions: the Beta Division and the Alpha Division.The

Beta Division has sales of $580,000, variable expenses of $301,600,and traceable fixed

expenses of $186,500. The Alpha Division has sales of $510,000,variable expenses of

$178,500, and traceable fixed expenses of $222,100. The totalamount of common fixed

expenses not traceable to the individual divisions is $235,500.What is the company's net

operating income?
A. $374,400
B. $201,300
C. $609,900

D. ($34,200)

E. $42,900

28. Capital-budgetingdecisions primarily involve:

A. emergency situations.

B. long-term decisions.

C. short-term planning situations.

D. cash inflows and outflows in the current year.

E. planning for the acquisition of capital.

29. Santa Ana Corporationhas computed the following unit costs for the year justended:

Direct material used

$25

Direct labor

19

Variable manufacturing overhead

35

Fixed manufacturing overhead

40

Variable selling and administrative cost

17

Fixed selling and administrative cost

32

Which of the following choices correctly depicts the per-unit costof inventory under variable costing and absorption costing?

Variable Costing

Absorption Costing

A.

$79

$119

B.

$79

$151

C.

$96

$119

D.

$96

$151

E.

Some other combination of figures not listed above.

30. A salesperson from adifferent computer company claims that his machine, which costs$85,000 and has an estimated service life of four years, willgenerate annual savings for the city of $32,000. If the discountrate is 10%, the net present value of this system would be:

A. $16,440.

B. $23,175.

C. $63,512.

D. $101,440.

E. some other amount.