Accounting ACCT 2620 Lecture Notes - Lecture 2: Gross Margin, Sunk Costs, Opportunity Cost

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oliveleopard31

22 Jan 2017

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A cost is the sacrifice made (resource given up) to achieve a particular purpose. An expense is the cost incurred when an asset used up or sold for the purpose of generating revenue. Product costs: the costs of goods manufactured or the cost of goods purchased for resale. Direct cost: a cost which is related to a particular product and can be traced to it in an economically feasible way. Direct material: raw material which is consumed in the manufacturing process and physically incorporated in the finished product. Direct labor: cost of salaries, wages, and fringe benefits for personnel who work directly on manufactured products. Indirect cost/overhead: a cost which is related to a particular product but cannot be traced in an economically feasible way. Indirect material: used to support the production process but not part of the finished product. Or part of the finished product but insignificant in cost.

Related Questions

Watsonâs revised pro forma cost of goods sold is closest to

A.	$16,565,000
B.	$16,942,000
C.	$17,377,000
D.	$17,760,000

The following information was adapted from a question on Part 4 of the December 1990 CMA examination that concerned preparation of a pro forma statement of cost of goods sold. The following is Watson Corporationâs pro forma statement of cost of goods sold for the year ended August 31, Year 2.

Watson Corporation

Pro Forma Statement of Cost of Goods Sold

For the Year Ending August 31, Year 2

($000 omitted)

Direct materials:

Materials inventory, 9/1/Yr 1

$ 1,200

Materials purchased

11,400

Materials available for use

12,600

Materials inventory, 8/31/Yr 2

1,480

Direct materials consumed

$11,120

Direct labor

980

Factory overhead:

Indirect materials

1,112

General factory overhead

2,800

3,912

Cost of goods manufactured

16,012

Add: finished goods inventory

9/1/Yr 1

930

Cost of goods available for sale

16,942

Less: finished goods inventory,

8/31/Yr 2

(377)

Cost of goods sold

$16,565

The results for the first quarter required the following changes in the budget assumptions:

The estimated production in units for the fiscal year should be revised from 140,000 to 145,000 units with the balance of production being scheduled in equal segments over the last 9 months of the year. The actual first quarterâs production was 25,000 units.

The planned inventory for finished goods of 3,300 units at the end of the fiscal year remains unchanged and will be valued at the average manufacturing cost for the year. The finished goods inventory of 9,300 units on September 1, Year 1, had dropped to 9,000 units by November 30, Year 1.

Due to a new labor agreement, the labor rate will increase 8% effective June 1, Year 2, the beginning of the fourth quarter, instead of the previously anticipated effective date of September 1, Year 2, the beginning of the next fiscal year.

The assumptions remain unchanged for direct materials inventory at 16,000 units for the beginning inventory and 18,500 units for the ending inventory. Direct materials inventory is valued on a FIFO basis. During the first quarter, direct materials for 27,500 units of output were purchased for $2,200,000. Although direct materials will be purchased evenly for the last 9 months, the cost of the direct materials will increase by 5% on March 1, Year 2, the beginning of the third quarter. One unit of raw material is used in each unit of product.

Indirect materials costs will continue to be projected at 10% of the cost of direct materials consumed.

One-half of general factory overhead is considered fixed.

maroonpanda423

1. ABC generally causes the least amount of cost distortionamong products because indirect costs are allocated to the productsbased on

types of activities used by theproduct.

the extent to which the activitiesare used.

both A and B.

none of the above.

Chicago Steel's operating activities for the year are listedbelow:

Beginning inventory	$1,000,800
Ending inventory	$350,500
Purchases	$750,300
Sales revenue	$1,500,400
Operating expenses	$700,200

What is the cost of goods sold for the year?

$1,751,100

$1,400,600

$750,100

$50,100

The following is selected financial data from Turtle BayManufacturing for the most recent year:

Ending raw materials inventory	$21,200
Ending work in process inventory	$44,900
Ending finished goods inventory	$53,200
Amount of underallocated manufacturing overhead	$5,100
Cost of goods sold for year	$85,500
Cost of raw materials purchased during year	$45,700
Cost of direct materials requisitioned during year	$44,300
Cost of indirect materials requisitioned during year	$7,200
Cost of goods completed during year	$120,200
Manufacturing overhead allocated	$60,400
Manufacturing overhead % of direct labor cost	135%

What is the beginning raw materials inventory?

$27,000

$51,500

$19,800

$5,800

4. Which of the following is not an activity inan ABC system that determines the cost of a manufacturedproduct?

Materials handling

Inspecting

Machining

Accounting

5. Which type of company utilizes managerialaccounting?

Manufacturers

Service

Retailers

All of the above

6. On a traditional income statement, all manufacturing-relatedcosts, whether fixed or variable, are listed

above the gross profit line.

below the operating incomeline.

above the sales line.

above the contribution margin line.

7. In a process costing system, direct labor and manufacturingoverhead are normally

incurred evenly throughout theprocess.

incurred at the end of theprocess.

incurred in full at the beginningof the process.

not recorded.

8. Manufacturing overhead costs for a productinclude

operating expenses.

indirect manufacturing costs.

direct material.

prime costs.

Here are selected basic data for Wilson Company:

Estimated manufacturing overhead	$243,750	Factory utilities	$30,900
Estimated labor hours	35,000	Indirect labor	$22,600
Actual direct labor hours	36,000	Sales commissions	$54,600
Estimated direct labor cost	$325,000	Factory rent	$47,800
Actual direct labor cost	$320,000	Factory property taxes	$28,700
Factory depreciation	$65,600	Indirect materials	$33,300

If the company allocates overhead based on direct labor cost,what are the total actual manufacturing overhead costs?

$173,000

$283,500

$228,900

$260,900

10. ERP stands for

	Enterprise Resource Planning.
	Enclosed Resource Placement.
	Edwin R. Perry, the man thatcreated the first system.
	Entity Replacement Product.

lavendermarten476

Christopherâs Custom Cabinet Company uses a job order cost system with overhead applied as a percentage of direct labor costs. Inventory balances at the beginning of 2016 follow: Raw Materials Inventory $ 15,700 Work in Process Inventory 6,100 Finished Goods Inventory 22,000 The following transactions occurred during January: (a) Purchased materials on account for $26,100. (b) Issued materials to production totaling $20,800, 90 percent of which was traced to specific jobs and the remainder of which was treated as indirect materials. (c) Payroll costs totaling $17,300 were recorded as follows: $10,100 for assembly workers 1,300 for factory supervision 2,900 for administrative personnel 3,000 for sales commissions (d) Recorded depreciation: $4,700 for machines, $700 for the copier used in the administrative office. (e) Recorded $1,400 of expired insurance. Forty percent was insurance on the manufacturing facility, with the remainder classified as an administrative expense. (f) Paid $5,600 in other factory costs in cash. (g) Applied manufacturing overhead at a rate of 200 percent of direct labor cost. (h) Completed all jobs but one; the job cost sheet for this job shows $2,300 for direct materials, $2,200 for direct labor, and $4,400 for applied overhead. (i) Sold jobs costing $50,900. The revenue earned on these jobs was $66,170. Required: 1. Set up T-accounts, record the beginning balances, post the January transactions, and compute the final balance for the following accounts: (Post all amounts separately. Do not combine/add any dollar amounts when posting to the t-accounts.) Raw Materials Inventory. Work in Process Inventory. Finished Goods Inventory. Cost of Goods Sold. Selling, General, and Administrative Expenses. Sales Revenue. Other accounts (Cash, Payables, etc.). 2. Determine how much gross profit the company would report during the month of January before any adjustment is made for the overhead balance. 3. Determine the amount of over- or underapplied overhead. 4. Compute adjusted gross profit assuming that any over- or underapplied overhead balance is adjusted directly to Cost of Goods Sold.

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Accounting ACCT 2620 Lecture Notes - Lecture 2: Gross Margin, Sunk Costs, Opportunity Cost

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