ACCT-3030 Study Guide - Midterm Guide: Finished Good, Income Statement, European Cooperation In Science And Technology

90 views3 pages

carminelizard185

23 Apr 2018

School

Department

Course

Professor

For unlimited access to Study Guides, a Grade+ subscription is required.

Document Summary

Direct costs: a cost that can be easily & conveniently traced to a specified cost object. Indirect cost: a cost that cannot be easily & conveniently traced to a specific cost object. Product costs: all costs involved in acquiring or making a product; attached to inventory until sale, then it"s expensed in cogs. Period costs: not product costs; selling and administrative expenses. Prime cost: direct materials + direct labor. Conversion cost: direct labor + manufacturing overhead. Assigning the costs you incur to a specific job. Direct materials: raw materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product. Direct labor (touch labor): labor costs that can be easily traced to individual units of a product. Manufacturing overhead (moh): all manufacturing costs that aren"t direct materials or direct labor; indirect materials and indirect labor. Ex: glue for assembly; night security guards.

Related Questions

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.

When overhead costs are incurred they are recorded in an Accounttitled Manufacturing Overhead Control Account. The account isdebited for each overhead expense billed and an appropriate accountsuch as Cash or Accounts Payable is credited. Since overhead costscannot be traced directly to a cost object or to a Job, the totalannual overhead cost for the coming year are estimated at the endof the preceeding year and a formula is used to estimate the amountof overhead that should be charged to each job or product. Theamount charged to jobs or products is credited to the MOH accountand debited to the Work In Process Account. This estimated amountis a surrogate for the actual overhead costs that are incurredduring the year. At the end of the accounting period, the estimatedamounts charged to all jobs or products may be higher or lower thanthe actual overhead costs incurred during the year. This situationgives rise to the phenomenon of Under /Over applied overhead. Sinceoverhead expenses are just like ordinary expenses except for thefact that they are incorporated in the cost of product, then theMOH account is like any other temporary account and therefore itmust be closed at the end of the accounting period.

Applied overhead is calculated using the following formula:Predetermined Overhead Application Rate (POHAR) x Actualconsumption of the Activity Base. For example, if the POHAR is $10per direct labor hour consumed by a product and the productconsumes 5 direct labor hours, then Applied Overhead would be: 10 X5 = $50. Under/ Over applied overhead is calculated as: ActualOverhead costs - Applied Overhead. If Actual is greater thanapplied then Overhead is described as under applied and if theApplied is greater than Actual then it is described as overapplied.

Assignment: The estimated overhead costs of Abel Furniture were$2,200,000 and the estimated basis used for charging overhead toproduction is direct labor hours estimated at 500,000. The actualoverhead incurred during the year was $2,800,000 and the amountcharged to production was $2,400,000. Calculate the amount ofUnder/Over applied overhead and close the balance to Cost of Goodssold.

ceruleangoat931

Cost-Based Pricing

Companies use various strategies to set price. Since cost is animportant determinant of supply and is known to the producer, manycompanies base price on cost. Still other companies use atarget-costing strategy, or strategies based on the initialconditions in the market.

A cost-based pricing approach starts with product cost and thendesired profit is added. Usually, there is some cost base and amarkup. The markup is a percentage applied to base cost; itincludes desired profit and any costs not included in the basecost. Companies that bid for jobs routinely base bid price oncost.

Example: Linder Company makes and sells vitaminsupplements. The following information from last year's accountingrecords showed:


Cost of Goods Sold	$254,000
Selling and administrativeexpense	86,360
Operating income	111,760

The markup percentage must include all costs that are not a partof cost of goods sold plus the desired profit. For Linder Company,the markup on COGS is found as follows:

Markup on COGS	= (Selling and administrativeexpenses + Operating income)/COGS
	= ($86,360 + $111,760)/$254,000 =0.78 or 78%

Now, if Linder Company produces a new product with manufacturingcost of $2 per unit, the unit price at this markup is:

Price = $2 + (0.78 Ã $2) = $2.00 +$1.56 = $3.56

A Company does not have to use Cost of Goods Sold as the basisof the markup. For example, a job-order firm might decide to usethe markup on prime costs (direct materials and direct labor) tocost jobs. Suppose that Carl's Custom Cabinetry wants to price jobsbased on prime costs plus a markup on prime cost. Last year'sincome statement revealed the following information:


Prime costs	$134,000
Overhead	73,700
Selling and administrativeexpense	38,860
Operating income	50,920

Markup on Prime Cost	= (Overhead + Selling andadministrative expenses + Operating income)/Prime cost
	= ($73,700 + $38,860 +$50,920)/$134,000 = 1.22 or 122%

Carl is pricing a new job with estimated direct materials of$4,300 and direct labor of $1,800. The estimated price is:

Price = ($4,300 + $1,800) + (1.22 Ã$6,100) = $6,100 + $7,442 = $13,542

Neither Linder Company nor Carl's Custom Cabinets must use theprice figured according to the markup. This is just a firstapproximation. Carl, for example, may want to set a lower price inhopes of getting more business from this particular customer.Linder Company may want to charge a higher price based on marketconsiderations.

Target Costing

Another approach to pricing a product or service is targetcosting. The target cost is based on the price (target price) thatcustomers are willing to pay. The Marketing Department determineswhat characteristics and price for a product are most acceptable toconsumers. Then, it is the job of the company's engineers to designand develop the product such that cost and profit can be covered bythat price. Japanese firms have been doing this for years; Americancompanies are beginning to use target costing. So first the targetprice is set. Then the desired profit is deducted, and theremaining amount is the target cost.

Target cost = Target price -Desired profit

Determining the target cost is relatively easy. Actuallydesigning and manufacturing a product that will achieve the targetcost and sell for the target price is more difficult. As a result,target costing is an iterative process as the firm works to refinethe proposed product to meet the cost and price targets.

Price Discrimination

Price discrimination refers to the charging of different pricesto different customers for essentially the same product. TheRobinson-Patman Act was passed in 1936 as a means of outlawingprice discrimination by manufacturers or suppliers; services andintangibles are not included under the act.

The Robinson-Patman Act does allow price discrimination undercertain specified conditions: (1) if the competitive situationdemands it and (2) if costs (including costs of manufacture, sale,or delivery) can justify the lower price. According to the secondcondition, a lower price offered to one customer must be justifiedby identifiable cost savings and the amount of the discount must beat least equaled by the amount of cost saved.

To compute a cost differential, the company creates classes ofcustomers based on the average costs of selling to those customers.Then all customers in each group are charged a cost-justifiableprice.

Example: Raul Company manufactures specializedelastic bandages used to reinforce athletes' wrists or ankles. Raulsells to a number of individual physical therapists and athletictrainers as well as to Medallion Gym, a national chain of physicalfitness facilities. The average manufacturing cost is $169 per case(a case contains 100 plastic-wrapped elastic bandages). RaulCompany sold 350,000 cases last year to the following two classesof customer.

	Price	Quantity
Medallion Gym	$235	175,000
Individual trainers and physicaltherapists	$241	175,000

Medallion Gym requires that the bandages be individuallypackaged in boxes with the Medallion name on the label. This boxand special labelling costs $0.34 per unit. Raul also pays allshipping costs, which amounted to $1,400,000 last year.

The individual trainers and physical therapists order in smalllots that require special picking and packing in the factory; thespecial handling adds $20 to the cost of each case sold. Salescommissions to the independent jobbers who sell Raul products tothe trainers and physical therapists average 10 percent of sales.Bad debts expense amounts to 1 percent of sales.

The cost per case for each customer category can be computed asfollows:

Medallion Gym:
Manufacturing cost per case	$169.00
Box and special labelling ($0.34 Ã100)	34.00
Shipping ($1,400,000/175,000cases)	8.00
Total cost per case	$211.00

Individual Trainers and PhysicalTherapists:
Manufacturing cost per case	$169.00
Special handling	20.00
Sales commission ($241 x 0.10)	24.10
Bad debts expense ($241 x0.01)	2.41
Total cost per case	$215.51

Profit and profit percentages are as follows:

	Medallion Gym	Trainers and Physical Therapists
Price per case	$235.00	$241.00
Less: cost per case	211.00	215.51
Profit per case	$24.00	$25.49
Profit percentage	10.21%	10.58%

The company will need to see if the profit percentages range areclose to one another; if so, there would be a cost justificationfor the price differential. If not, the company may need toconsider potential price discrimination and change its price forthe customer group that it considers to be "out of line."

For each of the following situations, determine whether or notthere is price discrimination according to the Robinson-PatmanAct.

1.	Dr. Jeffrey Lowman, M.D., chargesless to patients who he feels cannot afford his usual fee.- Selectyour answer -YesNoItem 1

2.	Damian Company manufacturesspecialty jams and jellies. Damian is located in Amarillo, Texas,and sells only to stores in the Amarillo area. Sometimes Damianoffers a price break to store owners whose children attend the sameschools as Damian's children. - Select your answer -YesNoItem2

3.	A national manufacturer of hairproducts charges a significantly lower price to large chain storesthan to smaller stores. The price differential is not supported bycost differences. - Select your answer -YesNo

redshark999

ACCT-3030 Study Guide - Midterm Guide: Finished Good, Income Statement, European Cooperation In Science And Technology

Document Summary

Get access

Related Documents

BMGT 221 Chapter Notes - Chapter 2: Direct Labor Cost, Income Statement, Noodle

BMGT 221 Chapter Notes - Chapter 1: Direct Labor Cost, Executive Compensation, Matching Principle

SMG AC 222 Chapter 2,3,5: AC222 class notes

Related Questions