Accounting ACCT 2620 Study Guide - Quiz Guide: Direct Labor Cost, Cost Driver, Batch Production

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21 Feb 2017

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Heidi Nassos

Quiz 1 Review

Ch. 2, 3, 7

Term

Definition

Cost

Sacrifice made, usually measured by the resources given up, to achieve a particular purpose

Expense

Cost incurred when an asset is used up or sold for the purpose of generating revenue; recognition of a cost on the financial

statement once good/service is provided

Product Cost

Cost assigned to goods that were either purchased or manufactured for resale

Cost of Goods Sold

Product costs recognized as an expense

Inventoriable Cost

Product cost is stored as the cost of inventory until the goods are sold

Period Costs

All costs that are not product costs; identified with period of time in which they are incurred rather than with units of

purchased/produced goods (ex. R&D, SG&A)

Operating Expenses

Treated as period costs and expensed during the period in which they are incurred (ex. Employee wages, fuel, machine

maintenance)

Raw-material Inventory

All materials before they are placed into production

Work-in-process Inventory

Manufactured products that are only partially completed at the date when the balance sheet is prepared

Finished Goods

Manufactured goods that are complete and ready for sale

Direct Material

Raw material that is consumed in the manufacturing process, is physically incorporated in the finished product, and can be traced to

products relatively easily

Direct Labor

Cost of salaries, wages, and fringe benefits for personnel who work directly on the manufactured products

Manufacturing Overhead

All other costs of manufacturing, including indirect material, indirect labor, and other manufacturing costs

Indirect Material

Cost of materials required for production process but do not become an integral part of the finished product (ex. Glue, paint, drill

bits)

Indirect Labor

Costs of personnel who do not work directly on the product, but whose services are necessary for the manufacturing process

Other Manufacturing Costs

Depreciation, property taxes, insurance, utilities, service departments, overtime premiums, idle time

Cost of Goods

Manufactured

Total cost of direct material, direct labor, and manufacturing overhead transferred from work-in-process inventory to finished-

goods inventory

Activity

Measure of the organization's output of products or services

Cost Driver

Characteristic of an activity or event that causes costs to be incurred by that activity or event (ex. Machine hours, # pieces

inspected, purchase orders)

Variable Costs

Changes in total in direct proportion to a change in the level of activity

Fixed Costs

Remains unchanged in total as the level of activity (or cost driver) varies

Cost Object

Entity, such as a particular product, service, or department, to which a cost is assigned

Direct Cost

A cost that can be traced to a particular cost object

Indirect Cost

Cost that is not directly traceable to a particular cost object

Opportunity Cost

Benefit that is sacrificed when the choice of one action precludes taking an alternative course of action

Sunk Cost

Costs that have been incurred in the past. Do not affect future costs and cannot be changed by any current or future action

Differential Cost

Amount by which the cost differs under two alternative actions

Incremental Cost

Increase in cost from one alternative to another

Marginal Cost

Extra cost incurred when one additional unit is produced (because efficiency of production changes with output)

Average Cost

Total cost / number of units produced

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Document Summary

Sacrifice made, usually measured by the resources given up, to achieve a particular purpose. Cost incurred when an asset is used up or sold for the purpose of generating revenue; recognition of a cost on the financial statement once good/service is provided. Cost assigned to goods that were either purchased or manufactured for resale. Product cost is stored as the cost of inventory until the goods are sold. All costs that are not product costs; identified with period of time in which they are incurred rather than with units of purchased/produced goods (ex. Treated as period costs and expensed during the period in which they are incurred (ex. All materials before they are placed into production. Work-in-process inventory manufactured products that are only partially completed at the date when the balance sheet is prepared. Manufactured goods that are complete and ready for sale.

Related Questions

1) All of the following are examples of product costs except:

depreciation on the company's administrative offices.

salary of the plant manager.

insurance on the factory equipment.

rental costs of the factory facility.

2) Period costs:

are treated as expenses in the period they are incurred

are directly traceable to products

include direct labor

are also referred to as manufacturing overhead costs

3) Axle and Wheel Manufacturing currently produces 1,000 axles per month. The following per unit data apply for sales to regular customers:

Direct materials $30

Direct manufacturing labor 5

Variable manufacturing overhead 10

Fixed manufacturing overhead 40

Total manufacturing costs $85

The plant has capacity for 2,000 axles and is considering expanding production to 1,500 axles. What is the total cost of producing 1,500 axles?

a. $85,000

b. $170,000

c. $107,500

d. $102,500

4) In the preparation of the schedule of Cost of Goods Manufactured, the accountant incorrectly included as part of manufacturing overhead the rental expense on the firm's retail facilities. This inclusion would:

overstate period expenses on the income statement.

overstate the cost of goods sold on the income statement.

understate the cost of goods manufactured.

have no effect on the cost of goods manufactured.

5) In CVP analysis, focusing on target net income rather than operating income:

a. will increase the breakeven point

b. will decrease the breakeven point

c. will not change the breakeven point

d. does not allow calculation of breakeven point

6) A variable cost is constant if expressed on a per unit basis but the total dollar amount changes as the number of units increases or decreases.

a. True

b. False

7) As activity increases within the relevant range, fixed costs remain constant on a per unit basis.

a. True

b. False

8) Which of the following statements is correct with regard to a CVP graph?

A CVP graph shows the maximum possible profit.

A CVP graph shows the break-even point as the intersection of the total sales revenue line and the total expense line.

A CVP graph assumes that total expense varies in direct proportion to unit sales.

A CVP graph shows the operating leverage as the gap between total sales revenue and total expense at the actual level of sales.

9) How would the following costs be classified (product or period) under variable costing at a retail clothing store?

	Cost of purchasing clothing	Sales commissions
a.	Product	Product
b.	Product	Period
c.	Period	Product
d.	Period	Period

10) The principal difference between variable costing and absorption costing centers on:

whether variable manufacturing costs should be included as product costs.

whether fixed manufacturing costs should be included as product costs.

whether fixed manufacturing costs and fixed selling and administrative costs should be included as product costs.

none of these.

11) Joe has a hot dog cart that he parks on the NY sidewalk and sells hotdogs during the day. The variable cost of a hot dog is $.90. The selling price of the hot dog is $2.00. The fixed cost is $3,000 per month which covers the loan for the cart and the salary Joe needs to make to live. How many hotdogs must Joe sell in one month in order to break even?

3,300 hot dogs

3,000 hot dogs

2,727.27 hot dogs

2,728 hot dogs

12) Shun Corporation manufactures and sells a hand held calculator. The following information relates to Shun's operations for last year:

	Unit product cost under variable costing..........................	$5.20 per unit
	Fixed manufacturing overhead cost for the year..............	$260,000
	Fixed selling and administrative cost for the year............	$180,000
	Units (calculators) produced and sold..............................	400,000

What is Shun's unit product cost under absorption costing for last year?

$4.10

$4.55

$5.85

$6.30.

Use the following information to answer questions 13 to 15:

Barnett Company uses the weighted-average method in its process costing system. The company adds materials at the beginning of the process in Department M. Conversion costs were 75% complete with respect to the 4,000 units in work in process at May 1 and 50% complete with respect to the 6,000 units in work in process at May 31. During May, 14,000 units were started, 12,000 units were completed and transferred to the next department.

13) Calculate the number of equivalent units for materials.

10,000 units

12,000 units

14,000 units

15,000 units

18,000 units

14) Calculate the number of equivalent units for conversion?

10,000 units

12,000 units

14,000 units

15,000 units

18,000 units

15) An analysis of the costs relating to work in process at May 1 and to production activity for May follows:

	Materials	Conversion
Work in process 5/1.......................	$13,800	$3,740
Costs added during May................	$42,000	$26,260

The total cost per equivalent unit for May was:

$5.02

$5.10

$5.12

$5.25

pearbat350

I'll rate posting for sec times just do last parts likecost and balance sheet ( account balance and cost incurred ) that'sit ready question carefully then answer all last partthanks

Charles Maxwell is starting a cheesecake bakery, Able BakerCharlie Company, to produce and sell different flavored cheesecakesto restaurants and the general public. He has just begun his studyof accounting, and is a bit confused about the many types ofreports he has read about and how they will help him run hisbusiness. He asks you to help him clarify what the differencesbetween managerial accounting and financial accounting are. Heâsalso wondering how to set up his inventory, how to classify thecosts of his business, and how to fill in some missinginformation.

	Required:
1.	Choose whether thecharacteristics on the Managerial vs. Financial panel are mostoften associated with managerial accounting or financialaccounting.
2.	Charles has provided some ofthe costs he expects to incur on the Cost Classification panel.Decide on the classifications that could be applied to each ofthese costs using the table provided. The cost object in each caseis the cheesecake.
3.	Charles found some sampleincome statements and balance sheets on the Internet, and askedwhich of them might be most appropriate for a manufacturingbusiness like his. Review income statements A and B on the IncomeStatements panel, and balance sheets C and D on the Balance Sheetspanel. Determine which income statement and balance sheet would bemost appropriate for a manufacturing business like Able BakerCharlie. Then, on the Financial Statements panel, denote whichincome statement and balance sheet would be most appropriate for amanufacturing business.
4.	At the end of February, afterthe second month of operations of Able Baker Charlie Company,Charles shows you the data heâs collected, but he was unable tofigure out some of the amounts. On the Costs and Balances panel,determine the missing amounts. Note: It may behelpful to use T accounts to map the flow of the amounts throughthe manufacturing accounts and solve for the missing dollarvalues.

Managerial vs. Financial

Choose whether the following characteristics are most oftenassociated with managerial accounting or financial accounting.

	Managerial Accounting	Financial Accounting
Primarily used for internal decision making
Generally Accepted Accounting Principles (GAAP) must beused
Prepared statements usually pertain to the company as a wholerather than individual departments or products
Information provided will often be subjective, such asestimated future results
Often prepared on an as-needed basis rather than at fixedintervals
Use principles of the Sustainability Accounting Standards Board(SASB) to provide sustainability information to external financialstatement users
Consideration of sustainability practices to contribute to thecompanyâs long-term success
Using eco-efficiency measures to reduce expenses

Cost Classification

Charles has provided some of the costs he expects to incur asfollows. Decide on the classifications that could be applied toeach of these costs using the table provided. The cost object ineach case is the cheesecake.

Cost	Product	Period	Direct	Direct	Factory	Selling	Administrative	Direct	Indirect	Prime	Conversion
Cost	Cost	Cost	Materials	Labor	Overhead	Expense	Expense	Cost	Cost	Cost	Cost
Eggs used to make cheesecakes
Bakerâs wages
Delivery driver wages
Depreciation of office computers
Power to run the cheesecake ovens
Presidentâs salary
Sales commissions
Factory supervisor salary

Financial Statements

Charles found some sample income statements and balance sheetson the Internet, and asked which of them might be most appropriatefor a manufacturing business like his. Review income statements Aand B on the Income Statements panel, and balance sheets C and D onthe Balance Sheets panel. Determine which income statement andbalance sheet would be most appropriate for a manufacturingbusiness like Able Baker Charlie Company.

Which income statement is most appropriate for a manufacturingbusiness?

Income statement A

Income statement B

Which balance sheet is most appropriate for a manufacturingbusiness?

Balance sheet C

Balance sheet D

Income Statements

Income Statement A (scroll down for Income StatementB):

Sample Company A

Income Statement

For the Year Ended December 31, 20Y8

1	Sales		$42,000.00
2	Beginning finished goods inventory	$5,250.00
3	Plus cost of goods manufactured	6,400.00
4	Cost of finished goods available for sale	$11,650.00
5	Less ending finished goods inventory	400.00
6	Cost of goods sold		11,250.00
7	Gross profit		$30,750.00
8	Operating expenses:
9	Selling expenses	$6,400.00
10	Administrative expenses	5,250.00
11	Total operating expenses		11,650.00
12	Net income		$19,100.00

Income Statement B:

Sample Company B

Income Statement

For the Year Ended December 31, 20Y8

1	Sales		$42,000.00
2	Beginning merchandise inventory	$5,250.00
3	Plus net purchases	6,400.00
4	Merchandise available for sale	$11,650.00
5	Less ending merchandise inventory	400.00
6	Cost of merchandise sold		11,250.00
7	Gross profit		$30,750.00
8	Operating expenses:
9	Selling expenses	$6,400.00
10	Administrative expenses	5,250.00
11	Total operating expenses		11,650.00
12	Net income		$19,100.00

Balance Sheets

Balance Sheet C (scroll down for Balance SheetD):

Sample Company C

Balance Sheet

December 31, 20Y8

1	Assets
2	Cash		$20,800.00
3	Accounts receivable (net)		10,000.00
4	Merchandise inventory		6,000.00
5	Supplies		2,100.00
6	Land		17,000.00
7	Total assets		$55,900.00
8	Liabilities
9	Accounts payable		$17,800.00
10	Stockholdersâ Equity
11	Common stock	$19,000.00
12	Retained earnings	19,100.00
13	Total stockholdersâ equity		38,100.00
14	Total liabilities and stockholdersâ equity		$55,900.00

Balance Sheet D:

Sample Company D

Balance Sheet

December 31, 20Y8

1	Assets
2	Cash		$20,800.00
3	Accounts receivable (net)		10,000.00
4	Inventories:
5	Finished goods	$2,000.00
6	Work in process	1,500.00
7	Materials	2,500.00	6,000.00
8	Supplies		2,100.00
9	Land		17,000.00
10	Total assets		$55,900.00
11	Liabilities
12	Accounts payable		$17,800.00
13	Stockholdersâ Equity
14	Common stock	$19,000.00
15	Retained earnings	19,100.00
16	Total stockholdersâ equity		38,100.00
17	Total liabilities and stockholdersâ equity		$55,900.00

Costs and Balances

At the end of February, after the second month of operationsof Able Baker Charlie Company, Charles shows you the data heâscollected, but he was unable to figure out some of the amounts.Review the following data and fill in the missing amounts on thechart for Able Baker Charlie Company. Note: It maybe helpful to use T accounts to map the flow of the amounts throughthe manufacturing accounts and solve for the missing dollar values.It may also be helpful to review the steps for determining the costof materials used, total manufacturing cost incurred, and cost ofgoods manufactured.

Data forFebruary
Decrease in materialsinventory	$3,300
Materials inventory on Feb. 28	50% of materials inventory on Jan.31
Direct materials purchased	$12,600
Direct materials used	3 times the direct laborincurred
Total manufacturing costs incurredin period	$29,400
Total manufacturing costs incurredin period	70% of Cost of GoodsManufactured
Total manufacturing costs incurredin period	$7,000 less than Cost of GoodsSold

Account	Account Balances		Costs Incurred
Account	Jan.31	Feb.28	Costs Incurred
Materials Inventory			DirectMaterials Used
Work inProcess Inventory	$27,000		DirectLabor Incurred
FinishedGoods Inventory		$16,000	FactoryOverhead Incurred
			Cost ofGoods Sold

grayprairie-dog947

Customer Profitability Analysis

Rogers Aeronautics, LTD, is a British aeronauticssubcontract company that designs and manufactures electroniccontrol systems for commercial airlines. The vast majority of allcommercial aircraft are manufactured by Boeing in the U.S. andAirbus in Europe; however, there is a relatively small group ofcompanies that manufacture narrow-body commercial jets. Assume forthis exercise that Rogers does contract work for the two majormanufacturers plus three companies in the second tier.
Because competition is intense in the industry, Rogers has alwaysoperated on a fairly thin 20% gross profit margin; hence, it iscrucial that it manage non-manufacturing overhead costs effectivelyin order to achieve an acceptable net profit margin. With decliningprofit margins in recent years, Rogers Aeronautics' CEO, LenRogers, has become concerned that the cost of obtaining contractsand maintaining relations with its five major customers may begetting out of hand. You have been hired to conduct a customerprofitability analysis.
Rogers Aeronautics' non-manufacturing overhead consists of $2.5million of general and administrative (G&A) expense,(including, among other expenses, the CEO's salary and bonus andthe cost of operating the company's corporate jet) and selling andcustomer support expenses of $3 million (including 5% salescommissions and $1,050,000 of additional costs). The accountingstaff determined that the $1,050,000 of additional selling andcustomer support expenses related to the following four activitycost pools:

Activity	Activity Cost Driver	Cost per Unit of Activity
1. Sales visits	Number of visit days	$1,200
2. Product adjustments	Number of adjustments	1,500
3. Phone and email contacts	Number of calls/contacts	150
4. Promotion and entertainment events	Number of events	1,500

Financial and activity data on the five customers follows (Salesand Gross Profit data in millions):

			Quantity of Sales andSupport Activity
Customer	Sales	Gross Profit	Activity 1	Activity 2	Activity 3	Activity 4
#1	$19.00	$3.80	106	23	220	82
#2	14.00	2.80	130	36	354	66
#3	5.00	1.00	52	10	180	74
#4	6.00	1.20	34	6	138	18
#5	5.00	1.00	16	5	104	10
	$49.00	$9.80	338	80	996	250

In addition to the above, the sales staff used the corporate jetat a cost of $800 per hour for trips to customers as follows:

Customer #1	24 hours
Customer #2	36 hours
Customer #3	5 hours
Customer #4	0 hours
Customer #5	6 hours

The total cost of operating the airplane is included in generaland administrative expense; none is included in selling andcustomer support costs.

a. Prepare a customer profitability analysis for RogersAeronautics that shows the gross profits less all expenses that canreasonably be assigned to the five customers.
Enter figures as complete numbers (with all zeros). For example, 1million is 1,000,000. Do not use negative signs with anyanswers.
Round return on sales to one decimal place. (Ex: 10.4%)

	Customer #1	Customer #2	Customer #3	Customer #4	Customer #5
Sales	Answer	Answer	Answer	Answer	Answer
Cost of goods sold	Answer	Answer	Answer	Answer	Answer
Gross profit	Answer	Answer	Answer	Answer	Answer
Less expenses
Sales commissions	Answer	Answer	Answer	Answer	Answer
Sales visits	Answer	Answer	Answer	Answer	Answer
Product adjustments	Answer	Answer	Answer	Answer	Answer
Phone and other remote contacts	Answer	Answer	Answer	Answer	Answer
Promotion and entertainment	Answer	Answer	Answer	Answer	Answer
Corporate jet expense	Answer	Answer	Answer	Answer	Answer
Customer profitability	$Answer	$Answer	$Answer	$Answer	$Answer

Customer return on sales	Answer%	Answer%	Answer%	Answer%	Answer%

b. Now assuming that the remaining general and administrativecosts are assigned to the five customers based on relative salesdollars, calculate net profit for each customer.
Enter figures as complete numbers (with all zeros). For example, 1million is 1,000,000.
Do not use negative signs with any answers.
Do not round during calculation G&A expenses. Round finalG&A expenses to the nearest whole number.
Round return on sales to one decimal place. (Ex: 10.4

	Customer #1	Customer #2	Customer #3	Customer #4	Customer #5
Customer profitability	$Answer	$Answer	$Answer	$Answer	$Answer
Less G & A expense	Answer	Answer	Answer	Answer	Answer
Net customer profitability	Answer	Answer	Answer	Answer	Answer

Net customer return on sales	Answer%	Answer%	Answer%	Answer%	Answer%

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Accounting ACCT 2620 Study Guide - Quiz Guide: Direct Labor Cost, Cost Driver, Batch Production

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