question

Fixed Costs

answer

remain constant in total but become progressively smaller per unit as the level of activity increases.

question

Fixed Costs vs. Variable Costs

answer

Fixed: remain constant in total; Variable: remain constant per unit

question

What is the primary difference between managerial and financial accounting?

answer

Managerial accounting provides information for internal use, and financial accounting provides information for external users.

question

Manufacturing overhead (MOH) includes factory costs such as

answer

cleaning supplies, taxes, insurance, and janitor wages.

question

Materials that become an important component of the finished product and their cost can be easily and conveniently traced to the finished product are

answer

direct materials.

question

Variable Costs

answer

vary in total but remain constant per unit.

question

Labour costs (or hands-on work) that can be easily and conveniently traced to specific products are

answer

direct labour costs.

question

Period Costs

answer

are expensed when incurred.

question

Product Costs

answer

become part of inventory.

question

In an attempt to reduce the opportunities for error and fraud, SOX places additional responsibilities on

answer

external auditors, boards of directors, and all managers.

question

Sunk Costs

answer

are irrelevant and should be disregarded when making decisions. They have already been incurred.

question

Costs that should be considered when making decisions include

answer

opportunity and differential costs.

question

The two broad classifications of costs are

answer

manufacturing costs and period costs.

question

Non-manufacturing costs are

answer

period costs and expenses. They are NOT assets.

question

Manufacturing costs are

answer

direct materials, direct labour, and manufacturing overhead.

question

The three categories of business include

answer

manufacturing firms, service companies, and merchandising companies. (Nonprofit organizations are NOT included as one of the three categories of business.)

question

Companies with strong ethical cultures have

answer

higher levels of customer satisfaction and higher productivity than those without such cultures.

question

Companies who have only adopted a code of ethics have NOT

answer

ensured ethical behaviour.

question

The organizing process

answer

identifies the resources needed to achieve a plan that has been set.

question

SOX has allowed for the minimum jail time for fraudulent reporting to be

answer

20 years.

question

Examples of indirect labour costs include

answer

a factory supervisor's salary or a factory security guard's wages.

question

A restaurant cook's earnings are an example of ___, and an administrative assistant's salary is an example of a ___.)

answer

direct labour; period cost

question

Budgeting is an important part of the

answer

planning and organizing process.

question

The Sarbanes-Oxley Act (SOX) is focused primarily in the financial accounting system, however, it also

answer

has many implications for managers and was primarily aimed at renewing investor confidence.

question

The controlling process

answer

monitors results to ensure that expectations are being met and measure actual results.

question

Direct costs

answer

can be easily and conveniently traced to a specific object, e.g. direct materials or direct labour.

question

Indirect costs

answer

cannot be easily and conveniently traced to a specific object, e.g. indirect materials or indirect labour.

question

When engaging in the directing function, or process, managers

answer

put a plan into action with detailed decision making and take actions that implement that plan.

question

Planning and organizing involves

answer

setting goals and tactics.

question

Indirect costs are considered so because

answer

it is not worth the cost or effort to trace them back to specific products.

question

In addition to influencing decisions, Relevant Costs

answer

must pertain to the future and differ between alternatives. They included both differential costs and opportunity costs.

question

The controlling process, among other things, involves

answer

identifying problems and taking corrective action.

question

The standards of conduct for judging right from wrong is called

answer

ethics.

question

Differential Costs

answer

are the difference in costs between two alternatives and should be considered in decision making.

question

SOX includes

answer

rules that should help employees make ethical decisions.

question

Sales commissions and a company president's salary are considered

answer

non-manufacturing costs.

question

The three basic management functions are

answer

planning, directing, and controlling.

question

True or False: Product vs. period costs has more to do with managerial accounting than with financial accounting.

answer

FALSE

question

True or False: There are many different ways to categorize costs.

answer

TRUE

question

True or False: Out-of-pocket costs do not always represent an outlay of cash.

answer

FALSE

question

True or False: Costs are treated differently in different situations.

answer

TRUE

question

Selling Expenses

answer

are costs incurred to get the final product to the customer.

question

True or False: Monitoring metrics that are important to various areas of operations is part of the directing or leading process.

answer

FALSE

question

Cost Objects are

answer

specific items for which managers are trying to find the cost. (These are different from *inventoriable costs*.)

question

Opportunity costs

answer

are the costs of not doing something and should be considered in decision making.

question

Inventoriable Costs are

answer

product costs that attach to a specific product. (These are different from *cost objects*, but ARE another term for product costs.)

question

A regional sales manager's salary, to the regional office in which the sales manager works would be a

answer

direct cost.

question

Individual Costs

answer

may be indirect to one cost object and direct to another.

question

Nonprofit organizations

answer

DO have need for both financial and managerial accounting information to make decisions.

question

Products costs relate to

answer

making a product.

question

Non-manufacturing costs relate to

answer

delivering and selling a product.

question

All managerial functions involve

answer

decision making.

question

Marketing and selling expenses include

answer

sales commissions, sales salaries, and advertising.

question

General and administrative expenses include

answer

administrative salaries, general management salaries, and a legal department.

question

True or False: A particular cost may be direct or indirect depending on the cost object.

answer

TRUE

question

Cost objects include

answer

anything for which cost data is desired, including customers and activities.

question

True or False: The U.S. economy is moving more towards the service industry.

answer

TRUE

question

True or False: Over 50% of our nations Gross Domestic Product comes from manufacturing activities.

answer

FALSE

question

True or False: The merchandising sector of the U.S. economy is larger than either manufacturing or service.

answer

FALSE

question

When making a decision

answer

cost control is a critical concern for most organizations.

question

True or False: Managers should only consider costs when making a decision.

answer

FALSE

question

True or False: Most of the information managers need for making a decision is not based on cost data.

answer

FALSE

question

Conversion Costs involve

answer

Direct Labour and Manufacturing OverHead costs. Conversion Cost Formula: CC = DL + MOH

question

True or False: To calculate Total Manufacturing Costs (TMC), you CANNOT add prime costs (PC) to conversion costs (CC).

answer

TRUE. PC = Direct Materials + Direct Labour CC = DL + Manufacturing OverHead TMC = DM + DL + MOH Direct Labour is only included once in the Total Manufacturing Cost. Since both Prime and Conversion cost calculations include DL, Prime + Conversion Cost cannot be equal to TMC.

question

Prime Cost is equal to

answer

Direct Material + Direct Labour

question

Manufacturing Overhead DOES include

answer

a factory supervisor's salary, factory utilities, and factory equipment.

question

Tires used in the manufacturing of materials would be included in

answer

direct materials- a direct cost.

question

Categories of manufacturing costs include

answer

direct materials, direct labour, and manufacturing over head, i.e. TMC = DM + DL + MOH.

question

In order of appearance, the steps from the schedule of Cost of Goods Manufactured (COGM) are

answer

Total Current Manufacturing Costs Plus: Beginning Work-in-Process Inventory Less: Ending Work-in-Process Inventory (Equals) Cost of Goods Manufactured

question

To calculate Predetermined Overhead Rate (POHR)

answer

divide the *estimated Total MOH by the *estimated total amount of activity base (the estimated total cost driver), i.e. POHR = est. Total MOH ÷ est. Total Amt. of Activity Base **or** POHR = est. Total MOH ÷ est. Total Cost Driver

question

True or False: Job-Order Costing can only be used in manufacturing firms.

answer

FALSE -anything that involves a unique output may use job-order costing. Service companies, like law firms, provide individual services to each customer or client, so they may use job-order costing.

question

True or False: Raw materials used in production are transferred to Work-in-Process.

answer

TRUE

question

True or False: When materials are purchase, they are recorded in the raw materials inventory account.

answer

TRUE

question

Items in the order in which they appear in the Cost of Goods Sold (COGS) section of the income statement.

answer

Beginning Finished Goods Inventory Plus: Cost of Goods Manufactured Less: Ending Finished Goods Inventory (Equals) Unadjusted COGS

question

Process Costing is used for

answer

the mass production of homogeneous projects.

question

Finished Goods Inventory

answer

consists of completed units that have not yet been sold.

question

Predetermined Overhead Rates (POHR) are

answer

based on some secondary allocation measure and generally calculated for the entire year to avoid seasonal fluctuations.

question

A job cost sheet contains

answer

materials, labour, and manufacturing overhead costs charged to the job.

question

The Cost of Goods Manufactured report summarizes

answer

the flow of manufacturing costs from raw materials to Work-in-Process Inventory and into Finished Goods.

question

A total of 10,000$ in MOH was applied to Job#40. The journal entry to record this would

answer

debit 10,000$ to WiP Inventory and credit 10,000$ to MOH.

question

If the MOH account has a ___ balance at the end of the period, that indicates that overhead was *underapplied* and that the COGS must be ___.

answer

debit; increased

question

When calculating POHR, the ideal allocation base should be a

answer

cost driver.

question

Non-manufacturing costs increase

answer

the Selling and General ; Administrative expense account.

question

In addition to specifying the type and quantity of materials to be drawn from the storeroom, material requisition forms are used for

answer

recording the cost of raw materials into the accounting system and controlling the flow of materials from inventory to production. However, these forms are not used to specify the *cost* of materials to be ordered or to summarize the cost of a job.

question

When materials are requisitioned into production,

answer

direct materials are on the job sheet and in Work-in-Process.

question

Methods used to dispose of over or underapplied MOH include

answer

making an adjustment to COGS; and allocating to WiP, Finished Goods, and COGS.

question

The Cost of Goods Manufactured is the sum of

answer

all amounts transferred from WiP to Finished Goods during a period.

question

To calculate the Cost of Direct Materials, e.g. Beg. Inventory 27,000$ Purchased Materials 100,000$ Indirect Materials 28,000$ End. Inventory 25,000$

answer

Beginning Inventory + (Purchases - Indirect Materials) - Ending Inventory, e.g. 27,000 + (100,000 - 28,000) - 25,000 = 74,000$ = CODM

question

A journal entry that debits MOH and credits Accounts Payable could record the following transactions:

answer

rent expense on factory equipment and factory utilities expense.

question

In a journal entry recording the purchase of indirect materials would require a debit to

answer

raw materials inventory.

question

The Cost of Goods Manufactured is

answer

the total cost of jobs completed during the period.

question

A journal entry that debits Work-in-Process and MOH and credits raw materials inventory records the

answer

issuance of materials.

question

Applied MOH appears on

answer

a job cost sheet AND the Work-in-Process Account.

question

A document used to record how long workers spend on each job and task is called a

answer

direct labour time ticket.

question

A MOH account does not contain a charge from

answer

non-manufacturing costs.

question

When actual MOH costs are incurred,

answer

the MOH cost is debited, and the balance sheet account is credited.

question

Labour costs

answer

may be either direct or indirect are recorded in basically the same way as material costs.

question

To calculate the Total Current Manufacturing Costs on the Cost of Goods Manufactured Report,

answer

add direct materials, direct labour, and applied MOH. COGM = Beg. WiP + TCMC - End. WiP, i.e. COGM = B-WiP + (DM + DL + Ap.MOH) - E-WiP

question

When overhead is *underapplied*, a ___ must be made to the MOH account to eliminate the balance.

answer

credit

question

When overhead is *overapplied*, a ___ must be made to the MOH account to eliminate the balance.

answer

debit

question

Applied MOH is calculated by

answer

multiplying POHR by the actual cost driver (or activity base), i.e. Applied MOH = POHR *CD, or Applied MOH = POHR *Actual Activity Base

question

Operations Costing

answer

is a blend of Process and Job-Order Costing.

question

A journal entry that debits Finished Goods and credits Work-in-Process records the

answer

completion of a job.

question

When goods are sold to customers,

answer

costs are transferred from Finished Goods to Cost of Goods Sold.

question

When there is a credit balance in the MOH account after overhead has been applied to all jobs, it means that overhead was

answer

overapplied.

question

Managers need ___ information to budget and control spending. Specifically, they need ___ information to control spending.

answer

financial; cost

question

The journal entry to record the transaction of incurred direct labour costs and incurred indirect labour costs would

answer

debit the cost of direct labour to Work-in-Process, debit the cost of indirect labour to Manufacturing Overhead, and credit the sum of direct and indirect labour to wages payable. E.g. Costs incurred: Direct Labour 10,000$ and Indirect Labour 8,000$ DEBIT: WiP 10,000$ and MOH 8,000$ CREDIT: Wages Payable 18,000$

question

GAAP requires

answer

all manufacturing costs be charged to products and that manufacturing costs be treated as assets until sold.

question

The balance of Work-in-Process Inventory may be calculated by

answer

summing the costs of all jobs in process.

question

Given a Gross Profit of 100,000$, Cost of Goods Sold of 70,000$, and Selling ; Administrative Expenses of 45,000$, the Net Operating Income is

answer

55,000$ = 100,000$ - 45,000$ Net Operating Income = Gross Profit - Selling, General, and Administrative Expenses; Income = Profit (or Revenue) - Expenses. Ignore the Cost of Goods Sold.

question

Raw materials inventory is debited in the journal entry to record

answer

the purchase of materials.

question

The journal entry to record the expiration of prepaid factory insurance would

answer

debit MOH and credit Prepaid Insurance.

question

Gross Profit equals

answer

the difference between Sales Revenue and the Cost of Goods Sold.

question

Calculate Gross Profit. Sales Revenue of 500,000$; Cost of Goods Sold of 395,000$; Underapplied MOH of 5,000$; Selling, General, Administrative Expenses of 50,000$.

answer

100,000$ = 500,000$ - (395,000$ + 5,000$) GP = SR - (COGS + Underapplied MOH)

question

Underapplied MOH _____, while overapplied MOH _____.

answer

increases COGS; decreases COGS

question

Completed job costs are transferred into

answer

Finished Goods.

question

A journal entry debiting COGS and crediting Finished Goods Inventory is made when

answer

goods are sold.

question

Underapplied or overapplied overhead

answer

is the difference between the overhead applied to jobs and the actual overhead.

question

Find the Predetermined Overhead Rate. Estimated MOH 300,000$ Estimated DL hours 2,500 Actual MOH 370,000$ Actual DL hours 3,000

answer

120$ per DL hour = 300,000$ ÷ 2,500 POHR = est.MOH ÷ est.Cost Driver

question

Overhead is overapplied when

answer

the actual overhead is less than the overhead that was applied. Actual Applied = Underapplied

question

When actual MOH costs are incurred

answer

MOH is debited and a balance sheet account is credited.

question

An allocation base is

answer

a measure of activity used to assign overhead costs to products or services.

question

True or False: The cost of each individual unit is tracked to products under both job-order and process costing.

answer

FALSE Because units in process costing are all the same, there is no need to track the cost of each individual unit.

question

True or False: Job-order costing can only be used in manufacturing firms.

answer

FALSE Job-order costing can be used in any company or firm where the products or services are not homogeneous.

question

Actual MOH consists of

answer

all manufacturing costs EXCEPT direct materials and direct labour.

question

Steps in assigning MOH costs using POHR:

answer

1. Determine the Cost Driver 2. Calculate POHR 3. Assign MOH

question

Costs from raw materials inventory may be transferred to

answer

either Work-in-Process or MOH

question

In a service firm, the most common cost driver used to assign costs is

answer

billable hours.

question

Ideally, an allocation base should

answer

explain or influence the amount of overhead incurred. It does not have to be a cost.

question

When goods are sold on account, the following accounts should be debited:

answer

Cost of Goods Sold and Accounts Receivable

question

On the MOH account, actual MOH costs are accumulated on the _____ side and applied costs are shown on the _____ side.

answer

debit; credit

question

The Work-in-Process account accumulates

answer

actual direct material, actual direct labour, and applied MOH

question

Source documents keep track of

answer

the direct costs of specific jobs.

question

The cost of jobs still unfinished at the end of a period is included in

answer

ending Work-in-Process Inventory.

question

In a job-order costing system, costs flow first to

answer

the inventory accounts and then to Cost of Goods Sold.

question

True or False: Due to changes in technology, paper source documents are being replaced with electronic records.

answer

TRUE Bar codes, computer scanning devices, and other tools are now being used to track costs.

question

Using the weighted-average method, there are ___ equivalent units of production if Work-in-Process Inventory has 40 equivalent units and 30 were transferred to the next department.

answer

70 = 40 + 30

question

Equivalent units of production are needed to

answer

determine the cost of partially completed units and properly prepare GAAP based financial statements.

question

MOH costs are distributed based on

answer

on a predetermined overhead rate (POHR).

question

Direct materials are

answer

major inputs that can be directly traced to a product.

question

Similarities between job-order and process costing include

answer

their flows of costs through inventory accounts; their purposes to assign direct materials, direct labour, and MOH to products; and the inventory accounts they use.

question

Steps to prepare a production report using the weighted-average method:

answer

1. Reconcile the number of physical units 2. Convert physical units into equivalent units 3. Calculate cost per equivalent unit 4. Reconcile the total cost of Work-in-Process Inventory 5. Prepare the report

question

Equivalent units of production using the weighted-average method are

answer

the sum of equivalent units in End. WiP and units transferred out of WiP.

question

What is the cost per equivalent unit using the weighted-average method given: Current Costs 40,000$ Beg. Inventory 3,000$ Equivalent Units 500 units

answer

86$ = (40,000$ + 3,000$) ÷ 500 = cost per equiv. unit

question

Under the FIFO method, the inventory balances used in the calculation of equivalent units are beginning and ending _____ inventory.

answer

Work-in-Process

question

The order in which costs flow through inventories in a Process Costing System:

answer

Raw Materials Work-in-Process Finished Goods Cost of Goods Sold

question

The correct journal entry to record labor costs for Process #1 would be to ___ Salaries and Wages Payable and ___ Work-in-Process Inventory.

answer

credit (it's a liability account); debit (it's an asset account)

question

True or False: Regarding the weighted-average and FIFO methods of processing costing, the weighted average is more commonly used.

answer

TRUE.

question

True or False: Regarding the weighted-average and FIFO methods of processing costing, the FIFO method may be more accurate.

answer

TRUE

question

True or False: Regarding the weighted-average and FIFO methods of processing costing, the key difference is how the methods deal with ending Finished Goods Inventory.

answer

FALSE

question

True or False: Regarding the weighted-average and FIFO methods of processing costing, both methods are acceptable under GAAP.

answer

TRUE.

question

True or False: Regarding the weighted-average and FIFO methods of processing costing, the two methods will produce very different results for companies with minimal Work-in-Process inventories.

answer

FALSE

question

Process costing

answer

assigns costs to products as they move along the production process.

question

True or False: Regarding process costing production reports, production reports provide information accountants need to record manufacturing costs into the accounting system.

answer

TRUE

question

True or False: Regarding process costing production reports, a separate production report is prepared for each product produced.

answer

FALSE

question

True or False: Regarding process costing production reports, production reports are used to determine how much cost to transfer from one process to the next.

answer

TRUE

question

True or False: Regarding process costing production reports, managers can use production reports to monitor and control production costs.

answer

TRUE

question

Formula to calculate costs per equivalent unit under the FIFO method:

answer

Current Costs ÷ Equivalent Units

question

Formula to calculate costs per equivalent unit under the weighted-average method:

answer

(Beginning Inventory + Current Costs) ÷ Equivalent Units

question

To record the purchase of raw materials,

answer

debit raw materials inventory and credit accounts payable.

question

While the FIFO and weighted-average methods may be used to prepare process costing production reports, the _____ method cannot be used.

answer

LIFO (Last-in, First-out)

question

The foundation of a process costing system is the

answer

production report.

question

Recording the transfer of partially completed products from one processing department to another requires a debit and a credit to the _____ account in both of the processing departments.

answer

Work-in-Process Inventory

question

Costs transferred from WiP inventory to FG inventory

answer

are called cost of goods manufactured and cost of goods completed. They remain in Finished Goods inventory until they are sold.

question

Formula to reconcile the number of physical units worked on in a period:

answer

(Beginning units in process + Units started) == (Units completed + Ending units in process)

question

When production is completed in the last production department, the units are transferred to the

answer

finished goods inventory account.

question

The total cost of work in process inventory

answer

includes the sum of beginning work in process and current costs. It is divided between ending inventory and costs transferred to the next process or finished goods.

question

Differences between the FIFO and weighted-average method in process costing include

answer

their computations of equivalent units and the way in which costs of beginning inventory are treated.

question

When using the _____ method (but not the _____ method), the number of started and completed units during the period must be computed.

answer

FIFO; weighted-average

question

When preparing process costing journal entries,

answer

numbers will be slightly different using FIFO instead of weighted-average costing.

question

True or False: A production report prepared using the weighted-average method is structured very similarly a production report using the FIFO method.

answer

TRUE

question

Transferred-in costs are

answer

costs that are moved from one production process to another.

question

Under FIFO costing

answer

the cost of beginning inventory is automatically transferred out with its units completed.

question

Manufacturing Overhead is also called

answer

indirect costs.

question

The LIFO method costs per equivalent unit using only

answer

costs incurred by the processing department in the current period.

question

A production report presents

answer

both costs to be accounted for and costs accounted for.

question

True or False: Under the weighted-average method, beginning inventory costs are treated just like costs added during the current period.

answer

TRUE

question

True or False: Under the FIFO method, transferred-in costs are not accounted for when calculating total costs.

answer

FALSE

question

True or False: Costs that move from one process to another are called transferred-in costs.

answer

TRUE

question

The _____ method calculates cost per equivalent unit using only costs incurred by the process department during the current period.

answer

FIFO

question

True or False: Regarding process costing, a separate production report is prepared for each major process.

answer

TRUE

question

True or False: Regarding process and weighted-average costing, the reconciliation of the units is different, but the calculation of the physical units is the same.

answer

TRUE

question

True or False: Regarding process and weighted-average costing, the calculation of the physical units worked on during the period is done the same way under FIFO as under weighted-average method.

answer

TRUE

question

True or False: Gross profit, as calculated based on journal entries, must be adjusted because it is based on applied rather than actual overhead.

answer

TRUE

question

The number of units started and units completed during the period must be computed when using the _____ method.

answer

FIFO

question

A method that attempts to assign overhead costs based on what is required to produce products is called _____.

answer

activity-based costing.

question

Given: Market Price 200$ Target Profit 15% of sales What is the maximum cost to achieve that goal?

answer

170$ = 200$ - (15% *200$) Target Cost = Market Price (200$) - Target Profit (15% *200$); 15% of sales = 0.15 *200$ Target Cost ? Marget Price - Target Profit

question

Non-Volume-based cost drivers include:

answer

inspections, set-ups, and design changes.

question

Unit-level activities are

answer

performed for specific customers and are proportional to the number of units produced.

question

Product-level activities are

answer

related to specific products produced.

question

A proactive approach managers use to determine what cost should be is called

answer

Target Costing.

question

The activity-proportion method uses _____, or proportions, to assign overhead costs to products.

answer

percentages.

question

Internal failure costs

answer

are preferred over external failure costs and result from defects discovered during inspection.

question

Steps required to assign indirect costs in a volume-based cost system in order:

answer

1. Determine the cost driver 2. Calculated the predetermined overhead rate (POHR) 3. Assign indirect costs to individual products or services

question

The formula to apply overhead to products is:

answer

the product of the activity rate and activity, i.e. Applied MOH = POHR *Actual Activity Base

question

An activity cost pool is

answer

a group of similar activities that have been combined together.

question

Batch-level activities are

answer

are activities performed once for each batch or group of units.

question

Non-value added activities

answer

do not enhance the product or service and should be eliminated whenever possible. However, while some non-value adding activities are unnecessary components of operation, others are required. The goal of necessary non-value adding activities is to streamline them.

question

The first step of implementing an activity-based costing (ABC) system is to identify the organization's major___.

answer

activities

question

To calculate MOH cost per unit using ABC,

answer

divide the Total MOH by the number of units of each product, i.e. Total MOH cost ÷ number of units produced

question

Facility-level activities include:

answer

human resource hiring fairs, factory management salaries, and paying factory insurance.

question

Batch-level activities include:

answer

arranging for shipping products to a customer or processing a purchase order and setting up factory equipment.

question

Unit-level activities include:

answer

running processing on equipment.

question

Product-level activities include:

answer

maintaining inventory parts for products.

question

Activity rate per set-up: Cost pool: 400,000$ Total expected activity: 800 set-ups What is the activity rate per set-up?

answer

500$ = 400,000$ ÷ 800 set-ups Act. Rate = Act. Cost Pool ÷ Total Expected Activity, i.e. Activity Rate = Total Activity Cost ÷ Total Cost Driver

question

Non-volume based cost drivers

answer

are used in ABC costing systems and allow more indirect costs to be allocated to products.

question

Using the Activity Proportions Method: Cost Driver: Design hours Total Cost Pool: 118,000$ Total Design Hours: 1,000 Product A: 620 hours Product B: 380 hours Determine how much cost should be allocated to each product.

answer

73,160$ should be allocated to Product A; 44,840$ should be allocated to Product B; ABC formula: Activity Rate = Total Activity Cost ÷ Total Cost Driver Cost Pool = 118,000$; Cost Driver = 1,000 design hours 118,000$ ÷ 1,000 hours = 118$ per design hour Allocation to products: Product A: 118$ *620 hours Product B: 118$ *380 hours OR A: 620 hours ÷ 1,000 hours = 62% *118,000$ = 73,160$ B: 380 hours ÷ 1,000 hours = 38% *118,000$ = 44,840$

question

In ABC terms, when a bakery creates a new type of cake for sale, that is an example of a _____-level activity.

answer

service

question

Activities performed each time a group of units is processed- regardless of how many units are in the group- are called _____-level activities.

answer

batch

question

A unit-level activity to a manufacturer is the same as a _____-level activity to a service company.

answer

customer

question

Most experts believe that incurring prevention costs is the best way to manage _____ costs.

answer

quality

question

Quality training is an example of a _____ cost.

answer

prevention

question

Traditional costing systems tend to over-cost high volume products because

answer

high volume products use more labour and machine hours and traditional cost systems don't allow for complex activities required by lower volume products.

question

Gross profit margin calculates gross margin as a percentage of _____.

answer

revenue; typically called "sales revenue"

question

Costs incurred to identity defective products before they get to the customer are called

answer

appraisal costs.

question

*A company assigns overhead to products based on direct labour hours. * *For the upcoming year, they plan to use a total of 25,000 machine hours and 5,000 direct labour hours. The total overhead cost is expected to be 35,000$. *How much overhead would be assigned to a job that used 180 machine hours and 40 direct labour hours?

answer

280$ = (7$ per hour) *40 hours; 7$ = (35,000$ ÷ 5,000 hours) Applied MOH = POHR *Actual Activity Base POHR = Est. total MOH ÷ Est. total amount Activity Base Because overhead for this job is assigned based on direct labour hours, any information unrelated to direct labour hours, e.g. machine hours, is irrelevant to calculating the overhead for this job.

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Indirect costs can be assign to products or services using either

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the activity proportion method or the activity rate method.

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Using activity-based costing, when a company hires a bus for a meeting, that would be classified as a _____-level activity.

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group

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In service industries, batch-level activities are called _____-level activities

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group

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True or False: Sales commission is NOT part of the manufacturing cost per unit.

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TRUE

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True or False: ABC (Activity-based costing) can be used in both service and manufacturing companies.

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TRUE

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An activity that improves the product or service provided to a customer is called a

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value-added activity.

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True or False: A unit-level activity will always improve the product or service.

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FALSE

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A just-in-time (JIT) system is both

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a demand-pull system and used to help reduces costs.

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A demand-pull system is driven by ____ customer demand, and a demand-push system is driven by long-term projections of customer demand.

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actual

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A demand-pull system is _____ while a demand-push system is ____-____.

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current; long-term

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A demand-push system is driven by _____ of customer demand.

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projections

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The worst type of quality cost for a company to incur are

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external failure costs.

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Direct labour hours and machine hours are both examples of ______-_____ cost drivers.

answer

volume-based

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*A company assigns overhead to products based on the number of machine hours. * *For the upcoming year, they plan to use a total of 250,000 machine hours and 50,000 direct labour hours. The total overhead cost is expected to be 500,000$. Determine the predetermined overhead rate per machine hour.

answer

2$ = (500,000$ ÷ 250,000 hours) POHR = Est. total MOH ÷ Est. total amount Activity Base Because overhead for this job is assigned based on the number of machine hours, any information unrelated to the number of machine hours, e.g. direct labour hours, is irrelevant to calculating the overhead rate for this job.

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Under activity-based costing, total manufacturing overhead consists of all overhead assigned during the _____ stage of allocations.

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first

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When a company implements activity-based costing, overhead cost often shifts from ____-volume products to ___-volume products.

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high; low

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Typical volume-based cost drivers include:

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sales revenue, direct material cost, and direct labour dollars.

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Typical volume-based cost drivers do NOT include:

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machine set-ups. Machine set-ups are an ABC batch-level cost driver.

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The network of organizations and activities needed to move goods and services from suppliers to customers is called a

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supply chain.

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Activity-based management is focused on

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increasing efficiency and improving operations.

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At a minimum, an ABC system should have at least one ___-____ activity cost pool.

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non-unit

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A company assigns overhead based on direct labour costs. If the POHR is 3$ per direct labour dollar, and a job used a total of 20 direct labour hours (400$ in total direct labour cost). Determine the total amount of overhead that would be assigned to this job.

answer

1,200$ = 400$ *3$ Total Overhead = POHR *Actual Activity Base Because the company assigns overhead based on direct labour costs rather than direct labour hours, only information related to direct labour costs and direct labour hours is relevant to the total overhead calculation.

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A unit-level activity to a manufacturer is the same as a ________-level activity to a service company.

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customer

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Activity-based costing systems typically include

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both volume and non-volume based cost drivers.

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True or False: Storing inventory is a value-added activity.

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FALSE

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When using activity-based costing, a degree program at a university would be considered a _______-level activity.

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service

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Benchmarking is

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comparing the performance within an organization to that of other, similar organizations.

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Value engineering is

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the analysis of products to determine which functions add value and finding ways to deliver those functions while meeting the target cost.

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In order to make good product introduction decisions in today's digital age, managers need to be able to accurately estimate

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life cycle costs.

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An enterprise resource planning system is

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an integrated management information system that encompasses the entire organization.

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Total quality management is a system that focuses on

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continually improving production processes.

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Implementing an ABC system

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provides information for cost management.

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Cost management methods

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can be complemented by ABC.

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Cost-plus pricing is the result of

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determining what a product costs and adding a mark-up.

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True or False: When a manufacturing cost relates to multiple activities, the cost should be allocated to the activity that has the highest total overhead cost.

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FALSE

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True or False: When a manufacturing cost relates to multiple activities, the cost should be allocated to all activities based on some reasonable method.

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TRUE

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The product life cycle represents

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a product from its infancy through to its eventual decline.

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________-based costing offers some advantages over traditional costing systems.

answer

Activity

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A Stage 1 cost driver must be selected when

answer

a specific overhead cost relates to multiple activities.

Managerial Accounting, Ch 1-4 (McGraw Hill Learn Smart) – Flashcards

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