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provides economic and financial information for managers and other internal users.

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Managerial accounting

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false -->

answer

Managerial accountants have a single role within an organization, collecting and reporting costs to management.

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true

answer

Financial accounting reports are general-purpose and intended for external users.

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true

answer

Managerial accounting reports are special-purpose and issued as frequently as needed.

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false --> planning, directing, and controlling

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Managers' activities and responsibilities can be classified into three broad functions: cost accounting, budgeting, and internal control.

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false

answer

Managerial accounting reports must now comply with generally accepted accounting principles (GAAP).

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What costs are involved in making a product or providing a service? If we decrease production volume, will costs decrease? What impact will automation have on total costs? How can we best control costs?

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Managers should ask questions such as the following.

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Basic materials and parts used in manufacturing process.

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raw materials

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Raw materials that can be physically and directly associated with the finished product during the manufacturing process. Ex: tires, spokes, handlebars

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direct materials

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Not physically part of the finished product or they are an impractical to trace to the finished product because their physical association with the finished product is too small in terms of cost. Considered part of manufacturing overhead.

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Indirect Materials

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Work of factory employees that can be physically and directly associated with converting raw materials into finished goods. ex: salaries of employees who put tires on the wheels

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direct labor

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Work of factory employees that has no physical association with the finished product or for which it is impractical to trace costs to the goods produced.

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indirect labor

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Costs that are indirectly associated with manufacturing the finished product. Includes all manufacturing costs except direct materials and direct labor. Also called factory overhead, indirect manufacturing costs, or burden. ex: factory depreciation, lubricants, factory manager salary, factory maintenance employees salary

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manufacturing overhead

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Components: direct materials, direct labor, manufacturing overhead. Costs that are an integral part of producing the product. Recorded in "inventory" account. Not an expense (COGS) until the goods are sold.

answer

product costs

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Charged to expense as incurred. Non-manufacturing costs. Includes all selling and administrative expenses.

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period costs

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product costs: direct materials

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material cost ($30) per board

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product costs: direct labor

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labor costs ($40) per board

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product costs: manufacturing overhead

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depreciation on factory equipment ($25000 per year)

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product costs: manufacturing overhead

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property taxes on factory building ($6000 per year)

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period costs

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advertising costs ($4000 per year)

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period costs

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sales commissions ($20 per board)

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product costs: manufacturing overhead

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maintenance salaries (factory facilities) ($45000 per year)

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product costs: manufacturing overhead

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salary of plant manager ($70000)

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period costs

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cost of shipping boards ($8 per board)

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beg inventory + cost of goods purchased - ending inventory

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cost of goods sold

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(1) cost of beginning work in process and (2) total manufacturing costs for the current period.

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Total Work in Process

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sum of direct material costs, direct labor costs, and manufacturing overhead in the current year.

answer

Total Manufacturing Costs

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beginning work in process inventory + total manufacturing costs

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total cost of work in process

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total cost of work in process - ending work in process inventory

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cost of goods manufactured

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work in process, jan 1 direct materials: raw materials inventory, jan 1 raw material purchases total raw materials available for use less: raw materials inventory, dec 31 direct materials used direct labor manufacturing overhead: indirect labor factory repairs factory utilities factory depreciation factory insurance total manufacturing overhead total manufacturing costs total cost of work in process less: work in process, dec 31 cost of goods manufactured

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cost of goods manufactured schedule

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raw materials inventory, work in process inventory, finished goods inventory

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inventory accounts for a manufacturer

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Allocates overhead based on use of activities. Results in more accurate product costing and scrutiny of all activities in the value chain.

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activity-based costing (ABC)

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Clarifies management's responsibilities. Requires certifications by CEO and CFO. Selection criteria for Board of Directors and Audit Committee. Substantially increased penalties for misconduct.

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Sarbanes-Oxley Act (SOX)

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value chain

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All activities associated with providing a product or performing service.

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activity-based costing

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A method of allocating overhead based on each product's use of activities in making the product.

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total quality management (TQM)

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Systems implemented to reduce defects in finished products with the goal of achieving zero defects.

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balanced scorecard

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A performance-measurement approach that uses both financial and nonfinancial measures, tied to company objectives, to evaluate a company's operations in an integrated fashion.

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corporate social responsibility

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A company's efforts to employ sustainable business practices with regards to its employees, society, and the environment.

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involves: measuring, recording, and reporting. product costs. Accounts are fully integrated into the general ledger. Perpetual inventory system provides immediate, up-to-date information on the cost of a product. Two basic types: (1) a process order cost system and (2) a job order cost system.

answer

Cost Accounting

question

Used when a large volume of similar products are manufactured - (cereal, refining of petroleum, production of ice cream). Costs are accumulated for a time period - (week or month). Costs are assigned to departments or processes for a specified period of time.

answer

process cost system

question

Costs are assigned to each job or batch. Important feature: Each job or batch has its own distinguishing characteristics. Objective is to compute the cost per job. Measures costs for each job completed - not for set time periods.

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job order cost system

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The flow of costs parallels the physical flow of the materials as they are converted into finished goods

answer

job order cost flow

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dr raw materials inventory 42000 cr accounts payable 42000

answer

Wallace Company purchases 2,000 lithium batteries (Stock No. AA2746) at $5 per unit and 800 electronic modules (Stock No. AA2850) at $40 per unit. The entry to record this purchase on January 4 is:

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Consists of three costs: Gross earnings of factory workers, Employer payroll taxes on these earnings, and Fringe benefits (such as sick pay, pensions, and vacation pay) incurred by the employer.

answer

factory labor costs

question

dr factory labor 32,000 cr factory wages payable 27,000 cr employer payroll taxes payable 5,000

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Wallace incurs $32,000 of factory labor costs. Of that amount, $27,000 relates to wages payable and $5,000 relates to payroll taxes payable in February. The entry to record factory labor for the month is:

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ex: property taxes, depreciation, insurance, and repairs related to the manufacturing process. Costs unrelated to manufacturing process are expensed. Costs related to manufacturing process are accumulated in Manufacturing Overhead account. Manufacturing overhead subsequently assigned to work in process.

answer

manufacturing overhead costs

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dr Manufacturing Overhead 7,500 cr Utilities Payable 2,200 cr Prepaid Insurance 1,800 cr Accumulated Depreciation 3,500

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Factory utilities of $2,200 are payable, prepaid factory insurance of $1,800 has expired, and depreciation on the factory building is $3,500.

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Used to record costs chargeable to specific jobs. Constitutes the subsidiary ledger for the work in process account. Each entry to Work in Process Inventory must be accompanied by a corresponding posting to one or more job cost sheets.

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job cost sheet

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Written authorization for issuing raw materials. May be directly issued to use on a job - direct materials (charged to Work in Process Inventory). May be considered indirect materials - charged to Manufacturing Overhead.

answer

materials requisition slip

question

Assigned to a job when materials are issued in response to requests. Materials requisition slip. The sum of the direct materials columns of the job cost sheets should equal the direct materials debited to Work in Process Inventory account.

answer

raw material costs

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Employee Hours worked Account and job charged Total labor cost

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Time tickets indicate:

question

dr work in process inventory 28000 dr manufacturing overhead 4000 cr factory labor 32000

answer

The time tickets are later sent to the payroll department, which applies the employee's hourly wage rate and computes the total labor cost. If the $32,000 total factory labor cost consists of $28,000 of direct labor and $4,000 of indirect labor, the entry is:

question

predetermined overhead rate

answer

Companies assign to work in process and to specific jobs on an estimated basis through the use of a ...

question

Based on the relationship between estimated annual overhead costs and expected annual operating activity. Expressed in terms of an activity base such as: Direct labor costs, Direct labor hours, Machine hours. Any other measure that will provide an equitable basis for applying overhead costs to jobs. Established at the beginning of the year. Small companies often use a single, company-wide predetermined rate. Large companies often use a different rate for each department and each department may have a different activity base.

answer

predetermined overhead rate

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estimated annual overhead costs / expected direct labor cost

answer

formula for predetermined overhead rate

question

dr accounts receivable cr sales revenue dr cogs cr finished goods inventory

answer

On January 31 Wallace Manufacturing sells on account Job 101. The job cost $39,000, and it sold for $50,000. Entries to record the sale and recognize cost of goods sold are:

question

More precise in assignment of costs to projects than process costing. Provides more useful information for determining the profitability of particular projects and for estimating costs when preparing bids on future jobs.

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job order costing advantages

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requires a significant amount of data entry

answer

job order costing disadvantage

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A debit balance in manufacturing overhead means that overhead is underapplied. A credit balance in manufacturing overhead means that overhead is overapplied.

answer

under- vs overapplied manufacturing overhead.

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costs incurred

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actual manufacturing overhead

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costs assigned

answer

applied manufacturing overhead

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Underapplied overhead is debited to COGS Overapplied overhead is credited to COGS

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Any Year-End Balance in manufacturing overhead is eliminated by adjusting cost of goods sold:

question

dr manufacturing overhead 2500 cr cogs 2500

answer

Wallace has a $2,500 credit balance in Manufacturing Overhead at December 31. The adjusting entry for the over-applied overhead is:

question

manufacturing overhead applied: 140% * 80000 = $112000 undersupplied manufacturing overhead: $119000-112000 = $7000

answer

For Karr Company, the predetermined overhead rate is 140% of direct labor cost. During the month, Karr incurred $90,000 of factory labor costs, of which $80,000 is direct labor and $10,000 is indirect labor. Actual overhead incurred was $119,000. Compute the amount of manufacturing overhead applied during the month. Determine the amount of under- or overapplied manufacturing overhead.

question

Use to apply costs to similar products that are mass-produced in a continuous fashion. ex: cereal, paint, soft drink, etc.

answer

uses of process cost systems

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d. The products produced are heterogeneous in nature.

answer

Which of the following items is not a characteristic of a process cost system: a. Once production begins, it continues until the finished product emerges. b. The focus is on continually producing homogenous products. c. When the finished product emerges, all units have precisely the same amount of materials, labor, and overhead. d. The products produced are heterogeneous in nature.

question

d. Manufacturing costs are assigned the same way in a job order and in a process cost system.

answer

Indicate which of the following statements is not correct: Both a job order and a process cost system track the same three manufacturing cost elements - direct materials, direct labor, and manufacturing overhead. b. In a job order cost system, only one work in process account is used, whereas in a process cost system, multiple work in process accounts are used. c. Manufacturing costs are accumulated the same way in a job order and in a process cost system. d. Manufacturing costs are assigned the same way in a job order and in a process cost system.

question

false

answer

A law firm is likely to use process costing for major lawsuits.

question

true

answer

A manufacturer of paintballs is likely to use process costing.

question

false

answer

Both job order and process costing determine product costs at the end of a period of time, rather than when a product is completed.

question

false

answer

Process costing does not keep track of manufacturing overhead.

Managerial Accounting: Chapter 14-17 – Flashcards

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