Accounting 231 Exam 1

Front 1

Managers carry out 3 major activities

Back 1

Planning, directing and motivating, and controlling

Front 2

Manufacturing Costs, Product costs, inventoriable costs

Back 2

Direct materials, direct labor, MOH

Front 3

Nonmanufacturing costs, Period costs

Back 3

Selling and administrative expenses

Front 4

Manufacturing overhead

Back 4

Indirect materials, indirect labor, and other manufacturing costs such as factory rent, factory utilities, and depreciation of factory equipment and facilities

Front 5

Prime cost

Back 5

Direct materials plus direct labor

Front 6

Conversion cost

Back 6

Direct labor plus MOH

Front 7

Period costs

Back 7

Expensed on income statement in the period in which they are incurred (when co. incurs liability to pay them)

Front 8

Product costs

Back 8

Matched with units of product and are recognized as an expense on income statement only when the units are sold

Front 9

Total manufacturing cost

Back 9

Direct Materials
+Direct Labor
+MOH
-------------------------------
=Total Manufacturing cost

Front 10

Cost of goods manufactured

Back 10

Beginning balance, Work in process
+Total Manufacturing cost
-Ending balance, Work in process
-------------------------------------------
=Cost of goods manufactured

Front 11

Cost of Goods sold

Back 11

Beginning balance, finished goods
+cost of goods manufactured
----------------------------------------
=Goods available for sale
-ending balance, finished goods
---------------------------------------------
=Cost of goods sold

Front 12

Income statement of manufacturing company

Back 12

Sales
-Cost of goods sold
--------------------------------------------
=gross margin
-selling and administrative expenses
-------------------------------------------
=net operating income

Front 13

Variable costs

Back 13

Vary in direct proportion to changes in volume or level of activity.
Ex: Direct materials, direct labor, cost of goods sold

Front 14

Fixed costs

Back 14

Remain constant within relative range
-Relevant range: Range of activity within which the assumptions about cost behavior are valid

Front 15

Direct cost

Back 15

Is a cost that can be easily and conveniently traced to a specific object.
Ex: salaries and commissions of salespersons

Front 16

Indirect

Back 16

Cannot be easily and conveniently traced to the cost object
Ex: salary of the manager of a department store would be considered indirect cost of the shoe department and other departments

Front 17

Process costing

Back 17

Is used when a single homogenous product such as brick is produced

Front 18

Job-Order costing

Back 18

Many different products or services are produced each period

Front 19

Journal entry for a withdrawal of raw materials

Back 19

Work in Process
Manufacturing overhead
Raw materials

Front 20

Journal entry to record labor cost

Back 20

Work in process
MOH
Salaries and wages payable

Front 21

Predetermined overhead rate

Back 21

Estimated total manufacturing cost
------------------------------------------------
Estimated total amount of allocation base

Front 22

Journal entry to apply overhead to a job

Back 22

Work in process
MOH

Front 23

Actual overhead costs

Back 23

Actual overhead costs are NOT charged to work in process. Instead, they are charged to the MOH account. Note that ACTUAL overhead costs all appear as debits to MOH

Front 24

Journal entry to transfer costs from Work in process to finished goods

Back 24

Finished goods
Work in process

Front 25

Journal entry for selling completed goods

Back 25

Cost of goods sold
Finished goods

Front 26

If overhead applied is less than the actual overhead costs incurred...

Back 26

Overhead has been underapplied. MOH will have a debit balance

Front 27

If overhead applied is more than the actual overhead costs incurred...

Back 27

Overhead has been overapplied. MOH will have a credit balance

Front 28

At end of period overhead has been underapplied, the entry would be:

Back 28

MOH
Cost of goods sold

Front 29

Plantwide overhead rate

Back 29

Includes all the manufacturing overhead costs in a factory and is typically based on direct labor hours or machine hours. This can cause distorted product costs when overhead costs aren't really caused by the allocation base

Front 30

Departmental overhead rates

Back 30

provide a slightly more sophisticated approach than the plantwide overhead rate. Here, each department has its own overhead rate. Allocation bases are usually labor hours or machine hours, so distortion can occur if overhead costs are cause by factors other than the allocation bases

Front 31

Activity based costing

Back 31

(as compared to plantwide and departmental overhead rates) Each major activity has its own cost pool. An activity is any event or transaction that causes the incurrence of overhead cost

Front 32

Activity based costing stages

Back 32

1.Costs are assigned to the activity cost pools
2. The costs in each activity cost pool are assigned to products according to the amount of activity each product requires. This is accomplished by computing an activity rate
Ex: Total cost of machine setup pool=$150,000, and total activity=1000 setups. Activity rate=$150/setup

Front 33

Unit level

Back 33

Performed each time a unit is produced. E.g, shaping a part for a product on a milling machine
-Processing units on machines
-Processing units by hand
-Consuming factory supplies

Front 34

Batch level

Back 34

Performed each time a batch is handled or processed. For example, cleaning a machine prior to each batch. Costs in a batch level cost pool depend on the # of batches run, not on the # of units per batch.
-Processing purchase orders
-Setting up equipment

Front 35

Product level activities

Back 35

Required to have a product at all.
-Testing new products
-Administering parts inventories
-Designing products

Front 36

Facility level activities

Back 36

Sustain a facility's general manufacturing process
-Maintaining factory grounds
-General factory administration

Front 37

To determine MOH applied to a product in activity based costing

Back 37

1. Compute its activity rate (predetermined overhead rate) by dividing estimated overhead by its expected activity
2. For each activity in the cost pool, multiply the activity rate by the activity required for each product.

Front 38

Process Costing is similar to job-order costing in three ways:

Back 38

1. Both systems have the same basic purposes, which are to assign material, labor, and overhead costs to products and to provide a mechanism for computing unit costs
2. Both systems use the same basic manufacturing accounts: MOH, Raw materials, Work in Process, and Finished goods
3. Costs flow through the systems in the same way

Front 39

Process Costing differs from job-order in three ways:

Back 39

1. A single product is produced on a continuous basis, products are homogenous
2. Costs are accumulated by department, rather than by job
3.Unit costs are computed by department (rather than by job)

Front 40

Processing department

Back 40

Is any work center where work is performed on a product and where materials, labor, or overhead costs are added. Processing dep'ts have 2 common features:
1. Activity of department is carried out uniformly on every product passing through it
2. The output of the department is homogenouse

Front 41

Equivalent Units

Back 41

Equivalent units=# of partially completed units x Percentage completion

Front 42

Equivalent units of production

Back 42

Are used to compute the cost per equivalent unit. Under the weighted average method:

Units transferred to the next department or finished goods
+Equivalent units in ending work in process inventory
----------------------------------------------
=Equivalent units of production

Front 43

Note the following points concerning process costing

Back 43

1. Equivalent units of production and the cost per equivalent unit must be computed separately for each cost category
2. Units transferred out of the department or to finished goods are considered to be %100 complete in regards to the department
3. The first processing dept. will not have a cost category for the costs of units transferred in, but subsequent units will have such a cost category

Front 44

Cost per equivalent unit

Back 44

Under weighted average:

Cost per equivalent unit=
Cost of beginning work in process inventory+cost added during period
---------------------------------------------
Equivalent units of production

Front 45

Costs of units transferred out are determined by each department as follows:

Back 45

Units transferred to the next dept.
x Cost per equivalent unit
=Cost of units transferred out

This computation is made for each cost category in the department, then summed

Front 46

The costs of the units in ending inventory are determined for each cost category within a department as follows:

Back 46

Equivalent Units of production in ending work in process inventory
x Cost per equivalent unit
=Cost of ending work in process inventory

This computation is made for each cost category in the department, then summed

Front 47

Operation Costing

Back 47

A hybrid system containing elements of both job-order and process costing. It is used when products use different materials but follow the same basic processing steps.
Ex:Factory that assembles personal computers
1. Products are handled in batches, each batch is charged with its own specific materials. (similar to job-order costing)
2. Labor and overhead costs are accumulated by each department and costs are assigned to batches on an average per unit basis (similar to Process costing)