1-3 Terms (2hours 1 on this start at 1am)

Q: What are direct costs

A: Costs that can be easily traced to a specific product (e.g., direct materials, direct labor).

Q: What are indirect costs

A: Costs that cannot be easily traced to one product (e.g., factory rent, supervisor salary).

Q: What are product costs

A: Costs involved in making a product: direct materials, direct labor, and manufacturing overhead.

Q: What are period costs

A: Costs not involved in production; expensed in the period (e.g., selling and admin costs).

Q: What are variable costs

A: Costs that change in total with activity level (e.g., materials, commissions).

Q: What are fixed costs

A: Costs that stay constant in total regardless of activity (e.g., rent, salary).

Q: What are mixed costs

A: Costs with both fixed and variable components (e.g., utility bills).

Q: Journal entry to record raw materials purchase (cash)

A:
Dr Raw Materials Inventory
Cr Cash

Q: Journal entry for using direct and indirect materials

A:
Dr Work in Process (direct materials)
Dr Manufacturing Overhead (indirect materials)
Cr Raw Materials Inventory

Q: Journal entry for paying direct and indirect labor

A:
Dr Work in Process (direct labor)
Dr Manufacturing Overhead (indirect labor)
Cr Cash

Q: Journal entry for applying overhead

A:
Dr Work in Process
Cr Manufacturing Overhead

Q: Journal entry for completing jobs

A:
Dr Finished Goods Inventory
Cr Work in Process

Q: Journal entry for selling finished goods (COGS)

A:
Dr Cost of Goods Sold
Cr Finished Goods Inventory

Q: Journal entry to close underapplied overhead to COGS

A:
Dr Cost of Goods Sold
Cr Manufacturing Overhead

Q: Formula for predetermined overhead rate (POHR)

A:
Estimated Overhead / Estimated Activity Base

Q: Why use a predetermined overhead rate

A:
To apply overhead during the year before actual costs are known.

Q: Common activity bases for POHR

A:
Direct labor hours, machine hours, or direct labor cost.

Q: Formula for Contribution Margin (CM) per unit

A:
Selling Price - Variable Cost

Q: Formula for Contribution Margin Ratio (CM Ratio)

A:
CM ÷ Sales
or
CM per unit ÷ Selling Price

Q: Formula for Break-even in units

A:
Fixed Costs ÷ CM per unit

Q: Formula for Break-even in dollars

A:
Fixed Costs ÷ CM Ratio

Q: Formula for Target profit (units)

A:
(Fixed Costs + Target Profit) ÷ CM per unit

Q: Formula for Margin of Safety in dollars

A:
Actual Sales - Break-even Sales

Q: Formula for Degree of Operating Leverage

A:
CM ÷ Net Operating Income