MANAGERIAL EXAM 1

product cost

costs that are directly related to manufacturing a product. these are capitalized as inventory and later expensed as COGS when the products sell.

includes direct materials, direct labor, manufacturing overhead

period cost

costs that don’t tie to manufacturing. these are expensed immediately in the period incurred. this includes seling costs, administrative costs

product cost

rent on equipment used in the factory

product cost

lubricants used on machinery

product cost

soap and paper towels used by factory workers at the end of a shift

product cost

factory supervisors’ salaries

product cost

heat, power, and water consumed in a factory

product cost

workers compensation insurance for factory employees

product cost

depreciation on chairs and tables in the factory lunchroom

product cost

the cost of packaging the companys product

period cost

depreciation on salespersons cars

period cost

salaries of personnel who work in the finished goods warehouse

period cost

materials used for boxing products for shipment overseas

period cost

advertising cost

period cost

the wages of a receptionist

period cost

cost of leasing the corporate jet used by company’s executives

period cost

the cost of renting rooms at a florida resort for annual sales conference

direct material

the cost of a hard drive installed in a computer

selling cost

the cost of advertising in the purget sound computer user newspaper

direct labor

the wages of employees who assemble computers from components

selling cost

sales commissions paid to the company’s salespeople

manufacturing overhead cost

the salary of the assembly shops supervisor

administrative cost

the salary of the company’s accountant

manufacturing overhead cost

depreciation on equipment used to test assembled computers before release to customers

contribution margin

the amount of money left over after covering variable costs to help pay fixed costs and profit

• sales - variable costs

traditional format income statement

this type of income statement organizes costs by function, NOT behavior.

its structure:

Sales

• COGS

• = gross profit

• - selling and administrative expenses

• = net operating income

key idea: costs are grouped by what they’re used for.

fixed cost

stays the same in total within the relevant range, regardless of activity level (rent, salary admin)

variable cost

change in total in direct proportion ot the level of activity (COGS per unit, sales commission)

incremental cost

the extra cost that happens when you make one more unit or choose one option instead of another.

conversion cost

the costs used to turn raw materials into finished products

• direct labor + manufacturing overhead

  • direct labor is not included

opportunity cost

what you give up when you choose one option over another

avoidable cost

a cost that will go away if you choose a certain option (like stopping a product, department, or activiity)

• if the decision changes, the cost changes too.

if you cancel a gym membership, the monthly fee disappears. the fee was ________

sunk cost

costs that have already happened and cannot be changed, no matter what decision you make now.

• ex: buying a movie ticket

it is specifically associated with one cost object

which factor determines whether a cost is direct or indirect?
- the cost is fixed or variable

the cost is expensed when incurred

it is specifically associated with one cost object

the expenditure is unavoidable

cogs

formula for _______:

beginning inventory + purchases + freight-in - ending inventory

and

finished goods beginning inventory + cogm - finished goods ending inventory

cogm

formula for _________:

beginning work-in-process + direct materials + direct labor + product costs - ending work-in-process

direct materials

formula for _____________:

raw materials beginning inventory + net purchases of raw materials - raw materials ending inventory

the amount to be allocated between cost of goods manufactured and ending work in process

the sum of beginning work-in-process, direct labor and materials, and overhead incurred is

• the amount to be allocated between cost of goods manufactured and ending work in process

• cost of goods sold for a retailer

• the sum of the costs incurred in the current period

• the cost of goods manufactured

a summarized presentation of the details of transactions recorded in the work-in-process account

the cost of goods manufactured statement is

• a summarized presentation of the details of transactions recorded in the work-in-process account

• a reconciliation of the income statement and balance sheet of a manufacturing company

• a report of standard costs, variance analysis, and allocation of variances to inventory and cost of goods sold accounts.

• a report that includes the cost of goods sold for a manufacturer.

are regarded as assets before the products are sold

inventoriable costs

• include only the prime costs of manufacturing a product

• include only the conversion costs of manufacturing a product

• are expensed when products become part of finished goods inventory

• are regarded as assets before the products are sold

are always expensed in the same period in which they are incurred

period costs

• are always expensed in the same period in which they are incurred

• vary from one period to the next

• remain unchanged over a given period of time

• are associated with the periodic inventory method

prime cost

the main, direct cost of making a product.

• direct materials + direct labor .

• manufacturing overhead is not included.

work in process

inventory that has started being made but isn’t finished yet.

manufacturing overhead applied formula

predetermined overhead rate x actual activity (actual direct labor hours)

total manufacturing overhead formula

estimated fixed manufacturing overhead + (estimated variable manufacturing overhead * estimated direct labor hours)

predetermined overhead rate formula

total manufacturing overhead / estimated direct labor hours

under-applied overhead

you didn’t apply enough costs

• COGS increases

  • profit decreases

over-applied overhead

applied too many costs

• COGS decreases

• profit increases

under or over applied overhead

companies estimate overhead ahead of time and apply it to jobs using a predetermined overhead rate. they later compare it to

• what they applied vs what they actually spent.

those two numbers almost never match.

raw meterials inventory

represents the cost of materials not yet used in production

raw materials

when materials are purchased they are recorded in the ___ _______ inventory account.

purchase of materials

a journal entry that debits raw materials and credits accounts payable is recording the _______ ____ ________.

indirect

labor costs charged to manufacturing overhead represent ____ labor costs.

as they are incurred

actual manufacturing overhead costs are recorded in the manufacturing overhead account __ ____ ___ _______.

application of manufacturing overhead costs

a journal entry that debits Work in Process and credits manufacturing overhead is recording the ____ __ _________ ________ _____.

period expenses

sellling and administrative costs incurred are treated as ______ ________

• selling and administrative costs are not tied to production

  • theyre expensed in the _______ incurred, not inventoried

true

true or false?

• the transfer of costs from one inventory account to the next parallels the physical transfer of goods from one inventory to the next.

• as materials physically move through production, their costs move through inventory accounts.

  • raw materials → work in process → finished goods

    • the accounting flow mirrors the physical flow of goods

direct

when labor costs are incurred, only _____ labor costs are added directly to the work in process account.

work in process

manufacturing overhead is applied with a debit to ____ __ _____.

74000

raw materials inventory was $27,000 at the beginning of the year and $25,000 at the end of the year. during the year, $100,000 in raw materials were purchased, including $28,000 of indirect materials that were put into manufacturing overhead during the period. Calculate the cost of direct materials used during the period.

no dollar sign or comma or period

beginning raw materials + purchases - ending raw materials

total raw materials formula

administrative costs and selling costs

which of the following costs are charged directly to the income statement

• manufacturing overhead

• administrative costs

• selling costs

• direct labor

• direct materials

finished goods

when a job is completed, its costs are transferred into the _________ ______

395000

given: COGS manufactured of $410,000; beginning finished goods inventory of $110,000 and ending finished goods inventory of $125,000, calculate unadjusted cost of goods sold

no dollar sign, comma, or period.

beginning finished goods + COGM - ending finished goods

unadjusted COGS formula

120000

job #4260 consisted of 1000 units at a total cost of $200,000. the cost transferred to COGS for the sale of 600 of the units is?

55000

Luver Corporation’s Gross margin is $100,000, COGS= $70,000, and selling and administrative expenses total $45,000. net operating income is?

gross margin - selling and administrative expenses

net operating income formula

sold

the schedule of COG ______ summarizes the portions of those costs that remain in ending finished goods inventory and that are transferred out of finished goods into COGS.

16000

raw materials inventory was $5,000 at the beginning of the year and $12,000 at the end of the year. During the year, a total of $27,000 in raw materials were purchased, including $4,000 of indirect materials that were put into manufacturing overhead during the period. Calculate the cost of direct materials used during the period.

overapplied or underapplied overhead

the difference between overhead applied to work in process and actual overhead is ______ __ _______ ________

overapplied

a credit balance in manufacturing overhead means overhead is _________

• applied overhead is credited to manufacturing overhead

• actual overhead is debited

• if the account ends with a credit balance, that means applied > actual

Expedited Delivery operates a fleet of delivery trucks in a large metropolitan

area. A careful study by the company’s cost analyst has determined that if a

truck is driven 200,000 miles during a year, the average operating cost is 9.6

cents per mile. If a truck is driven only 130,000 miles during a year, the

average operating cost increases to 11.6 cents per mile.

1. using the high-low method, estimate the variable and fixed cost elements of the annual cost of truck operation.