ACC 5361 - Module 1 Basic

"Front"

"Back"

"What are the three components of product cost?"

"Direct materials (DM) + Direct labor (DL) + Manufacturing overhead (OH)."

"Formula: Prime cost"

"Direct materials + Direct labor.
Cue: the ""prime/main ingredients."" No overhead at all."

"Formula: Conversion cost"

"Direct labor + ALL manufacturing overhead (variable + fixed).
Cue: the cost to CONVERT material into a finished product — everything except the material."

"Which single cost appears in BOTH prime cost and conversion cost?"

"Direct labor. It is the only overlapping item.
Most-tested trick with this pair of terms."

"What does prime cost EXCLUDE? What does conversion cost EXCLUDE?"

"Prime cost excludes overhead entirely.
Conversion cost excludes direct materials entirely."

"Formula: Contribution margin"

"Sales - Total variable costs.
Cue: what's left to cover fixed costs

"Is a sales commission part of product cost? Why or why not?"

"No. It is a variable SELLING (period) cost

"Total variable cost includes which four items (in the cost classification problem)?"

"DM + DL + variable overhead + variable selling costs (e.g.

"Product cost vs. Total variable cost — both start with DM + DL + Variable OH. What differs after that?"

"Product cost adds FIXED overhead (a factory cost).
Total variable cost instead adds VARIABLE SELLING costs like commissions."

"When a fact pattern gives fixed overhead as a lump total (e.g. $15

000)

"Worked check: DM $6

DL $4.25

"Worked check: DM $6

DL $4.25 per unit

"Worked check: DL $4.25

Var OH $9.75 per unit

"Traditional income statement groups costs by ____; contribution margin income statement groups costs by ____."

"Traditional: by FUNCTION (product costs vs. period costs).
Contribution: by BEHAVIOR (variable vs. fixed)."

"What is the first subtotal on a traditional income statement

and how is it calculated?"

"What is the first subtotal on a contribution margin income statement

and how is it calculated?"

"Gross margin vs. contribution margin — what is the key difference?"

"Gross margin subtracts COGS only. Contribution margin subtracts all variable costs

"Do the traditional and contribution margin income statements produce the same net operating income?"

"Yes — always. Same sales

"Which income statement format is required for external GAAP reporting? Which is internal-use only?"

"Traditional = required for external/GAAP reporting.
Contribution margin = internal management tool (break-even

"Formula: Cost of goods sold for a MERCHANDISING company"

"Beginning inventory + Purchases - Ending inventory.
Cue: what you started with

"How do you know a fact pattern describes a merchandiser rather than a manufacturer?"

"It gives merchandise inventory + purchases (buy and resell)

"Allen Corp: Sales $20

000 at $100/unit. How many units were sold

"Allen Corp: Beg. inv. $2

500

"Allen Corp: variable selling $5/unit

variable admin $3/unit

"Allen Corp: fixed selling $8

000

"What quick cross-check confirms you split variable and fixed S&A correctly?"

"Variable S&A + Fixed S&A must equal the total S&A used on the traditional statement ($1

"Formula: Predetermined overhead rate (POHR)"

"Estimated total manufacturing overhead / Estimated total allocation base.
Both numbers are ESTIMATES

"Formula: Overhead applied"

"Predetermined overhead rate x ACTUAL amount of the allocation base used."

"In the POHR formula

which numbers are estimated and which are actual?"

"Once calculated

can the predetermined overhead rate be recomputed using actual figures?"

"What is an allocation base? Name three common ones."

"The activity used to spread overhead to jobs. Common bases: direct labor hours

"What does 'overhead applied' actually represent?"

"An estimated portion of overhead assigned to a job via the predetermined rate — NOT the actual overhead that job caused."

"Formula: Total cost of a job"

"Direct materials + Direct labor + Overhead applied to that job."

"Formula: Product cost per unit for a job"

"Total job cost / Units produced by that job."

"Hampshire Furniture: est. OH $400

000

"Hampshire Furniture: rate $20/DLH

actual company DLH 22

"Hampshire Furniture dining set: DM $925

DL $720

"Hampshire Furniture gives 'actual direct labor cost $421

500.' Is it used?"

"TruMotion: est. OH $2

500

"TruMotion: rate $6.25/MH

actual 430

"TruMotion Job 375: DM $7

120

"TruMotion Job 375 lists 260 direct labor hours. Why is it never used?"

"Because TruMotion allocates overhead on MACHINE hours. The job's labor DOLLARS ($5

"Before touching any numbers in an overhead problem

what should you identify first?"

"Formula: Plantwide overhead rate"

"Estimated total COMPANY overhead / Estimated total company-wide allocation base. One rate for the entire plant."

"Formula: Departmental overhead rate"

"Estimated DEPARTMENT overhead / That department's own estimated cost driver amount. One rate per department."

"What is a cost driver?"

"The activity that actually causes a department's (or activity's) overhead cost to rise or fall — e.g.

"Why are departmental rates generally more accurate than a single plantwide rate?"

"Because departments have different cost structures (one machine-intensive

"Potter's: Machining OH $400

000 / 16

"Potter's Job 450: Machining 12 MH at $25; Finishing 5 DLH at $40. Overhead applied (departmental)?"

"Machining: 25 x 12 = $300
Finishing: 40 x 5 = $200
Total = $500"

"Potter's: plantwide rate $62.50/DLH. Job 450 used 2 DLH in Machining and 5 DLH in Finishing. Plantwide overhead applied?"

"$62.50 x (2 + 5) = $62.50 x 7 = $437.50
Plantwide only knows ONE base

"Potter's Job 450 lists 1 machine hour in the Finishing dept. Where is it used?"

"Nowhere. Finishing's cost driver is labor hours

"Potter's Job 450 lists 2 direct labor hours in Machining. Is it a distractor?"

"Only partly. Unused in the departmental calculation (Machining's driver is machine hours)

"Same job

departmental OH = $500 but plantwide OH = $437.50. Why the gap?"

"Formula: Activity rate (ABC)"

"Estimated activity cost / Estimated activity volume (the cost driver amount)."

"How does activity-based costing differ from departmental overhead allocation?"

"Departmental = one rate per DEPARTMENT. ABC = one rate per ACTIVITY (several cost pools). More pools = more precision

"Order the three overhead methods from least to most precise."

"Plantwide (one rate) → Departmental (rate per department) → Activity-based (rate per activity)."

"Sidney Industries: MMC $600

000 / 15

"Sidney Job 356: 90 MH

9 change orders

"Sidney Job 356: 300 lbs DM at $70/lb

20 DL hrs at $25/hr

"In an ABC problem

what is the most common calculation error?"

"When DM and DL are given as rates (e.g. '300 lbs at $70 per lb')

what must you do first?"

"What is the single formula that appears in every job-costing method in this chapter?"

"Total cost = DM + DL + OH. Only the way OH is calculated changes (plantwide

"Every overhead method in this chapter follows the same two-step shape. What is it?"

"Step 1: Rate = estimated cost / estimated activity.
Step 2: Applied = rate x actual activity.
Only the number of rates changes."

"Study habit recommended in the videos for multi-step problems"

"Label every intermediate answer with its units — write '$20 per direct labor hour

"[Student-reported] What do students commonly report as the hardest topics in this course?"

"Activity-based costing

"[Student-reported] What study method do managerial accounting students most often credit for exam success?"

"Working many practice problems and reviewing missed ones

"[Student-reported] Why do student decks emphasize that machine hours are increasingly used as the allocation base?"

"Because of increased automation in manufacturing

"Self-test: given a job costing problem

what three questions should you answer before calculating?"