222 Formulas

Question 0

What is the high low method?

Answer 0

Take the high and low points of activity and their associated costs.
Y=cost
X=unit (of activity)

x2-x1

Question 1

What is the total mixed cost formula?

What does each letter mean?

Answer 1

Y= a+bx

Y= total mixed cost
A= total fixed cost
B= variable cost/unit
X= activity

Question 2

What is the difference between direct and indirect cost?

Answer 2

The difference is whether or not the cost can easily be traced back to a particular product

Question 3

What are product costs?

Answer 3

Any cost directly involved in making the product. Direct materials, direct labor, and and manufacturing overhead are all product costs.

A product cost will appear as an inventory expense on the balance sheet.

Question 4

What are period costs?

Answer 4

Period costs are anything that is not a product cost. A good rule is “anything to do with sales, administration, warehouse, or moving inventory.”

Period costs appear on the income statement.

Question 5

What are the five classifications of activity based costing (abc)?

Answer 5

• Unit level activity
• batch level activity
• product level activity
• organization-sustaining activity
• customer level activity

Question 7

What is unit level activity?

Answer 7

Electricity for machines. Unit-level activities are performed each time a unit is produced. For example, providing power to run processing equipment would be a unit-level activity.

This is volume based

Question 8

What is batch level activity?

Answer 8

Equipment set-up for production run. Batch-level activities are performed each time a batch is handled or processed, regardless of how many units are in the batch. For example, setting up equipment and shipping customer orders are batch-level activities.

Question 9

What is product level activity?

Answer 9

Product design. Product-level activities relate to specific products and must be carried out regardless of how many batches are run or units are produced or sold. For example, designing or advertising a product would be product-level activities.

Question 10

What is organizational activity?

Answer 10

Computer network. Organization-sustaining activities are carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made. For example, heating a factory and cleaning executive offices are organization-sustaining activities.

Question 11

What is prime cost?

Answer 11

Direct materials + direct labor

This is not overhead!

Question 12

What is customer level activity?

Answer 12

Customer support. Customer-level activities relate to specific customers and are not tied to any specific product. For example, sales calls and catalog mailings would be customer-level activities.

Question 13

Set up a contribution format income statement.

Answer 13

Sales (This)
Variable expenses (Minus this)
————————–
Contribution margin (Equals this)
Fixed expenses (Minus this)
————————–
Net operating income (Equals this)

Question 14

What is conversion cost?

Answer 14

Direct labor + manufacturing overhead (which includes indirect materials, indirect labor, and other indirect costs)

Question 15

Prepare a schedule of cost of goods sold.

Answer 15

Finished goods inventory, beginning (Start)
Cost of goods manufactured (Add)
Cost of goods available for sale (Equals)
Finished goods inventory ending (minus)
Unadjusted cost of goods sold (equals)
Under applied overhead (Add)
Adjusted cost of goods sold (equals)

Question 16

Prepare a schedule of cost of goods manufactured.

Answer 16

Raw materials inventory, beginning (start)

• Purchases of raw materials (add)
• Total raw materials available (equals)
• Raw materials inventory, ending (minus)
• Raw materials used in production (equals)
• Indirect materials included in manufacturing overhead (minus) next cell (equals)
• Direct labor (add)
• manufacturing overhead applied to work in process inventory (add)
• total manufacturing costs (equals)
• beginning work in process inventory (add)
• ending work in process inventory (minus)
• cost of goods manufactured (equals)

Question 17

When Overapplied/underapplied overhead is closed out to cost of goods sold what happens?

Answer 17

If overapplied manufacturing overhead is closed out to cogs that will mean a debit to cogs and a credit to gross margin

Gross margin will increase

Under applied will mean an increase to cost of goods sold.

Question 18

Prepare an income statement.

Answer 18

Sales
Cost of goods sold  (minus)
Gross margin   (Equals)
Selling expenses  (start)
Administration expenses (add)  *next cell*  (equals) (subtracted from gross margin)
Net operating income (equals)