5B Flashcards
___ costs Direct materials and direct labor together are called prime costs.
___costs: All factory costs other than direct materials are called conversion costs; they are required to convert materials into a finished product.
Prime costs:
Conversion
Beginning raw materials inventory
+ ????
-????
= Raw materials used
Beginning raw materials inventory
+ Purchases
- Ending raw materials inventory
= Raw materials used
Beginning WIP \+ ???? \+ ??? \+ ??? - ???
= Cost of goods manufactured
Beginning WIP \+ Raw materials used \+ Direct labor \+ Overhead applied - Ending WIP
= Cost of goods manufactured
Beginning finished goods
+ ???
- ????
= Cost of goods sold
Beginning finished goods
+ Cost of goods manufactured (from b.)
- Ending finished goods
= Cost of goods sold
On January 1 Maples had two jobs in process: #506 with assigned costs of $10,500 and #507 with assigned costs of $14,250. During January three new jobs, #508 through #510, were started and three jobs, #506, #507, and #508, were completed. Materials and labor costs added during January were as follows:
Job No.\_\_\_Material\_\_Labor ------- --------- ------ 506 \_\_\_ $ 0 \_\_\_ $2,000 507 \_\_\_ 0 \_\_\_1,500 508 \_\_\_4,000 \_\_\_ 3,600 509 \_\_\_3,800 \_\_\_2,000 510 \_\_\_2,600 \_\_\_3,100
Manufacturing overhead is assigned at the rate of 200% of labor.
What is the January cost of goods manufactured and transferred from work-in-process?
Total costs added during January for all five jobs included $10,400 of material and $12,200 of labor. Multiplying the $12,200 of labor costs incurred by 200% gives $24,400 of overhead applied during January. Combining the $10,400 of material, the $12,200 of labor, and the $24,400 of overhead gives total costs added to work-in-process of $47,000.
The two jobs in process at the end of January (#509 and #510) had $6,400 of material and $5,100 of labor. Multiplying the $5,100 labor cost by 200% gives $10,200 as overhead applied to the two jobs still in process. Total cost incurred during January on the two jobs still in process included material of $6,400, labor of $5,100, and overhead of $10,200, for total ending work-in-process cost of $21,700.
Beginning inventory of work-in-process $24,750 ($10,500 + $14,250) plus costs added during the month of $47,000 gives $71,750 cost of goods available to be completed. Subtracting ending inventory of work-in-process of $21,700 gives $50,050 as cost of goods manufactured and transferred out of work-in-process.
Birk Co. uses a job order cost system. The following debits (credits) appeared in Birk’s work-in-process account for the month of April:
April_ Description Amount 1 Balance $ 4,000 30 Direct materials 24,000 30 Direct labor 16,000 30 Factory overhead 12,800 30 To finished goods (48,000)
Birk applies overhead to production at a predetermined rate of 80% of direct labor cost. Job No. 5, the only job still in process on April 30, has been charged with direct labor of $2,000.
What was the amount of direct materials charged to Job No. 5?
April 30 balance of work-in-process = BI + DM used + DL used + Factory OH applied- Transferred to finished goods
= $4,000 + $24,000 + $16,000 + $12,800 - $48,000
= $8,800
Cost of direct materials charged to Job No. 5 = WIP balance - Direct labor - Overhead = $8,800 - $2,000 - .80($2,000) = $8,800 - $2,000 - $1,600 = $5,200
____costing is used for products whose individual units are indistinguishable from other units (e.g., sugar, corn flakes, textiles, paint). Such products are continuously produced through a series of uniform production steps called processes.
process
Formula for beginning Wip?
Formula for cost of DM?
Beginning inventory - dm used + dl used + factory OH applied - transferred to finished goods.
DM: WIP Balance - DL - OH
If a question asks what the amount of direct materials, labor, or overhead charged to a job – where do you start?
WIP!
Jansen, Inc., pays bonuses to its managers based on operating income. The company uses absorption costing, and overhead is applied on the basis of direct labor hours. In order to increase bonuses, Jansen’s managers may do all of the following, except:
defer expenses such as maintenance to a future period.
increase production schedules independent of customer demands.
decrease production of those items requiring the most direct labor.
decrease production of those items requiring the least direct labor
decrease production of those items requiring the most direct labor.
____costing is a method of costing in which fixed costs are treated as a product cost and assigned to the units produced.
Absorption
With absorption costing, a manager’s organization will show a higher operating income if some of the goods produced are inventoried since the inventoried goods will carry with them some of the fixed overhead costs that were incurred during the period.
Managers will show lower operating income if they decrease production of those items requiring the most direct labor.
The lower operating income results from the fact that a decrease in the production of items that require the most direct labor hours means that each of the items that is produced will have more fixed costs associated with it.
The increase in fixed costs per item will reduce operating income.
Which of the following statements is correct regarding variable costing and absorption costing income statements for a company that has no beginning inventory and whose production exceeds sales for the current period?
Net income is higher if absorption costing is used.
The ending inventory amount is lower if absorption costing is used.
The cost of goods sold amount is lower if absorption costing is used.
The selling and administrative expense is higher if absorption costing is used.
Net income is higher if absorption costing is used.
The answer choice “net income is higher if absorption costing is used” is correct because when production exceeds sales, some fixed costs that are expensed under variable costing are part of ending inventory under absorption costing.
Since expenses are higher under variable costing and sales revenue is unchanged, the net income will be higher under absorption costing.
A company’s standard costs for direct labor are as follows:
Direct Labor Standard Quantity Standard Price 1 hour per unit $15 per hour
Last month, the company produced and sold 100 units of its product, using 110 direct labor hours at a rate of $16 per hour. What amount is the company’s direct labor efficiency variance for last month?
d
___costing is sometimes called direct or marginal costing
. ____costing is sometimes referred to as full product costing.
Variable
Absorption
Variable Vs Absorption
\_\_\_costing is felt to be more useful for management decision making because it separates fixed costs that do not change with volume
Absorption costing is not required by both generally accepted accounting principles and the Internal Revenue Service (IRS). t/f
Over the long run, the difference between variable costing profit and absorption costing profit will be how much??
The difference is not in the amount of expense but in the ___of expense
Fixed overhead is a ___cost for absorption costing and a___cost for variable costing.
Variable
False - yes it is
zero
timing
product, period
____, also called job order costing, is a tracking system used for customized products or services.
____(or sheets): Costs are accumulated by the job, or job lot, and are recorded on job cost records as work progresses.
____costing is used for products whose individual units are indistinguishable from other units (e.g., sugar, corn flakes, textiles, paint).
conversion costs includes both ___and ___costs.
Job costing
Job cost records
Process
overhead & labor
The use of activity-based costing normally results in:
substantially greater unit costs for low-volume products than is reported by traditional product costing.
substantially lower unit costs for low-volume products than is reported by traditional product costing.
decreased set-up costs being charged to low-volume products.
equalizing set-up costs for all product lines.
substantially greater unit costs for low-volume products than is reported by traditional product costing.
In the past, conventional costing techniques assigned indirect manufacturing costs to a single (or few) cost pool(s) and allocated those costs based on a single (or few) allocation base(s).
The result was that both high and low volume products received the same unit “dosage” of indirect costs.
____addresses several of the concerns about traditional overhead costing systems.
___are the separately identifiable tasks required to produce a product or provide a service
One of the major differences between activity-based costing (ABC) and traditional costing systems is that greater effort is made to identify cost allocation bases that are ___
Activity-based costing (ABC)
Activities
Cost drivers
hierarchy of activity levels
__level - per unit of output
__level - once for each group, of units.
__level - support specific customers
__level - support specific product types or services
__level - activities are not traceable to specific product, but support the facility/plant
__level - not traceable to specific products or services or to specific facilitie, but support the organization
unit batch customer product plant/facility organization
Steps in activity-based costing
Identify casual \_\_\_ Determine \_\_\_ Establish \_\_ pools Determinae \_\_\_ ratio Apply \_\_
relationship driver cost cost costs
Benefits of ABC Costing
Provides an __of complex product costs
Allows management to focus on the nature of __
Highlights the ___of costs and activities
Provides more appropriate method to charge __ costs to products
understanding
activities
interrelationship
overhead
Which of the following standard cost variances used in a standard cost system would be least controllable by a production supervisor?
Overhead efficiency
Material usage
Overhead volume
Labor efficiency
Overhead volume
Note these three factors related to overhead volume:
The overhead volume variance is related to fixed overhead only. There is no volume variance for variable overhead.
The fixed overhead rate is a function of estimated volume.
Overhead volume variance occurs when actual production volume differs from estimated volume.
The production supervisor has little, if any, control over the overhead volume variance.
Note these three factors related to overhead volume:
The overhead volume variance is related to __overhead only. There is no volume variance for variable overhead.
The fixed overhead rate is a function of estimated ___.
Overhead volume variance occurs when actual production volume differs from estimated volume.
fixed
volume
true
When volume is measured in units, ___ volume is the number of units produced.
earned
The over- or underapplied overhead can be analyzed in a variety of ways.
The most common are called two-way, three-way, or four-way analysis.
A ___analysis separates over- or underapplied overhead into two variances—controllable and uncontrollable or volume.
A ___separates over- or underapplied overhead into three variances: (1) spending, (2) efficiency, and (3) volume
A ___analysis of variance separates over- or underapplied overhead into four variances: (1) fixed spending, (2) variable spending, (3) efficiency, and (4) volume
True
two-way
three-way analysis
four-way
Sales 20x2: 5k
Sell price per unit: 6
Cost per unit: 2
Process cost: 0
Inventory of Moy was recorded at net realizable value when produced in 20X1. No units of Moy were produced in 20X2. What amount should be recognized as profit on Moy’s 20X2 sales?
If byproduct Moy was recorded at net realizable value, the following entry would have been made in 20X1:
DR: Byproduct Inventory 5,000($6-$2) 20,000
CR:Work-In-Process 20,000
When the 5,000 units of Moy were sold in 20X2, the sale would be recorded using the following summary journal entry:
DR: Cash 30k
CR: Byrpdocut inventory: 20k
CR: Cash (5k x 2) ______10k
As can be seen, no profit is recognized when byproduct inventory is recorded at net realizable value.
___are a product of a process having a relatively small total resale value in relation to the sales value(s) of the main or joint products.
Byproducts
4 Allocation methods used to allocate joint costs:
Relative ___ at split-off
Physical ___
Net ___ Value
Constant ___ NRV
Sales Value
output
Net Realizable Value
Constant Gross Margin NRV
___ no market value exists for one or more joint products at the split-off point.
__: joint costs are allocated so that the gross margin percentage for each main product is identical
Net realizable value (NRV):
Constant gross margin NRV
401367
Graph
d
The difference between the actual cost and the standard cost for the direct materials purchased is a ____
If the actual price exceeds the standard price, it is an __variance.
Any difference between the standard quantity needed and the amount requisitioned is a ___variance.
price variance.
unfavorable
usage
The difference between standard hours at standard wage rates and actual hours at standard wage rates is referred to as which of the following types of variances?
Indirect labor spending
Labor usage
Direct labor spending
Labor rate
Labor usage
The difference between what was actually paid to the workers and the flexible budget amount results in the total labor variance, which then can be separated into a rate variance and an efficiency (usage) variance.
IN HOURS
Avg historical performance past 3 yrs: 1.85
Production level to satisfy demand over seasonal time span: 1.6
Engineer Estimate from attainable performance: 1.5
Engineer estimate based on ideal performance: 1.25
To measure controllable production inefficiencies, what is the best basis for Flint to use in establishing standard hours allowed?
1.50
A standard that is to be used for measuring controllable production inefficiencies should be based on engineering estimates of attainable performance
Flint should use 1.50 standard hours per unit in developing its standards
Direct labor Standard: .40DLH at 12.00/DLH = 4.80
Planned Production: 15k LBS
Actual Production: 15.5k LBS
Actual DL Cost (6,250 DLH): $75,250
The company’s direct labor efficiency variance for the current month would be:
$600 unfavorable derives from the difference between the direct labor hours allowed for the output achieved (15,500 × .4 = 6,200)
The actual hours worked (6,250) times the standard direct labor rate ($12.00). Calculation: ((6,200 - 6,250) × $12).
Which of the following is not a benefit of implementation of ABC (activity-based costing)?
Allows management to focus on the nature of activities performed
Allows management to examine value-added activities so they may be evaluated and implemented
Provides a more appropriate means of charging overhead costs to products
Provides an understanding of complex product costs and product profitability
Allows management to examine value-added activities so they may be evaluated and implemented
The benefit of implementing an activity-based costing (ABC) procedure is that it allows management to examine non-value-added (not value-added) activities so that they can be controlled or eliminated.
Information concerning a batch produced at a $60,000 joint cost before split-off follows
Separable Costs__SalesValue
AJAC: 8k__80k
BJAC: 22k__40k
TOTAL: 30k__120k
What is the joint cost assigned to Ajac if costs are assigned using the relative net realizable value?
$48,000
Joint Cost = $60,000
NRV = Net Realizable Value
Joint cost assigned to Ajac = (NRV Ajac / Total NRV) x Joint Cost
= ($72,000 / $90,000) x $60,000
= .80 x $60,000
= $48,000
In its first year of operations, Magna Manufacturers had the following costs when it produced 100,000 and sold 80,000 units of its only product:
Manufcature costs (fixed): 180k
Manufacture Cost(Variable): 160k
Sell & Admin (Fixed): 90k
Sell & Adnin Variable: 40k
How much lower would Magna’s net income be if it used variable costing instead of full absorption costing?
$36,000
Income difference = Change in inventory x Fixed cost per unit
= (100,000 - 80,000) x $1.80
= 20,000 x $1.80
= $36,000
If a burden rate is not employed, and the volume of production is increased over the planned level, the cost per unit for manufacturing overhead would be expected to:
increase for fixed costs and increase for variable costs.
decrease for fixed costs and increase for variable costs.
decrease for fixed costs and remain unchanged for variable costs.
remain unchanged for fixed costs and increase for variable costs.
decrease for fixed costs and remain unchanged for variable costs.
If a burden rate is not employed, and the volume of production is increased over the planned level, the cost per unit for manufacturing overhead would be expected to decrease for fixed costs and remain unchanged for variable costs.
For purposes of allocating joint costs to joint products, the sales price at point of sale, reduced by cost to complete after split-off, is assumed to be equal to the:
joint costs.
total costs.
net sales value at split-off.
sales price less a normal profit margin at point of sale.
net sales value at split-off.
For the current-period production levels, Woodwork Co. budgeted 11,000 board feet of production and purchased 15,000 board feet. The material cost was budgeted at $7 per foot. The actual cost for the period was $8.50 per foot. What was Woodwork’s material price variance for the period?
$19,500 unfavorable
$6,000 unfavorable
$16,500 unfavorable
$22,500 unfavorable
$22,500 unfavorable
Spending
variance = (Actual price - Standard price) x Actual quantity
= ($8.50 - $7.00) x 15,000 ft.
= $22,500 U
The variance is unfavorable (U) since the price per foot was more than expected.
Total standard hrs for unit produced: 5k
Total actual DL cost: $111,625
Actual /hour Labor rate 23.5
Standard/hr labor rate 24
What amount is the total direct labor price variance?
$2,500 unfavorable
$2,375 favorable
$2,500 favorable
$2,375 unfavorable
The actual hours worked is the actual labor cost of $111,625 divided by the actual rate per hour of $23.50, or 4,750 hours.
The labor price (rate) variance is the difference between the actual labor cost ($111,625) and the budgeted cost of actual hours worked ($24 × 4,750 hours, or $114,000). This difference is $2,375.
Actual variable overhead/hr: 8
Standard variable overhead/hr: 7.50
Actual hrs: 4,500
Standard hrs: 5k
What was the variable overhead spending variance for Product A?
$2,250 favorable
$4,000 unfavorable
$2,250 unfavorable
$4,000 favorable
VOHSV = ($8.00 - $7.50) x 4,500 hours
= $0.50 x 4,500 hours
= $2,250 U
Remember that for overhead variances, the “quantity” refers to the cost driver usage. So, for our example:
The variance is unfavorable (U) since more was spent than expected for the given activity level.
A company reported a significant material efficiency variance for the month of January. All of the following are possible explanations for this variance, except:
cutbacks in preventive maintenance.
an inadequately trained and supervised labor force.
producing more units than planned for in the master budget.
processing a large number of rush orders.
producing more units than planned for in the master budget.
The standard direct labor cost to produce one pound of output for a company is presented below. Related data regarding the planned and actual production activities for the current month for the company are also given below.
(Note: DLH = Direct Labor Hours)
DL Standard: .40 DLH @ $12/DLH = $4.80
Planned Production: 15k LBS
Actual Production: 15.5k LBS
Actual DL Cost(6,250) = $75,250
The company’s direct labor rate variance for the current month would be:
$10 unfavorable.
$250 unfavorable.
$240 unfavorable.
$248 unfavorable.
$250 unfavorable.
$250 unfavorable derives from the actual direct labor hours (6,250) times the difference between the standard direct labor rate ($12.00)
The actual direct labor rate ($75,250 ÷ 6,250 = $12.04). Therefore, 6,250 × ($12.00 - $12.04) = $250.
Augusta, Inc., expects manufacturing and sales of 70,000 units of product Maggie, its only product, to occur evenly over a 10-week period. Augusta pays for materials in the week following use. The balance of accounts payable for materials at the beginning of the 10-week period is $40,000. There are no beginning inventories. The following information pertains to product Maggie for the 10-week period:
Sales Price: 11/unit Material: 3/unit Manufacutre - Fixed: $210k Manufacture - Var: $2/unit S&A - Fixed: $45k S&A - Var: $1/unit
Using variable costing, what is Augusta’s budgeted income for the period?
$350,000
$305,000
$140,000
$95,000
$95,000
Variable cost per unit is $3 for material, $2 for other manufacturing costs, and $1 for selling and administrative, for a total of $6. Since the sales price is $11, the unit contribution margin ($11 − $6) is $5 per unit.
Total contribution margin for the period will be $5 × 70,000 units, or $350,000.
Manufacturing fixed costs are $210,000, while selling and administrative fixed costs are $45,000, for a total of $255,000 for fixed costs.
Subtracting fixed costs of $255,000 from the contribution margin of $350,000 leaves a budget net income of $95,000 for the period.
A company has gathered the following information from a recent production run:
Standard varoverhead rate $10
Actual var overhead rate 8
Standard process hrs 20
Actual process hrs 25
What is the company’s variable overhead spending variance?
$50 favorable
$40 unfavorable
$40 favorable
$50 unfavorable
$50 favorable
The variable overhead spending variance is the difference between the actual amount paid ($8) and standard overhead ($10) for the 25 actual hours.
The difference of $2 multiplied by 25 actual hours gives $50. The variance is favorable because the actual cost ($8) was less than the standard cost ($10).
Sales $1,000,000 Net purchases of raw materials 600,000 Cost of goods manufactured 800,000 Marketing and administrative expenses 250,000 Indirect manufacturing costs 500,000
WIP: Beg: 500k
WIP: End: 400k
FG Beg: 100k
FG: 500k
Based on the following data, what is the gross profit for the company?
$400,000
$200,000
$600,000
$900,000
Cost of goods sold is beginning finished goods plus cost of goods manufactured, less ending finished goods:
$100,000 + $800,000 - $500,000 = $400,000
Gross profit is sales less cost of goods sold:
$1,000,000 - $400,000 = $600,000
Dowell Co. manufactures a wooden item. Which of the following is included with the inventoriable cost under absorption costing and excluded from the inventoriable cost under variable costing?
Cost of electricity used to operate production machinery
Cost of scrap pieces of lumber
Wages of assembly-line personnel
Straight-line depreciation on factory equipment
Straight-line depreciation on factory equipment
Estimated annual overhead $ 900,000
Estimated annual direct labor cost 1,800,000
Actual direct labor cost for March 160,000
Actual overhead for March 90,000
Base Manufacturing Co.’s applied overhead for March is:
$80,000.
$75,000.
$320,000.
$90,000.
$80,000.
The overhead rate is calculated as follows:
Estimated annual overhead ÷ Estimated annual direct labor = Overhead Rate
$900,000 ÷ $1,800,000 = 0.50
Therefore, overhead is applied at 50% of actual direct labor cost:
$160,000 × 0.50 = $80,000 applied overhead
Which of the following indicates that market-based transfer prices would be preferable to cost-based transfer prices?
The market is perfectly competitive for the intermediate product, and the selling division has no unused capacity.
The market is perfectly competitive for the intermediate product, and the selling division has ample unused capacity.
The market is imperfectly competitive for the intermediate product, and the selling division has ample unused capacity.
The market is imperfectly competitive for the intermediate product, and the selling division has no unused capacity.
The market is perfectly competitive for the intermediate product, and the selling division has no unused capacity.
Market-based transfer prices are preferable to cost-based transfer prices when the market is perfectly competitive for the intermediate product, and the selling division has no unused capacity.
Which of the following is not a characteristic of a trigger point in back-flushed costing under the just-in-time method?
Pay point for purchases and materials
Point-of-sale transaction
Completion of manufacturing
A system in operation with zero or very low inventories and fast throughput
A system in operation with zero or very low inventories and fast throughput
These are characteristics of what?
Pay point for purchases and materials
Point-of-sale transaction
Completion of manufacturing
Trigger point in back-flushed costing
The accountant for Champion Brake, Inc., applies overhead based on machine hours. The budgeted overhead and machine hours for the year are $260,000 and 16,000, respectively. The actual overhead and machine hours incurred were $275,000 and 20,000. The cost of goods sold (COGS) and inventory data compiled for the year is as follows:
Direct materials $ 50,000
COGS 450,000
Work-in-process (WIP) (units) 100,000
Finished goods (units) 150,000
What is the amount of over/underapplied overhead for the year?
$15,000
$50,000
$67,000
$65,000
The overhead application rate is $16.25 per machine hour (budgeted overhead of $260,000 divided by budgeted machine hours of 16,000).
Multiplying that rate by actual hours of 20,000 gives $325,000 for overhead applied.
Subtracting that from the $275,000 actual overhead gives a variance of $50,000. The overhead is overapplied since more overhead was applied to work-in-process than the actual overhead.
LM Enterprises produces two products in a common production process, each of which is processed further after the split-off point. Joint costs incurred for the current month are $36,000. The following information for the current month was also gathered:
L
Produced_Sold_Sep Cost_Sell price
10k__9.5k__20k__$8
M
Produced_Sold_Sep Cost_Sell price
5k__4k__40k__20
What amount would be the joint cost allocated to Product M, assuming that LM Enterprises uses the estimated net realizable value method to allocate costs?
$20,000
$12,000
$15,000
$18,000
Net realizable value equals eventual sales price less separable costs. For Product L, this is $80,000 (10,000 units produced × $8 selling price per unit) less $20,000, or $60,000. For Product M, it is $100,000 (5,000 units × $20) less $40,000, or $60,000.
Net realizable value of the two products together is $120,000, so Product M is allocated 60/120 or 50% of joint costs. Multiplying joint costs of $36,000 by 50% gives $18,000.
