Accounting Exam 3

Question 1

Manufacturing Company Inventory Components

Answer 1

1. Raw Materials (cost of raw materials on hand)
2. Work In Process Inventory (cost applicable to partially completed goods)
3. Finished Goods Inventory (cost of completed goods on hand)

Question 2

Product vs Period Costs

Answer 2

Product = Manufacturing costs, including direct materials, directly labor and manufacturing overhead.

Period = Non- Manufacturing costs, including selling expenses & admin expenses

Question 3

Costs that are an integral part of producing the product (all costs incurred at the factory).

Recorded in the inventory account, not an expense (COGS) until the goods are sold.

Answer 3

Product Costs

Question 4

Non-manufacturing costs, dharged to expense as incurred.

Includes Selling and Admin costs

Answer 4

Period Costs

Question 5

Kahoot: Factory Maintenance would be classified as what?

Answer 5

Overhead

Question 6

Kahoot: Wages for employees installing doors on cars?

Answer 6

Direct Labor

Question 7

Kahoot: Depreciation Expense for manufacturing facility?

Answer 7

Overhead

Question 8

Kahoot: Indirect Roofing materials at a home builder?

Answer 8

Overhead

Question 9

Kahoot: Salaries for sales staff - product or period?

Answer 9

Period

Question 10

Kahoot: Salaries for manufacturing facility managers - product or period?

Answer 10

Period

Question 11

Kahoot: Rental of delivery trucks to deliver finished goods to customers (freight) - product or period?

Answer 11

Period

Question 12

Activity Index Concept

Answer 12

The activity that causes changes in the behavior of costs. Example - as sales go up, COGS go up

Question 13

Variable Costs

Answer 13

Costs that vary in total directly and proportionately with changes in the activity level.
Example: If the activity level increases 10 percent, total variable costs increase 10 percent.
Variable costs remain the same per unit at every level of activity.

Question 14

Fixed Costs

Answer 14

Costs that remain the same in total regardless of changes in the activity level within a relevant range.
Fixed cost per unit cost varies inversely with activity: As volume increases, unit cost declines, and vice versa

Question 15

Mixed Costs

Answer 15

Costs that have both a variable element and a fixed element.

Change in total but not proportionately with changes in activity level.

Question 16

Examples of Variable, Fixed and Mixed Costs

Answer 16

1. Variable: Direct and Indirect Materials, Direct Labor
2. Fixed: Depreciation and Rent
3. Mixed: Maintenance and Utilities

Question 17

Relevant Range

Answer 17

The relevant range is the range of activity (e.g., production or sales) over which these relationships are valid.
For example, if the factory is operating at capacity, increasing production requires additional investment in fixed costs to expand the facility or to lease or build another factory.

Question 18

Cost Volume Profit Analysis

Answer 18

the study of the effects of changes in costs and volume on a company’s profits.

Question 19

CVP Assumptions

Answer 19

1. Behavior of both costs and revenues is linear throughout the relevant range of the activity index.
2. Costs can be classified accurately as either variable or fixed.
3. Changes in activity are the only factors that affect costs.
4. All units produced are sold.
5. When more than one type of product is sold, the sales mix will remain constant.

Question 20

Contribution Margin

Answer 20

Shows the percentage of each sales dollar available to apply toward fixed costs and profits.

Question 21

Break Even Analysis

Answer 21

Used to determine when total sales equal variable costs plus fixed costs. i.e Net Income is Zero

Question 22

Target Net Income Purpose

Answer 22

Used to determine levels of sales needed to achieve a specified income.
Expressed in either sales units or in sales dollars

Question 23

Margin of Safety

Answer 23

Is the difference between actual or expected sales and sales at the break even point.
Measures the cushion that a particular level of sales provides.
The higher the dollars or percentage, the greater the margin of safety.

Question 24

Kahoot: Variable Costs are costs that:

Answer 24

Remain the same per unit at every activity level.

Question 25

Kahoot: Fixed Costs are costs that:

Answer 25

Vary per unit at different activity levels.

Question 26

Kahoot: Total fixed costs remain the same regardless of the activity level. T or F?

Answer 26

True

Question 27

Kahoot: The term mixed costs refers to:

Answer 27

Costs that have variable and fixed elements

Question 28

Kahoot: Contribution Margin:

Answer 28

Is the revenue remaining after deducting variable costs.

Only shared internally.

Question 29

Standard vs Budget cost

Answer 29

Standard = unit
Budget = total

Question 30

Ideal Standards

Answer 30

Represents the optimum levels of performance under PERFECT operating conditions.

Question 31

Normal Standards

Answer 31

Represents efficient levels of performance that are attainable under EXPECTED operating conditions.

Should be rigorous but attainable.

Question 32

Difference between total actual costs and total standard costs?

Answer 32

Variance

Question 33

When Actual Cost is less than Standard Costs?

Answer 33

Favorable Variance

Question 34

When Actual Cost is greater than Standard Costs?

Answer 34

Unfavorable Variance

Question 35

Incremental Analysis

Answer 35

A decision involving a choice among alternatives. Choosing which alternative is better based on financial outcomes.
Examples: 
accept order at special price
may or buy components
eliminate an unprofitable segment

Question 36

Opportunity Cost

Answer 36

The potential benefit that may be obtained from following an alternative course of action.

Question 37

Kahoot: A standard cost is a ____ amount?

Answer 37

Unit Cost

Question 38

Kahoot: A budget cost is a ____ amount?

Answer 38

total dollar cost

Question 39

Kahoot: When actual costs are greater than standard costs?

Answer 39

Unfavorable Variance

Question 40

Kahoot: When actual costs are less than standard costs?

Answer 40

Favorable variance

Question 41

Kahoot: ____ represents optimum levels of performance under perfect operating conditions?

Answer 41

Ideal Standards

Question 42

Kahoot: ____ represents efficient levels of performance attainable under expected conditions.

Answer 42

Normal Standards

Question 43

Kahoot: When making decisions about a business, managers should consider the both financial and not financial information? True or False.

Answer 43

True

Question 44

Kahoot: Incremental Analysis is often referred to as?

Answer 44

Differential Analysis

Question 45

Kahoot: Opportunity costs are the loss of potential benefits from an alternative action? True or Fals

Answer 45

True