BEC 1 Flashcards
What are the formulas to calculate cost of goods manufactured and cost of goods sold?
RM: Beg DM \+Purchases -Ending DM DM Used
WIP: Beg WIP \+DM Used \+DL \+MOH -Ending WIP COGM
FG: Beg FG \+COGM -Ending FG COGS
What is the GAAP/absorption costing income statement format?
Sales -COGS Gross Profit -Operating expenses Earnings before interest and taxes (EBIT) -Interest expense Earnings before taxes (EBT) -Tax expense Net income (EAT)
What is the variable costing income statement format?
Sales -Variable costs =Contribution margin -Fixed costs =Operating income
What is the formula to calculate equivalent units using the weighted-average method?
Units complete
+Ending WIP x % completed
=Equivalent units
What is the formula to calculate equivalent units using the FIFO method?
Beginning WIP x (1-% already complete)
+(Units completed - Beginning WIP)
+Ending WIP x % complete
Equivalent units
Why does the difference between inherent risk and residual risk arise, and what is the difference between the two types of risk?
The difference arises because of management’s actions to reduce the inherent risk, which is defined as the risk that exists before management takes any action. Residual risk is the risk that remains after management puts a control action into place.
What is the formula for audit risk and what does each component mean?
Inherent risk x control risk x detection risk
Inherent risk: the risk that exists before management puts a control action into place
Control risk: the risk that an internal control will not be effective
Detection risk: the risk that an internal control weakness will not be detected by an external auditor
Under what circumstances should a company implement an activity-based costing system as opposed to a traditional costing system?
When indirect costs are a high percentage of total costs, these costs should be allocated appropriately among the various activities.
What is the relevant range?
The range over which the relationships between fixed costs and variable costs are accurate and valid. Only variable costs are directly proportional to volume over the relevant range.
What is the difference between absorption and variable costing?
The difference between the two methods is how fixed factory overhead is treated. In absorption costing, fixed overhead is included in product costs and cost of goods sold. In variable costing, fixed overhead is expensed immediately and included with period costs. Only variable overhead is included in product costs.
What does the coefficient of correlation measure and what is the simple regression equation?
It measures the strength of the direct relationship between the independent variable (x) and the dependent variable (y). It is expressed as r and ranges from -1.00 to + 1.00.
y = a + Bx
a = y-intercept; fixed costs B = slope; variable cost per unit
What does the coefficient of determination measure?
It measures the difference in the dependent variable (y) as explained by the independent variable (x). It is expressed as R squared and ranges from zero to one. A larger R squared means it is a better fit of the regression line.
What is learning curve analysis and how is it calculated?
As employees become more experienced with a specific job, the per-unit labor hours decrease and therefore they increase efficiency of operations. When workers become more efficient, the number of components required will increase for successive periods.
As production goes from one to two units, two to four units, etc., the cumulative average time per unit decreases to a fixed percentage (the learning curve rate) of the previous average time.
What is the relationship of production, sales, and net income under absorption and variable costing, and what is the reasoning behind it?
When production exceeds sales, absorption costing net income is greater than variable costing net income because some units (from fixed manufacturing overhead) are added to ending inventory and are therefore deferred from being deducted from net income until a future period.
When sales exceed production, variable costing net income is greater than absorption costing net income because the ending inventory is lower than beginning inventory and the fixed manufacturing overhead costs were deducted from income when they were incurred.
What are the three components of product costs?
Direct materials, direct labor, manufacturing overhead
