CH2

Question 1

Types of Companies:

Manufacturing

Answer 1

Take raw materials (RM) and produce new products from them.

Question 2

Types of Companies:

Merchandising

Answer 2

Retail and wholesale merchandising companies sell products that someone else has manufactured.

Question 3

Types of Companies:

Service

Answer 3

Provide a service such as airlines, hospitals, repair shops, law firms, CPA firms.

Question 4

Manufacturing Production Process – “Traditional” Environment

Answer 4

Materials are purchased and products are made “in anticipation” of customer demand

Begins with projections based on past experience and “forecasts” so products are “pushed” through the process

Inventories serve as “buffers” in case of unexpected demand for products or unexpected problems in production

Question 5

Generally 3 inventory accounts exist in a traditional environment:

Answer 5

Raw Materials
Work in Process
Finished Goods

Question 6

Lean production is focused on

Answer 6

optimizing the flow of products and services through entire value streams that flow horizontally across technologies, assets, and departments to customers;

Continuous Improvement

Question 7

Lean production is also focused on creating processes that need less:

Answer 7

human effort,
space,
capital (equipment, facilities, inventory),
time and cost to make products (and services)

Question 8

“Just In Time” (JIT)

Answer 8

Materials are purchased and products are made “just in time” to meet customer demand

Process begins with customer order and products are “pulled” through the process

Question 9

Manufacturing Costs are?

Answer 9

Costs “inside” the factory or plant

Associated with making the product

Question 10

Non-manufacturing Costs are?

Answer 10

Costs “outside” the plant or factory

Typically called Selling, General and Administrative (SG&A)

Question 11

Direct Materials (DM)

Answer 11

Various materials that can be directly and conveniently traced to a product.

Question 12

Direct Labor (DL)

Answer 12

Direct Labor is the cost (including fringe benefits) of all employees who work directly on the product being made or service being

Question 13

Manufacturing Overhead (MOH)

Answer 13

Indirect Materials such as welding material, glue, screws, etc.
Indirect Labor such as supervisors, factory

Question 14

Direct Costs vs Indirect Cost

Answer 14

Direct Costs are conveniently traceable and Indirects are NOT Conveniently traceable

Question 15

Non-manufacturing Costs

Answer 15

are not directly incurred in the production of products.
Typically are Selling, General and Administrative (S,G&A) costs.
ex.
insurance expense
Taxes
Rent expense
Advertising Cost

Question 16

Product Costs

Answer 16

“Inventoriable” costs
Direct materials, direct labor, overhead costs
Stay with product until the product is sold
Included in one of three inventory accounts

Question 17

Period Cost

Answer 17

Generally … non-manufacturing costs
“Expensed” in the period incurred

Period Costs that are NON-MFG are:
“Expensed” in the period incurred
Included in selling, general and administrative costs (SG&A)

Question 18

The Cost of Goods Manufactured (COGM) is:

Answer 18

… the cost of the goods that we finish
… and take out of WIP inventory
… and move to Finished Goods inventory.

Question 19

Cost of Goods Manufactured Equation

Answer 19

Beginning RM Inventory
\+	RM Purchases
=Cost of RM Available for Use
-	Ending RM Inventory
=RM Used
\+	DL 
\+	MOH 
\+	Beginning WIP Inventory
-	Ending WIP Inventory
=Cost of Goods Manufactured

Question 20

Cost of Goods Sold (COGS) formula

Answer 20

Beginning FG Inventory
\+	Cost of Goods Manufactured
Goods available for sale
-	Ending FG Inventory
Cost of Goods Sold