Chapter 2

Question 1

Direct vs Indirect Material:

Answer 1

Direct Materials = Any raw material that can be directly traced to the product being manufactures
Indirect Material: Any raw material that A) dont physically become part of the finished good And Or B) they cannot be easily traced to the finished product

Question 2

Direct vs Indirect Labor

Answer 2

Direct Labor : Any labor that can be directly related to the production of the product
Indirect labor: Any labor that A) is the work of a factory work not directly working on the product and or B) work which is impractical to trace the cost of to the product

Question 3

What does Manufacturing over head include?

Answer 3

Indirect Materials and indirect labor allowing with things such as depreciation, utilities, taxes, ect.

Question 4

Prime cost vs conversion cost:

Answer 4

Prime cost: DM + DL
Conversion cost: DL+ MO

Question 5

Product vs Period cost:

Answer 5

Product cost: All cost associated with product making (DM, DL, MO)
Period cost: All cost associated with selling the product / Non manufacturing cost (Selling and Administrative expensese)

Question 6

Total manufacturing cost:

Answer 6

Total of all product costs

Question 7

Cost Behavior analysis:

Answer 7

The study of how specific cost respond to change in activity

Question 8

Variable vs Fixed Cost:

Answer 8

Variable cost: Cost that directly and proportionally change with activity level ( Variable cost per unit remains constant)

Fixed cost: Cost that remains the same in total within the relevant range regardless of activity level (Relates inversely with unit production. As units increase, fixed cost per unit decreased)

Question 9

Relevant Range:

Answer 9

The range a company expects to operate within

Question 10

Mixed cost:

Answer 10

Cost that have both a variable and fixed cost component to them

Question 11

The High Low method of classification:

(For cost behaviour analysis, mixed costs must be classified into their fixed and variable components.)

Answer 11

Change in total cost at highest vs lowest activity level/ Change in total activity at highest vs lowest activity = variable cost per unit

Total cost - Variable cost (Activity level x VCPU)= Fixed cost

*Should give the same number of FC at both high and low level

Question 12

Manufacturing company balance sheet:

Answer 12

Company
Balance sheet
Dec 31, 2023
Current Asset
Cash
Recievable
Inventory:
Finished goods
Work in Progress
Raw Material
Prepaid Expenses
Total current Asset:

Question 13

Cost of Good sold formula and on income statement:

Answer 13

Company
Income Statement
Year Ended Dec 31, 2023
Cost of good sold
Finished goods inventory Begin
+ Cost of Goods manufactured
= Cost of goods available for sale
- Finished good inventory end
Cost of good sold=

Cost of good sold = Finished good begin + cost of good manufactured - finished goods end end

Question 14

Cost of good manufactured formula:

Answer 14

Begin WIP Inventory + Total Manufacturing cost(DM +DL+ MO) = Total cost of WIP inventory

Total cost of WIP inventory - Ending work in process Inv= Cost of goods manufactured