Chapter 2

Question 1

3 Classifications of Manufacturing Costs?

Answer 1

Direct Materials, Direct Labour and Manufacturing Overhead

Question 2

Direct Materials

Answer 2

Raw materials that become an integral part of the product and that can be conveniently traced directly to it.

Question 3

Direct Labour

Answer 3

Those labour costs that can be easily traced to individual units of product

Question 4

Manufacturing Overhead

Answer 4

Manufacturing costs that cannot be easily traced directly to specific units produced. Example: Materials used to support the production process

Question 5

What classifications do PRIME COST consist of?

Answer 5

Direct Materials and Labour

Question 6

What classifications do CONVERSION COST consist of?

Answer 6

Direct Labour and Manufacturing Overhead

Question 7

Example of Idle Time?

Answer 7

Machine Breakdowns, Power Failures and Material Shortages

Question 8

Idle Time & Direct Labour

Answer 8

Product specific idle time is treated as direct labour.

Question 9

Idle Time & Manufacturing Overhead

Answer 9

The labour costs incurred during idle time are ordinarily treated as manufacturing overhead

Question 10

Overtime

Answer 10

The overtime premiums for all factory workers are usually considered to be part of manufacturing overhead.

Product specific overtime premiums are part of direct labour

Question 11

What do Employee Benefits include?

Answer 11

Employee benefits include employment taxes, medical plans, and pension costs.

Question 12

What types of Non-Manufacturing Costs exist?

Answer 12

Selling costs and Administrative costs

Question 13

Selling Costs?

Answer 13

Costs necessary to get the order and deliver the product.

Question 14

Administrative Costs

Answer 14

All executive, organizational, and clerical costs

Question 15

What are Product Costs?

Answer 15

Product costs include direct materials, direct labour, and manufacturing overhead.

Question 16

What are Period Costs?

Answer 16

Period costs include all selling costs and administrative costs

Question 17

What activities do Merchandiscers conduct?

Answer 17

Buy and sell finished goods

Question 18

What activities do Manufacturers conduct?

Answer 18

Buy raw materials, produce and sell finished goods

Question 19

What do merchandisers have in their Current Assets?

Answer 19

Cash, Receivables, Prepaid Expenses and Merchandise Inventory

Question 20

What do manufacturers have in their Current Assets?

Answer 20

Cash, Receivables, Prepaid Expenses and Inventory such as raw materials and finished goods

Question 21

Basic Equation for Inventory Accounts

Answer 21

Beginning Balance + Additions to Inventory = Ending Balance + Withdrawals from inventory

Question 22

What is a schedule of Cost of Goods Manufactured?

Answer 22

Calculates the cost of raw material, direct labour and manufacturing overhead used in production. Calculates the manufacturing costs associated with goods that were finished during the period.

Question 23

How a cost will react to changes in the level of activity?

Answer 23

Total VARIABLE COSTS change when activity changes. Total FIXED COSTS remain unchanged when activity changes

Question 24

What is The Activity Base?

Answer 24

A measure of what causes the incurrence of a variable cost. Such as miles driven and labour hours

Question 25

How does cost react per unit?

Answer 25

Variable cost per unit remains the same over wide ranges of activity. Average fixed cost per unit goes down as activity level goes up.

Question 26

What are Direct Costs?

Answer 26

Costs that can be easily and conveniently traced to a unit of product or other cost object. Such as direct materials and labour

Question 27

What are Indirect Costs?

Answer 27

Costs that cannot be easily and conveniently traced to a unit of product or other cost object. Such as manufacturing overhead.

Question 28

What is opportunity cost?

Answer 28

The potential benefit that is given up when one alternative is selected over another.

Question 29

What is a Sunk Cost?

Answer 29

Sunk costs have already been incurred and cannot be changed now or in the future. They should be ignored when making decisions

Question 30

What is Differential Cost?

Answer 30

Is the difference between the cost of two alternative desicions

Question 31

What is Differential Revenue?

Answer 31

The anticipated increase or decrease in revenue that results from one course of action compared to an alternative plan the business is considering

Question 32

What do we need to prepare schedule of costs of goods manufactured

Answer 32

We need Direct Materials, Direct Labor, Manufacturing Overhead And WIP Inventories

Question 33

Schedule of Costs of Goods Manufactured Layout - Direct Materials

Answer 33

Raw Materials Inventory, Beginning -- Purchases of raw materials -- Raw Materials Inventory, Ending

Question 34

Schedule of Costs of Goods Manufactured Layout - Direct Labor

Answer 34

Just Direct Labor

Question 35

Schedule of Costs of Goods Manufactured Layout - Manufacturing Overhead

Answer 35

Just Manufacturing Overhead

Question 36

Schedule of Costs of Goods Manufactured Layout - WIP

Answer 36

Total Manufacturing Costs -- WIP, Beginning -- WIP, Ending

Question 37

How do we prepare COGS

Answer 37

Finished Goods Inventory (Begin) + COG Manufactured = Goods avalible for sale - Finished Goods inventory = COGS