chapter 2:

Question 1

what are the two main types of costs?

Answer 1

product costs (manufacturing costs)

period costs (non manufacturing costs)

Question 2

what forms part of product costs?

Answer 2

direct material

direct labor

manufacturing overhead

Question 3

what forms part of manufacturing overhead?

Answer 3

indirect materials

indirect labor

depreciation on factory buildings and machines

insurance

taxes

maintenance on factory facility

other indirect costs

Question 4

direct labor

Answer 4

the guys working on the line

The actual guys assembling the shit

Question 5

indirect material

Answer 5

Association with direct material so small its hard to track

they do not physically become part of the finished product, such as lubricants and polishing compounds

Products not actually used for the assembly of product

Question 6

what forms part of period costs?

Answer 6

selling expenses

administrative expenses

Question 7

what are product costs?

Answer 7

are costs that are a necessary and integral part of producing the finished product

Included as asset in inventory, not as expense

also calledinventoriable costs

Question 8

how do companies record product costs when incurred?

Answer 8

as inventory

Question 9

when do product costs become expenses?

Answer 9

become expenses until the company sells the finished goods inventory

company records the expense as a cost of goods sold

Question 10

what are period costs

Answer 10

costs that are matched with the revenue of a specific time period rather than included as part of the cost of a saleable product

non-manufacturing costs

Just expenses

Question 11

how are period costs recorded when they’re incurred? why?

Answer 11

deducted from revenues in the period in which they are incurred

to determine net income (net earnings)

Question 12

why are periods costs more than COGS?

Answer 12

cause it could include rent, salaries of CEO, etc

Question 13

indirect labour

Answer 13

has one of two following characteristics:

(1) it is the work of factory employees that has no physical association with the finished product,
(2) it is work for which it is impractical to trace costs to the goods produced
ex: wages of maintenance people, timekeepers, and supervisors

Question 14

what are prime costs?

Answer 14

all direct costs

direct materials + direct labour

Question 15

what are conversion costs?

Answer 15

What is required to convert the raw material into product

direct labour + manufacturing overhead

Question 16

is the following DM, DL, or MOH

Salaries for assembly-line inspectors

Answer 16

DL

Question 17

is the following DM, DL, or MOH

Insurance on factory machines

Answer 17

MOH

Question 18

is the following DM, DL, or MOH

Property taxes on the factory building

Answer 18

MOH

Question 19

is the following DM, DL, or MOH

Wages paid to assembly-line workers

Answer 19

DL

Question 20

is the following DM, DL, or MOH

factory repairs

Answer 20

MOH

Question 21

is the following DM, DL, or MOH

Factory machinery depreciation

Answer 21

MOH

Question 22

is the following DM, DL, or MOH

Glue, nails, paint, and other small parts used in production

Answer 22

MOH

Question 23

is the following DM, DL, or MOH

Factory supervisors’ salaries

Answer 23

MOH

Question 24

is the following DM, DL, or MOH

Wood used in manufacturing furniture

Answer 24

DM

Question 25

Explain the basic difference in accounting for product costs and period costs

Answer 25

Period costs are expensed when they happened, when incurred

Product costs are an integral part of of the cost of production

these are not expensed until the product is sold

these are recorded as an inventory which is an asset

Question 26

variable costs

Answer 26

involves unit costs, so per unit costs

Varies based on production volume

Per unit, the cost its fixed

Question 27

fixed costs

Answer 27

Fixed costs are costs that happen no matter what, not matter the amounts of units

Question 28

total variable cost

Answer 28

varies directly and proportionally by production volume

Question 29

unit variable cost

Answer 29

fixed per unit of production

They all need the same amount of material so same cost

Question 30

total fixed cost

Answer 30

fixed per period

ex: rent

Question 31

unit fixed cost

Answer 31

Total fixed cost divided by units produced

Therefore fixed cost per unit varies

Question 32

what is a relevant range regarding total variable costs and total fixed costs?

Answer 32

When you run an operation, you have a normal capacity for it

Going out of that range, you’ll just be less efficient no matter of its above it or below it

That is why there is a relevant range, you want to stay in that

Question 33

mixed costs

Answer 33

costs that have both a variable element and a fixed element

They are sometimes called semi-variable costs

change in total but not proportionally with changes in the activity level

Question 34

what is the use of the High-Low Method of Classifying Costs

Answer 34

To allocate the mixed cost between variable and fixed costs

Total cost – variable cost = fixed cost

Question 35

variable cost per unit

Answer 35

Changes in the cost between two points / changes in the unit of activity between the same two points

Question 36

what is the formula for maintenance costs at a certain level of operation? at a certain level of outputs produced?

Answer 36

Total fixed cost + Total variable cost (i.e. unit variable costs x level of activity

Question 37

how do you find the COGS for a merchandiser?

Answer 37

beginning inventory + inventory purchased - ending inventory

Question 38

how do you find the COGS for a manufacturer?

Answer 38

beginning finished goods inventory + inventory manufactured - ending finished goods inventory

Question 39

Raw materials inventory

Answer 39

shows the cost of raw materials on hand

Question 40

Work in process inventory

Answer 40

shows the cost applicable to units that have gone into production but are only partially completed

Question 41

finished goods inventory

Answer 41

shows the cost of completed goods on hand

Question 42

what is the formula for the total manufacturing cost?

Answer 42

DL + DM (raw) + MOH

Question 43

what is the formula for the cost of goods manufactured?

Answer 43

beginning work in progress inventory 
\+
manufacturing cost
-
ending work in progress inventory

Question 44

what is the formula for the cost of goods sold?

Answer 44

Beginning Finished product Inventory 
\+
cost of goods manufactured
-
Ending Finished product inventory