Chapter 3 & 5A

Question 1

Cost Flow in Manufacturing

Answer 1

Purchases –> raw materials inventory –> work in process inventory –> finished goods inventory –> cost of goods sold

Question 2

Schedule of Cost of Goods Manufactured

Answer 2

Beginning WIP inventory
Direct materials:
Beginning raw materials inventory
Add: purchases of raw materials
Total raw materials available
Subtract: ending raw materials
inventory
Raw materials used in production
Subtract: indirect materials used in
production
Direct materials used in
production
Direct labor
Manufacturing OH applied to WIP
Total manufacturing costs added to production (DM+DL+MO)
Total manufacturing costs to account for
Subtract: ending WIP inventory
Cost of goods manufactured

Question 3

Underapplied MOHD

Answer 3

Not enough cost has been added to cost of goods manufactured (more costs need to be added to COGS)

Question 4

Overapplied MOHD

Answer 4

Too much cost has been added to cost of goods manufactured (costs need to be removed from COGS)

Question 5

Schedule of COGS

Answer 5

Beginning finished goods inventory
Add: cost of goods manufactured
Cost of goods available for sale
Subtract: ending finished goods inventory
Unadjusted cost of goods sold
Add: underapplied overhead (subtract if overapplied)
Adjusted COGS

Question 6

Cost behavior and classification

Answer 6

Fixed costs: value remains unchanged (in total) regardless of changes in the related level of activity or volume
Variable costs: value changes (in total) in proportion to changes in the related level of volume
Mixed costs: fixed & variable costs associated

Question 7

Determine cost functions: Account Analysis

Answer 7

Each account is classified either as variable or fixed based on the analyst’s knowledge of how the account behaves

Question 8

Determine cost functions: Engineering Approach

Answer 8

Estimate costs should be using an industrial engineers evaluation of production requirements

Question 9

Determined cost functions: Quantitative Analysis

Answer 9

Multiple observations of past data are analyzed using formal mathematical methods

Question 10

Quantitative analysis: High-Low method

Answer 10

Variable cost = change in cost/change in activity
Fixed cost = total cost - variable cost

Question 11

Goal of Cost Behavior Analysis

Answer 11

Once the total fixed costs and variable cost per unit of activity are known, then costs can be predicted at any level of activity within the relevant range

Question 12

Quantitative analysis: Least-Squares Regression Method

Answer 12

Analyzes mixed costs using mathematical formulas to determine the regression line that minimizes the sum of the squared “errors”

Question 13

Assumptions underlying Quantitative Analysis

Answer 13

• Good quality data
• Proper cost driver
• Linear relationship