Module 2

Question 1

Manufacturing Company

Answer 1

Primary Activity: Convert raw materials into finished products
Inventory: 1. raw materials 2. WIP 3. Finished goods
Customer: Consumer, merchandiser, manufactures
Examples: Mars, PEPSI, Nike

Question 2

Merchandising

Answer 2

Primary Activity: adds value to finished product
Inventory: merchandise inventory
Customer: consumer, merchandiser
Examples: Target, Amazon, Walmart

Question 3

Service

Answer 3

Primary Activity: Provides intangible service
Inventory: no inventory or v little
Customer: consumers
Examples: AT&T, Lawyers, Accountants, Barbers

Question 4

Value chain

Answer 4

all of the activities a company incurs that adds value to its products or services; Total Cost

Question 5

Inventoriable Product Costs (= COGS Expense)

Answer 5

costs incurred during the production or purchase phase of the value chain; held on the balance sheet until sold

Question 6

Direct costs

Answer 6

traced directly to the product / cost object

Question 7

direct material

Answer 7

primary raw materials that become a physical part of the finished product

Question 8

manufacturing overhead

Answer 8

all manufacturing costs other than direct materials or direct labor

Question 9

Cost object

Answer 9

anything for which managers want a separate measurement of cost

Question 10

Period Costs (= SG&A or operating expense)

Answer 10

ll other costs along the value chain; expensed in the period in which they are incurred (straight to income statement)

Question 11

indirect costs

Answer 11

relates to the product / cost object but cannot be traced directly to it

Question 12

direct labor

Answer 12

cost of compensating employees who physically convert raw materials into the finished product

Question 13

conversion costs

Answer 13

costs to convert direct materials into a finished product; direct labor and manufacturing overhead

Question 14

value chain =

Answer 14

total cost

Question 15

conversion costs made of

Answer 15

direct labor + manufacturing overhead

Question 16

manufacturing overhead made of

Answer 16

indirect materials, indirect labor, other manufacturing costs

Question 17

Period cost examples

Answer 17

R&D, marketing, distribute, customer service

Question 18

Job costing: type of product

Answer 18

unique, large or custom-built items made in small batches

Question 19

Job costing: cost of product

Answer 19

usually high costs per item

Question 20

Job costing: assignment of cost to products

Answer 20

specific costs are accumulated by job or batch

Question 21

Examples of a typical company using job order costing

Answer 21

Boeing airplanes, custom home, autos, high-end products, service (accountants and lawyers)

Question 22

1. Schedule Production

Answer 22

document: production schedule
journal entry: none
never record estimates

Question 23

2. Purchase raw materials

Answer 23

document: bill of materials, raw materials record

journal entry: raw material inventory and $ or accounts payable

Question 24

When do product costs go on income statement?

Answer 24

when finished goods are sold

Question 25

Predetermined overhead rate =

Answer 25

(estimated total MOH cost ($)) / (estimated cost driver (activity))

Question 26

Overhead applied to job =

Answer 26

(job’s actual use of cost driver) * (PDMOH rate)

Question 27

We always close MOH to …

Answer 27

COGS Exp and is done once per period

Question 28

Debit balance in MOH =

Answer 28

under-applied MOH; actual > applied

Question 29

Credit balance in MOH =

Answer 29

over-applied MOH; actual < applied

Question 30

Under- or over-applied MOH can also be prorated between these three accounts …

Answer 30

1. WIP
2. Finished Goods
3. COGS Exp

Question 31

Inputs of WIP inventory

Answer 31

Actual DM + Actual DL + Applied MOH

Question 32

Ending WIP inventory (job costing)

Answer 32

cost added so far to jobs in process

Question 33

Ending WIP inventory (process costing)

Answer 33

units remaining * average unit cost

Question 34

COGM (job costing)

Answer 34

Total cost of completed jobs

Question 35

COGM (process costing)

Answer 35

units completed * average unit cost

Question 36

Process costing: WIP inventory account for …

Answer 36

every process

Question 37

Job costing: WIP inventory account for …

Answer 37

only one WIP inventory account

Question 38

Job costing: Inputs

Answer 38

DM, DL, and MOH

Question 39

Process costing: Inputs

Answer 39

DM, DL, MOH, and COGM from previous processes

Question 40

Accumulated job costs to date

Answer 40

are used to determine the cost of units completed ant the cost of goods remaining in WIP ending inventory

Question 41

Average Unit cost

Answer 41

used to determine the cost of the units completed COGM and the cost of goods remaining in WIP ending inventory

Question 42

Process costing steps

Answer 42

Step 1: flow of physical units
Step 2: Equivalent Units DM and Conversion Costs
Step 3: Determine total cost to account for
Step 4: Determine the cost per equivalent unit
Step 5: assign costs to units completed (COGM) and units remaining in WIP inventory