Test #1

Question 1

Direct Materials

Answer 1

Materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product.

Question 2

Direct Labor

Answer 2

Labor costs that can be easily traced to individual units of product.

Question 3

Manufacturing Overhead

Answer 3

All manufacturing costs except DM and DL.

Question 4

Product Cost

Answer 4

All costs involved in acquiring or making a product. Inventoriable costs – assigned to inventory account on the balance sheet.

Question 5

Period Cost

Answer 5

All costs that are not product costs. Selling and admin expenses.

Question 6

Variable Cost

Answer 6

Same per unit, change in total dependent on activity level.

Question 7

Fixed Cost

Answer 7

Change per unit, same in total over a relevant range.

Question 8

Why is it important for management to understand the company’s cost structure?

Answer 8

Predicting how a certain cost will behave (cost behavior) in response to a change in activity for planning purposes.

Question 9

Direct Cost

Answer 9

A cost that can be easily and conveniently traced to a specific cost object. (ex: raw materials)

Question 10

Indirect Cost

Answer 10

A cost that cannot be easily and conveniently traced to a specific cost object. (ex: manager’s salary)

Question 11

Differential Cost/Revenue

Answer 11

A difference in cost/revenue between two alternatives.

Question 12

Opportunity Cost

Answer 12

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

Question 13

Sunk Cost

Answer 13

A cost that has already been incurred and that cannot be changed by any decision made now or in the future. Should be ignored.

Question 14

Job-Order Costing

Answer 14

Used in situations where many different products, each with individual and unique features, are produced each period. (ex: aircrafts)

Question 15

Bill of Materials

Answer 15

A document that lists the type and quantity of each type of direct material needed to complete a unit of product.

Question 16

Materials Requisition Form

Answer 16

A document that specifies the type and quantity of materials to be drawn from the storeroom and identifies the job that will be charged for the cost of the materials. Controls for flow of materials and accounting records.

Question 17

Job Cost Sheet

Answer 17

Records the materials, labor, and MOH costs charged to that job.

Question 18

Time Ticket

Answer 18

An hour-by-hour summary of the employee’s activities throughout the day to assign labor to specific jobs.

Question 19

Pred. OH Rate =

Answer 19

Est. total man. overhead cost / Est. total amount of the allocation base

Question 20

Why use estimated overhead costs?

Answer 20

Using an actual rate computed monthly or quarterly can allow for season factors in overhead to produce fluctuations in the overhead rate. For example, heating and cooling. Two identical jobs in fall and winter would have different costs.

Question 21

MOH application to WIP =

Answer 21

Pred. OH rate X Actual amount of allocation base incurred by the job

Question 22

Under-applied OH

Answer 22

Actual > Applied, debit balance, so credit COGS

Question 23

Over-applied OH

Answer 23

Actual

Question 24

ABC

Answer 24

Attempts to assign overhead costs more accurately than simpler methods. A number of allocation bases for assigning costs, each representing an activity.
Activity cost pool
Activity measure
Activity rate
Different than plantwide and departmental.

Question 25

Product costs under traditional system:

Answer 25

OH costs on high-volume products

Question 26

Products costs under ABC:

Answer 26

OH costs shift to low-volume products because of high batch/product-level costs

Question 27

Advantages of ABC

Answer 27

Improves accuracy of product costs
Better understanding of causes of OH costs
Highlights the activities that could benefit most from process improvement initiatives

Question 28

Disadvantages of ABC

Answer 28

Cost may outweigh the benefits

Relies on critical assumptions that may not be true - costs are proportional to activity level

Question 29

Why do orgs. prepare budgets?

Answer 29

1. Communicate
2. Think about and plan for the future
3. Means of allocating resources
4. Uncover potential bottlenecks
5. Coordinate activities by integrating plans
6. Define goals to serve as benchmarks

Question 30

Processes for making budgets

Answer 30

First project sales
Make assumptions
May use self-imposed (participative) budget