ACC 405 Learnsmart Notes PDF

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ACC 405 learnsmart notes

CH 4 An estimated overhead rate used to assign factory overhead to a job is known as the predetermined factory overhead rate What costs are assigned to products during costing process? Direct materials, factory overhead, direct labor The primary focus of job costing in service industries is on: direct labor If applied overhead is greater than actual overhead, then overhead is overapplied The formula for the predetermined overhead rate is: estimated overhead/estimated amount of a cost driver What is not an actual factory overhead cost? Assembly line wages S&P enterprises has an estimated plantwide overhead rate of $12 per machine hour. If one of S&P’s job cost sheets shows 100 labor hours and 75 machine hours, total overhead assigned to the job equals $ 900 Operation costing is: suitable when conversion activities are similar across product lines, suitable for the furniture industry, accumulates direct material costs by job or batch Types of potential errors in overhead application are: measurement, specification, aggregation Production runs are an activity-based driver In service industries project costing is used for both job costing and to track the costs and progess of nonrecurring tasks within the company After the entry to close overapplied or underapplied overhead, the balance in the Factory Overhead account will be zero. The three characteristics of a cost method: cost accumulation, cost measurement, overhead application A hybrid costing approach that uses elements of both job and process costing is known as: operation costing Job XYZ required $1,200 of direct materials. They were requisitioned along with $100 of indirect materials to be used for multiple jobs in the factory. As a result of these transactions: Work-in-process Inventory will be increased by $1,200 Materials inventory will be decreased by a total of $1,300 An error in allocation that results from using a plantwide rate instead of departmental rates is a aggregation error

The production department uses a materials requisition to request materials for production The preferred costing methods when most of the costs can be identified with a specific product, client, or project is job costing Normal costing: avoids the cost per unit fluctuations that can occur with actual costing, is generally adopted over actual costing (only overhead costs are estimated) In various service industries, a job is referred to as a: project, client, case The process of assigning overhead costs to a job is known as overhead allocation Material left over from the manufacture of a product that has little or no value is called scrap Spoilage that is uncontrollable in the short term and is considered a regular part of production si called normal spoilage To properly support strategic decision making, effective management of manufacturing costs requires that the cost information be timely & accurate True or false: when a company has multiple departments, it is always best to use departmental overhead rates instead of a single plantwide rate. (plantwide rates are appropriate when the production departments are similar in the amount of overhead and usage of cost drivers in each department In order to avoid monthly fluctuations in cost per unit that can occur with actual costing, most firms adopt a normal costing system Because most companies need to know the cost and profitability of each job as it is completed, normal costing is usually chosen over actual costing Jewels Inc completed two jobs: Job 1 was for 500 necklaces and Job 2 was for 300 bracelets. Direct material costs totaled $100 for each necklace and $75 for each bracelet. Both jobs were worked on in Dept. 1. Necklaces were transferred to Dept. 2 for finishing. Dept 1 total conversion cost was $40,000, and total conversion cost in Dept 2 was $12,000. Calculate the total unit cost for each necklace. $100 + $40,000/800 + $12,000/500 = $174 Calculate the cost for each bracelet: $75 +$40,000/800 = $125 A company that accumulates cost by tracing them to specific products and services is using job costing while a company that accumulates costs at the department level and then allocates them to products and services is using process costing Indirect manufacturing costs such as indirect labor, indirect materials, factory rent and utilities are all part of actual factory overhead costs A job cost sheet: contains all three cost elements, may include detailed date required by management (records estimated overhead costs)

When salaries and wages of factory supervisors and warehouse clerks are recorded, the journal entry includes a debit to: factory overhead Davis & Davis CPAs pays partners $250 per hour and bills their time at $300 per hour. Other Professional Staff members are compensated at a rate of $125 per hour and billed at $200 per hour. Overhead is applied based on total professional hours. Total overhead costs are expected to be $4,000,000 for 40,000 professional hours. Calculate the total billing of a job that requires 10 partners and 40 other professional staff hours. ($4,000,000/40,000) x 50 + $300 x 10 + $200 x 40 = $16,000 Normal spoilage can be: charged to factory overhead, attached to the cost of a specific job, spread over the cost of all jobs (it is not charged to a special loss account) True or False: job costing can only be used for companies that produce individual products (i.e. an automobile) To properly support strategic decision making, effective management of manufacturing costs requires that the cost information be both accurate and timely Types of rework include: Rework on abnormal defective units, rework on normal defective units (scrap and finished goods do not require rework) If applied overhead is $150,000 and actual overhead is $153,000 the adjustment to close out the underapplied applied overhead will increase the cost of goods sold A firm that produces a limited number of homogeneous products is likely to use process costing At the end of an accounting period overapplied overhead can be disposed of by: adjusting cost of goods sold, prorating the amount among work in process, finished goods, and cost of goods sold A time ticket provides pay rates and information for assigning direct labor costs to individual jobs. Scrap can be classified as: common to all jobs, relating to a specific job The journal entry to record indirect labor wages credits Accrued Payroll and debits: Factory Overhead True or false: cost of rework is treated in the same way as cost of spoiled units (rework is either charged to specific jobs, factory overhead, or a loss account, just like spoiled units). A volume-based cost driver may not provide accurate overhead allocation because varying resources are consumed at various rates during various activities The document that is used to summarize the costs of a particular job is known as the job cost sheet A flooring manufacturer spoiled on box of wood flooring when working on a specific job. At the time of spoilage, $250 of the cost had been assigned to the spoiled box which can be disposed of

for $75. If the spoilage was caused by controllable operator error, $ 175 will be charged as a loss Purchases recorded in the materials inventory account include: direct and indirect materials When salaries and wages of factory supervisors and warehouse clerks are recorded, the journal entry includes a debit to: factory overhead The journal entry to record indirect labor wages credits Accrued Payroll and debits: factory overhead

CH 5 Potential problems from having an inaccurate costing system include: increasing sales along with decreasing profits, a difficult time determining which product is most profitable, continually losing competitive bids An activity consumption cost driver is: is a measure of the demand placed on the resources by products, services, or customers. It is used to assign activity cost pool costs to cost objects. A volume-based costing system is probably least appropriate for a: firm with a diverse set of product offerings Potential drawbacks to using a volume-based costing system include: inaccurate product costs, little incentive is provided for managers to control indirect costs, disproportionate assignment of indirect costs Resources are spent on activities A specific task, action, or unit of work done is an activity A factor that causes or relates to a change in the cost of an activity is a cost driver True or False: Activity-based costing assigns overhead to products based on resources consumed per unit produced (Activity based costing assigns resource costs to cost objects based on activities performed for the cost objects) A resource is an economic element needed or consumed in performing activities A two-stage cost assignment procedure assigns resource costs to activity pools and then to cost objects What is not a part of an activity-based two-stage allocation procedure? Plant or departmental level costs are NOT assigned to cost objects. Direct materials and labor ARE assigned to cost objects Overhead costs ARE assigned to cost objects using activity consumption cost drivers Activity costs ARE assigned to cost objects using activity consumption cost drivers

Volume-based costing is likely to provide inaccurate information when: the firm produces a diverse mix of products, usage of support activities is not proportional to units produced or hours used Activity-based costing (ABC) assigns costs to: activities and then to cost objects In the first stage of a volume-based two-stage allocation procedure: direct materials and labor are assigned to cost objects, overhead costs are assigned to departments or aggregated at the plant level True or False: ABC systems are similar to volume-based costing systems because they both link uses of resources to activities and then like activities to cost objects (ABC systems differ from volume-based costing systems by linking uses of resources) Processes found in successful ABC/M implementations: Involving management: Allows people to become more familiar with ABC/M Using ABC/M on a job that will succeed: Shows people how and why the process works Keeping the ABC/M design simple: Helps keep costs down Unit-level activities in an organization: are volume based, generally use the same resource consumption driver Capacity that is available for use by other business units in the firm to expand their operations or to lease to other organizations is known as excess capacity Ideally, a firm should choose resource consumption cost drivers based upon cause-and-effect relationships Stratgeic ABM can be used to: select the most profitable customers, select appropriate activities for the operation Customer profitability analysis allows managers to: shift customers’ purchases mix, manage customers’ costs-to-serve, introduce profitable new products and services, choose types of after-sales services to provide Machine setups is an example of a batch-level activity A cost object is: an output resulting from the firm’s activity, an item of interest Product delivery is a high value-added activity When gathering activity data, the ABC project management team is likely to ask which of the following questions? What value does the activity have for the product or cost object? What resources are required to perform the activity? How much time is spent performing an activity? The net present value of estimated future profits from a customer for a specified time is the customer lifetime value

The analysis of customer revenues and customer cost is the basis of customer profitability analysis Operational ABM can be used to: enhance operational efficiency, enhance asset utilization The third step in the ABC development process is to: assign activity costs to cost objects Sales commissions is a customer unit-level cost The first step in the ABC development process is to: determine the resources that are consumed by each identified activity (Identify resource costs and activities) A diagram that identifies each step that is currently involved in making a product or providing a service is known as a process map Sustaining activities for an organization that have no direct effect or benefit to the product or service include: building security, regulatory compliance Close cooperation among customers is NOT required for a successful ABC/M implementation. (Cooperation among accountants, engineers, and operating managers is required for successful ABC implantation). A disadvantage of time-driven-activity based costing is: it relies on accurate time estimates Which of the following is NOT a customer-specific activity? Product Processing Customer Service Billing & Collection Order processing Which of the following relies on the concept of attributable cost or only attaching costs to a cost object when causality exists? Activity-based management Resource consumption accounting Multistage activity-based costing Time-driver activity-based costing The process of assigning resource costs to certain activities, which, in turn, are assigned to other activities before being assigned to the final cost object is known as: multistage ABC Operating costs of a regional warehouse is a Which of the following is NOT identified as part of the three-step sequence for developing an activity-based costing system? Assign resource costs to activities Identify resource costs and activities Assign activity costs to cost objects Identify cost objects Monthly statement processing is a customer-sustaining cost

The process of identifying activities and cost drivers related to servicing customers is: customercost analysis Which of the following is NOT an expected benefit of an activity-based costing system? Process improvement Improved planning Better decision making Higher priced products and services Better profitability measures

CH 6 When using process costing, material requisitioned are recorded with a credit to: materials inventory Industries that use process costing include: lumber products, chemicals, food processing If conversion costs are incurred uniformly throughout production, and 5,000 units are estimated to be 40% complete, the equivalent units of conversion equals (5,000 x .40) = 2000 Which of the following will be different under FIFO costing than under the weighted average method?

A juice manufacturer has 50,000 gallons of juice in process at the beginning of the month. By month’s end 25,000 gallons were complete, 20,000 gallons were 60% complete, and 5,000 gallons were 40% complete. Calculate equivalent units. 25,000+ (20,000 x .6) + (5,000 x .4) = 25,000 +12,000 + 2,000 = 39,000 Which of the following will be different under the FIFO costing than under the weighted average method? total costs to be accounted for ending work in process beginning work in process cost of goods completed A company has 2,000 units in work in process inventory that are 20% complete for conversion. If all materials are added at the start of the process, equivalent units for materials is 2,000. (All units 100% complete for materials, so the conversion percentage is irrelevant) The calculation of weighted-average equivalent units requires units in ending work in process inventory started in beginning work in process inventory completed and transferred out

The finishing department is the second processing department for a company. At the beginning of the month there were 5,000 units in Beginning Inventory that had been transferred in. During the month 12,000 more units were transferred in and a total of 15,000 were completed. Calculate the equivalent units for transferred in costs using the FIFO method. 12,000 Ending WIP inventory = 5,000 +12,000 -15,000 = 2,000 units 15,000 completed +2,000 – 5,000 = 12,000 units, the number transferred in during the month Process costing methods include: FIFO method LIFO method five-step method weighted-average method A firm would choose the FIFO method over the weighted-average method because: FIFO provides improved performance measurement when costs are changing significantly from period to period. The FIFO method more accurately measures current period costs to current period performance Which of the following statements regarding process costing are true? A separate work in process account is maintained for each production department Direct materials can only be added into the first departments work in process account Transferred-in costs appear in all departments Work in Process accounts Completed goods are transferred to Finished Goods inventory Units that are completed and transferred from a production department and units in ending workin-process are output units A company has 1,000 units in WIP inventory that are 50% complete for conversion. If materials are added uniformly during production, then equivalent units for materials is: 500 (1,000 x 50% =500 when materials are added uniformly equivalent units is the same as the proportion for the conversion costs A company had 2,000 units of WIP beginning inventory that were 50% complete for both materials and conversion. During the period 30,000 units were started and 27,000 were completed. The ending WIP units were 100% complete for materials, and 40% complete for conversion. The number of equivalent units for conversion using the weighted-average method is: 29,000 End WIP = 30,000 + 2,000 – 27,000 = 5,000 EU (Conversin) = 27,000 + (.4 x 5,000) = 29,000

The total costs determined in Step 3 of the production cost report: include factory overhead allocation include only current costs incurred INCLUDES PRIOR with CURRENT COSTS is also called total cost to account for must agree with the total cost assigned in step 5 The purpose of calculating equivalent units of production for each manufacturing cost element is to measure the total work expended during the accounting period. When using process costing, factory overhead is applied with a debit to: WIP inventory A company has 1,500 units in work-in-process inventory that are 80% complete for conversion. If all materials are added at the end of the process, the equivalent units for materials is: (1,500 x . 8) = 0 None if the units are complete for materials, so the answer is zero; the conversion percentage is irrelevant. The production cost report summarizes: the number of physical units and equivalent units of a department the costs incurred during the period the costs assigned to both units completed (and transferred out) and ending work-in process inventories To calculate FIFO equivalent units, take the weighted-average equivalent units and: subtract beginning work-in-process equivalent units A company started the month with 8,000 units in beginning inventory that were 70% complete as to materials and 40% complete as to conversion costs. During the month those units were completed, and another 30,000 units were started in production. At the end of the month 6,000 of the 30,000 units are still in process. The ending work in process is 80% complete as to materials and 60% complete as to conversion costs. Calculate the equivalent units for materials under the FIFO method. Units started and finished = 32,000 – 8,000 = 24,000 (8,000 x 30%) + 24,000 +( 6,000 x 80%) = 31,200 The current department is the second in a sequence of processes. There were 2,000 units in beginning work-in-process inventory that were transferred in at a cost of $13,800. During the month, 24,000 more units were transferred in at a cost of $150,000. During the month 20,000 were completed. Calculate the per unit cost for transferred-in costs using the weighted-average method. Ending WIP inventory = 2,000 + 24,000 – 20,000 = 6,000 units 20,000 completed + 6,000 = 26,000 ($13,800 + $150,000)/26,000 = $6.30 (beginning WIP inventory + transferred in – completed) = Ending WIP (ending WIP + completed) = total

The current department is the second in a sequence of processes. There were 2,000 units in beginning work-in-process inventory that were transferred in at a cost of $13,800. During the month, 24,000 more units were transferred in at a cost of $150,000. During the month 20,000 were completed. Calculate the per unit cost for transferred-in costs using the FIFO method. $150,000/24,000 = $6.25

A company had 4,000 beginning work-in-process units that were 100% c...