Midterm Study Guide (CH 1 + 2) PDF

Preview

Summary

Question Answers for study questions from chapters 1+2....

Description

MIDTERM STUDY GUIDE

CHAPTER 1: Identify managers' four primary responsibilities.

2

Distinguish financial accounting from managerial accounting.

3

Describe and use the costs of quality framework.

4

CHAPTER 2: Distinguish among service, merchandising, and manufacturing companies.

4

Describe the value chain and its elements.

6

Distinguish between direct and indirect costs.

8

Identify the inventoriable product costs and period costs of merchandising and manufacturing firms. 12 Classify costs as fixed or variable, and calculate total and average costs at different volumes. 22

CHAPTER 1: Identify managers' four primary responsibilities. Managers plan by setting goals and objectives for the company, and devising strategies for achieving these goals. Then, they direct the day-to-day operations of the company in light of the goals and objectives. They control the company by comparing actual results to plans and then using that feedback to adjust plans and operations. Throughout all aspects of these duties, management is making critical business decisions. Management conducts variance analysis by comparing budget to actual. Answer: Controlling Management reviews hourly sales reports to determine the level of staffing needed to service customers. Answer: Decision making and directing Management decides to increase sales growth by 10% next year. Answer: Decision making and planning Management uses information on product costs to determine sales prices. Answer: Decision making and directing To lower product costs, management moves production to Mexico. Answer: Controlling and decision making

CHAPTER 1: Distinguish financial accounting from managerial accounting. Reports tend to be prepared for the parts of the organization rather than the whole organization. Managerial accounting Primary users are internal (for example, company managers). Managerial accounting It is governed by Accounting Standards for Private Enterprises (ASPE) or International Financial Reporting Standards (IFRS). Financial accounting Two main characteristics of data are reliability and objectivity. Financial accounting Reports are prepared as needed. Managerial accounting It is not governed by legal requirements. Managerial accounting Primary users are external (i.e., creditors, investors). Financial accounting It is focused on the future. Managerial accounting Reporting is based mainly on the company as a whole. Financial accounting Reports are prepared usually quarterly and annually. Financial accounting Information is verified by external auditors. Financial accounting It is focused on the past. Financial accounting A main characteristic of data is relevance. Managerial accounting

CHAPTER 1: Describe and use the costs of quality framework. Companies must follow IFRS or ASPE in their financial accounting systems. Financial accounting develops reports for external parties such as creditors and shareholders. When managers evaluate the company's performance compared to the plan, they are performing the controlling responsibility of management. Managers are decision makers inside a company. Financial accounting provides information on a company's past performance to external parties. Managerial accounting systems are not restricted by IFRS or ASPE but are chosen by comparing the costs and the benefits of the system. Choosing goals and the means to achieve them is the planning function of management. Managerial accounting systems report on various segments or business units of the company. Financial accounting statements of public companies are audited annually by public accountants.

CHAPTER 2: Distinguish among service, merchandising, and manufacturing companies. Service Company - Provide an intangible service only - Largest sector in canada - Examples: health care, insurance, banking, consulting - No inventory for sale to clients - For many service companies, salaries and benefits make up 70% of total costs Merchandising Company - Resell tagine products purchased from suppliers - Retailers vs wholesalers - Examples: Lowes, loblaws, la chateau - One inventory account - merchandise Manufacturing Company - Use labour and other inputs to convert raw materials into finished products - Examples: Bombardier, clodhoppers, McCain Foods Ltd, Rocky Mountain Bicycles - Sell products to wholesalers, retailers or direct to customers

X-Treme is a merchandiser because it has a single inventory account. X-Not? is a service company because it has no inventory. Zesto is a manufacturer because it has three kinds of inventory. Service companies generally have no inventory. Bombardier is a manufacturing company. A merchandisers’ inventory consists of the cost of merchandise and freight-in Manufacturing companies carry three types of inventories: raw materials inventory, work in process inventory, and finished goods inventory.

TD Insurance is a service company. Two types of merchandising companies include retailer(s) and wholesaler(s) Direct materials are stored in raw materials inventory Le Château is a merchandising company. Manufacturers sell from their stock of finished goods inventory Labour costs usually account for the highest percentage of service companies’ costs. Partially completed units are kept in the work in process inventory Manufacturing companies produce their own inventory. Merchandising companies typically have a single category of inventory. Service companies do not have tangible products intended for sale. Merchandising companies resell products they previously purchased ready-made from suppliers. Manufacturing companies use their workforce and equipment to transform raw materials into new finished products. Merchandising companies sell to consumers. Swaim, a company based in Saskatchewan, makes furniture. Partially completed sofas are work in process inventory. Completed sofas that remain unsold in the warehouse are finished goods inventory. Fabric and wood are raw materials inventory. For McCan’s, potatoes, cardboard boxes, and waxed-paper liners are classified as raw materials inventory. Wholesalers buy in bulk from manufacturers and sell to retailers.

CHAPTER 2: Describe the value chain and its elements. The activities that add value to a firm’s products and services; includes R&D, design, production or purchases, marketing, distribution, and customer service. Research and Development - Researching and developing new or improved products or services or the processes for producing them. Design - Detailed engineering of products and services and the processes for producing them. Production or Purchase - The portion of the value chain where resources are used to produce a product or service, or to purchase finished merchandise intended for resale. Marketing - Promotion and advertising of products or services. Distribution - Delivery of products or services to customers. Customer Service - Support provided for customers after the sale. List the correct value chain element for each of the six business functions described below. Distribution - Delivery of products and services. Design - Detailed engineering of products and services and the processes for producing them. Marketing - Promotion and advertising of products or services. Research and Development - Investigating new or improved product or services and the processes for producing them. Customer Service - Support provided to customers after the sale.    Production or Purchases - Resources used to make a product or obtain finished merchandise. Production - Depreciation on Waterloo plant Customer service - Costs of a customer support centre website Distribution - Transportation costs to deliver BlackBerrys to retailers Research and Development - Depreciation on research lab Marketing - Cost of a prime-time TV ad featuring a new BlackBerry logo Research and Development - Salary of scientists at BlackBerry laboratories who are developing new cellular technologies Production - Purchase of plastic used in handheld casings Design - Salaries of engineers who are redesigning the BlackBerry's interactive screen Distribution - Depreciation on delivery vehicles Production - Plant manager’s salary

How much are the total inventoriable product costs? The total inventoriable product costs are $35,400.

How much are the total inventoriable product costs? The total inventoriable product costs are $39,700.

Fibre(B)lock® Flooring is manufactured using the waste generated from the manufacture of commercial nylon carpet. The cost of the research into how to create Fibre(B)lock® Flooring would fall into which function in the value chain? Answer: Research and Development Ford Motor Company purchases cylinder-head covers made from a nylon resin containing 100% recycled carpet in its 2011 Mustangs. The cost of the cylinder-head covers would fall into which function in the value chain? Answer: Production or purchases Los Angeles Fiber Company (LAFC) received the EPA/CARE award to recognize Los Angeles Fiber Company's sustainability efforts. Since 2000, LAFC has recycled more than 464 million pounds of post-consumer carpet. Its carpet brand, Reliance Carpet, is made entirely from post-consumer carpet fiber. The cost of promoting the company's products and its sustainability efforts would fall into which function in the value chain? Answer: Marketing Axminster Carpets offsets the carbon emissions from its carpet distribution process by investing in renewable energy projects such as wind power, and hydro power plants. This carbon offset is verified independently by the Verified Carbon Standard. The cost of these carbon offsets would fall into which function in the value chain? Answer: Distributing Flor®, a company that produces residential carpet tiles made from recycled carpet, has an R&R (return and recycle) program. Homeowners can arrange to have old tiles picked up and shipped back to the plant for recycling. The cost of operating this R&R program would fall into which function in the value chain? Answer: Customer service Shaw Industries is a flooring manufacturer. It has created Cradle to Cradle Silver Certified carpet, which is carpet that can be recycled back into new carpet again and again at the end of its useful life, or it can be composted. The costs to develop the production process for the Cradle to Cradle Silver Certified carpet would fall into which function in the value chain? Answer: Design

CHAPTER 2: Distinguish between direct and indirect costs. Anything for which managers want a separate measurement of cost Direct cost - can easily be traced to the cost object Indirect cost - eelates to the cost object but can’t be traced directly Bombardier’s cost objects may include the following: ● Individual units (a specific, custom-ordered high-speed train) ● Different models (Learjet 45, Learjet 85, Q400, etc.)

● ● ●

Product divisions (aerospace or transportation) Geographic segments of the business (North America, Europe, Africa) Departments (human resources, R&D, legal)

For each of the following, identify whether they are direct or indirect costs with respect to the cost of a local Lowe’s store ● ● ● ● ● ● ● ●

Store utilities - Direct - TRACE CEO salary - Indirect - ALLOCATE Cost of lumber - Direct - TRACE National advertising - Indirect - ALLOCATE Wages of store employees - Direct - TRACE Corporate payroll office - Indirect - ALLOCATE Ceiling fans, lamps held for sale - Direct - TRACE Shopping bags sold at the store - Indirect - TRACE

Wages of checkout clerks - Indirect Wages for workers in the Produce Department - Direct Depreciation on refrigerated produce display cases - Direct Cost of weekly advertisements in local newspaper - Indirect Cost of bananas, lettuce, and other produce - Direct Baggies and twist ties available for shoppers in the Produce Department - Direct Monthly lease payment for grocery store retail location - Indirect Cost of scales hanging in the Produce Department - Direct

Direct - Trace Store utilities

Indirect - Allocate The CEO's salary Direct - Trace The cost of lumber Indirect - Allocate The cost of national advertising Direct - Trace The wages of store employees Indirect - Allocate The cost of operating the corporate Payroll Department Direct - Trace The cost of ceiling fans, light switches, and lamps Direct - Trace The cost of shopping bags sold at the store

How much are the total inventoriable product costs? Determine the formula, and then calculate the total inventoriable product costs. Direct materials + Direct labour + Manufacturing overhead = Total inventoriable product cost $70+22+75=$167 How much are the total prime costs? Determine the formula, and then calculate the total prime costs. Direct materials + Direct labour = Total prime cost $70 + 22 = $92

How much are the total conversion costs? Determine the formula, and then calculate the total conversion costs. Direct labour + Manufacturing overhead = Total conversion cost $22 + 75 = $97 Classify each of these costs according to its place in the value chain. Within the production category, break the costs down further into three subcategories: Direct Materials, Direct Labor, and Manufacturing Overhead. Then calculate the total cost for each value chain category. (Enter amounts in millions. If an input field is not used in the table, leave the input field empty; do not enter a zero.)

How much are the total product costs? (Enter amounts in millions.) Answer: The total product costs are: $143 million. Formula: Direct materials + Direct labour + Manufacturing overhead = Total inventoriable product cost How much are the total prime costs? (Enter amounts in millions.) The total prime costs are $78 million. Formula: Direct materials + Direct labour = Total prime cost

How much are the total conversion costs? (Enter amounts in millions.) The total conversion costs are $76 million. Formula: Direct labour + Manufacturing overhead = Total conversion cost Classify each of the following costs as a direct cost or an indirect cost assuming the cost object is the Produce Department (fruit and vegetable department) of a local grocery store. Direct - Produce manager's salary Direct - Cost of the produce Indirect - Store utilities Direct - Bags and twist ties provided to customers in the Produce Department for packaging fruits and vegetables Direct - Depreciation expense on refrigerated produce display shelves Indirect - Cost of shopping carts and baskets Indirect - Wages of checkout clerks Indirect - Cost of grocery store's advertisement flyer placed in the weekly newspaper Indirect - Store manager's salary Direct - Cost of equipment used to peel and core pineapples at the store Indirect - Free grocery delivery service provided to senior citizens Indirect - Depreciation on self-checkout machines

CHAPTER 2: Identify the inventoriable product costs and period costs of merchandising and manufacturing firms. Classify each of the business costs below into one of the six value chain elements. a. Costs associated with warranties and recalls - Customer service b. Cost of shipping finished goods to overseas customers - Distribution c. Costs a pharmaceutical company incurs to develop new drugs - Research and development d. Cost of a 30-second commercial during the SuperBowl™- Marketing e. Cost of making a new product prototype - Design f. Cost of assembly labor used in the plant - Production For a manufacturing company, identify the costs below as either an inventoriable product cost or a period cost. If it is an inventoriable product cost, classify it as direct materials, direct labor, or manufacturing overhead. a. Depreciation on plant equipment - Inventoriable product cost/Manufacturing overhead

b. Depreciation on salespeoples’ automobiles - Period cost c. Insurance on plant building - Inventoriable product cost/Manufacturing overhead d. Marketing manager’s salary - Period cost e. Cost of major components of the finished product - Inventoriable product cost/Direct materials f. Assembly-line workers’ wages - Inventoriable product cost/Direct labor g. Costs of shipping finished products to customers - Period cost h. Forklift operator’s salary - Inventoriable product cost/Manufacturing overhead Classify each of the following costs as either inventoriable product costs or period costs. The company is a manufacturer of stud lumber, veneer, specialty panels, oriented strand board, and wood chips. a. b. c. d. e.

Inventoriable product cost - Depreciation on the veneer plant Inventoriable product cost - Purchase of lumber to be cut into boards Period cost - Life insurance on CEO Period cost - Salaries of scientists studying ways to speed forest growth Inventoriable product cost - Cost of a new software to track inventory during production f. Inventoriable product cost - Cost of electricity at a paper mill g. Period cost - Salaries of top executives h. Inventoriable product cost - Cost of chemical applied to lumber to inhibit mould i. Period cost - Cost of TV ads promoting environmental awareness Classify each of the following costs as a period cost or an inventoriable product cost. If you classify the cost as an inventoriable product cost, further classify it as direct material (DM), direct labour (DL), or manufacturing overhead (MOH). a. Product - MOH - Depreciation on automated production equipment b. Period - Telephone bills relating to the customer service call centre c. Product - DL - Wages and benefits paid to assembly-line workers in the manufacturing plant d. Product - MOH - Repairs and maintenance on factory equipment e. Period - Lease payment on administrative headquarters f. Product - MOH - Salaries paid to quality control inspectors in the plant g. Period - Property insurance 40% of building is used for sales and administration Product - MOH - Property insurance 60% of building is used for manufacturing h. Product - DM - Standard packaging materials used to package individual units of product for sale (for example, cereal boxes in which the cereal is packaged) Each of the following costs pertains to MilkIt, a dairy processing company. Classify each of the company's costs as a period cost or an inventoriable product cost. Further classify

inventoriable product costs as direct material (DM), direct labour (DL), or manufacturing overhead (MOH). 1. Product—DM - Cost of milk purchased from local dairy farmers 2. Product—MOH - Lubricants used in running bottling machines 3. Product—MOH - Depreciation on refrigerated trucks used to collect raw milk from local dairy farmers 4. Product—MOH - Property tax on dairy processing plant 5. Period - Television advertisements for MilkIt's products 6. Period - Gasoline used to operate refrigerated trucks delivering finished dairy products to grocery stores 7. Period - Company president's annual bonus 8. Product—DM - Plastic 4-litre containers in which milk is packaged 9. Period - Depreciation on marketing department's computers 10. Product—DL - Wages and salaries paid to machine operators at dairy processing plant 11. Period - Research and development on improving milk pasteurization process Best’s manufactures disposable cameras. Suppose the company's records include the items described below. What is the total manufacturing overhead cost in ?

Fantasy Frames manufactures picture frames. Suppose the company's records include the items described below. What is Fantasy Frames's total manufacturing overhead cost in January? Data Table Given: Oil for manufacturing equipment. . . . . . . . . . . . . . . . . . . . . . . . . . .$35 Wood for frames. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$52,000 Company president's salary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$27,500 Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$2,000 Plant supervisor's salary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$4,000 Depreciation expense on company cars used by salesforce. . .$3,10...