Product costs for a manufacturing company consists of direct materials, direct labor and overhead
Period cost and product cost are synonymous terms.
For a manufactured product, all costs are incurred to get the product ready for sale are included in the inventory value of the product.
Period costs are not considered when costing products for inventory.
The two primary types of cost behavior are fixed and variable.
Direct materials are the only materials in a product.
Wages of machine operators and other workers involved in actually shaping the product are classified as direct labor costs.
(Direct Materials + Direct Labor + Overhead) / Total Number of Units Produced = Product Unit Cost
At the end of an accounting period, the balance in the Finished Goods Inventory account is made up of the costs of products completed but not sold as of that d ate.
Under activity-based costing (ABC), a product's unit cost may include assigned overhead from several cost pools
Which of the following is not included in the purchase cost of merchandise inventory?
purchase returns and allowances
An example of a period cost is
product design costs
Which of the following is a typical example of a variable cost?
Materials and supplies that cannot be traced conveniently to specific products are called
When a company calculates its product unit cost using estimated costs, it is using which cost measurement method?
Maintenance on factory building
(DL) Direct Labor
(DM) Direct Materials
In a process costing system, each product is assigned is the assigned the same amount of costs.
Companies that produce custom-made products usually use a process costing system.
The typical product costing system in a factory incorporates parts of both job order costing and process costing to create a hybrid system.
In a job order costing system, when the goods are sold, the Cost of Goods Sold account is increased, and the Finished Goods Inventory account is decreased for the selling price of the goods sold.
A zero balance in Finished Goods Inventory at the start of the period means all previously completed products have shipped
In a job order costing system, indirect labor costs are transferred to the Overhead account by increasing the Factory payroll account and decreasing the Overhead account.
In a job order costing system, when supplies are issued from inventory to production, the Overhead account is increased.
In a job order costing system, indirect labor costs incurred are charged to the Work in Process Inventory account.
To prepare financial statements at the end of the accounting period, the actual overhead cost for the period and the estimated overhead that was applied during the period must be reconciled in both job order and process costing systems.
If applied overhead exceeds actual overhead, cost of good sold must be reduced by the amount of the overcharge in a job costing system.
Job costing and process costing are systems of
cost flow assumptions
Product costs appear on the income statement in the form of
cost of goods sold
none of these
A company should use process costing rather than job order costing if
production is only partially completed during the accounting period
the produce is produced in bathes only as orders are received
the product is composted of mass-produced homogenous units
the product goes through several stages of production
Which of the following characteristics applies to process costing, but does not apply to job order costing?
the need for averaging
the use of equivalent units
separate, identifiable jobs
the use of predetermined overhead rates
The basic document for keeping track of costs in a job order costing system is a
job order cost card
labor time card
process cost report
materials requisition form
Cost behavior is defined as the manner in which cost respond to changes in volume or activity.
Total variable and fixed costs will be the same regardless of how many units are produced.
Fixed costs always remain constant.
Normal capacity is the average annual level of operating capacity needed to meet expected sales demand, adjusted for seasonal changes and industry and economic cycles.
Regression analysis can be performed using one or more activities to predict costs.
Cost-volume profit analysis assumes a constant sales mix.
The contribution margin equals total fixed costs at the breakeven point.
If revenue was $120,000,000, variable costs were $90,000,000, and fixed costs were $15,000,000, then the contribution margin ratio was 25%.
If targeted sales are 12,000 units, the sales price/unit is $70, fixed costs are #130,000, and variable costs are $40/unit, then planned profit must be $230,000.
For profit planning purposes, the following equation is used: Target Sales Units = (FC + P) divided by CM per Unit.
Which of the following statements most accurately explains the behavior of costs?
there is no norm; rather costs can be fixed, variable or a combination of both
the majority of costs are variable per unit of production
the majority of costs are fixed per unit of production
costs can be fixed or variable, but usually not a combination of both
An insurance company pays its employees a commission of 6% on each sale. What is the proper classification of the cost of sales commissions?
Suppose a company rents a building for $250,000/year for the purpose of manufacturing between 80,000 and 140,000 units (the relevant range of activity). The rental cost per unit of production will __________________ as production levels increase.
behave in a nonlinear fashion
When fixed costs are $18,000 and the contribution margin per unit is $4, the breakeven point is
If the contribution margin on a new product line is $15, fixed costs are $165,000, and the total market for the product is 22,000 units, then the breakeven analysis would recommend that the company.
abandon the new product line
decrease the sales price per unit
increase the fixed costs (such as advertising) to lower the breakeven units
adopt the new product line
Identify the following as fixed costs (FC), variable costs (VC), or mixed costs (MC):
Factory building rent
Insurance on the factory building
Costs of Good Sold
A performance management and evaluation system is mainly utilized to account for and report on financial performance.
A performance management and evaluation system allows a company to identify how well it is doing, where it is going, and what improvements will make it more profitable.
A responsibility center whose manager is held accountable for both revenues and costs and for the resulting operating income is called a profit center.
A flexible budget is derived by multiplying actual unit output by the standard unit costs.
When calculating ROI, assets invested represent the average of the beginning and ending asset balances for a given period.
How effective a performance management and evaluation system is depends on how well the goals of the entire compare coordinated rather than on how well the goals of responsibility centers, managers, and the entire organizations will be well coordinated.
Tying compensation incentives to performance targets decreases the likelihood that the goals of responsibility centers, managers, and the entire organization will be well coordinated.
Incentive awards are utilized mainly to encourage long-term performance.
A manager can improve the economic value of an investment center by decreasing assets.
Cost of capital is the maximum desired rate of return on a particular investment.
A performance management and evaluation system is a set of procedure that account for and report on
qualitative and quantitative performance
Which of the following is an example of a performance measurement?
number of customer complaints
all of these choices
The manager of Center A is responsible for generating cash inflows and incurring costs with the goal of making money for the company. The manager has no responsibility for assets. What type of responsibility center is Center A.
discretionary cost center
In developing performance measures, management must consider which of the following?
how should we measure?
how can managers monitor financial performance?
what should we measure?
all of these choices.
Budgeting is the process of identifying, gathering, summarizing, and communicating financial and nonfinancial information about an organization's future activities.
A budget can contain nonfinancial information.
Participating budgeting involves only personnel at top levels of the organization.
The short-term plan or budget involves every part of the enterprise and is much more detailed than the long-term plan.
Projected financial statements are the final product of the budgeting process.
Operating budgets are plans used in daily operations.
The direct materials purchases budget reflect both the quantity and cost of direct materials purchases.
The overhead budget must be separate into variable and fixed cost segments.
The direct labor budget is needed to prepare the production budget.
A company seeks to have as much cash as possible on hand. Cash budgeting helps to accomplish this.
should contain both revenues and expenses
contain as much information as possible
are presented in dollars only; nondollar data should be excluded
are synonymous with managing an organization
Which type of budgeting utilizes employes at all levels of the company?
A master budget is a compilation of forecasts for the coming year or operating cycle by various departments or functions within an organization. What is the most basic forecast made in a master budget?
The first budget to be prepared when making a master budget is the
direct labor budget
Which of the following would most likely be considered a short-term goal?
modernization and expansion of the plant
a product line change
a unit sales forecast
a marketing plan to gain a higher percentage of control of the market in five years.
Once standard costs for direct materials, direct labor and variable and fixed overhead have been developed, a total standard unit cost can be determined over time.
Variance analysis involves computing the difference between standard and actual costs.
The final step in variance analysis is determining the cause of the variance.
The flexible budget formula is an equation that determines unexpected costs at any level of output.
The "flex" in the flexible budget formula occurs in the variable cost segment.
Another name for a flexible budget is a variable budget.
Comparing "what did happen" with "what should have happened" aids in the performance evaluation of a company.
A production manager usually is responsible for direct material used and direct labor hours used.
It is not necessary to provide an area on the performance report for a manager's reasons for variances.
Variance analysis includes all of the following except:
taking corrective action
investigating all variances
developing performance measures to track activities causing the variance
identification of the cause
A summary of expected costs for a range of activity levels that is geared to changes in the level of productive output is the definition of a
The primary difference between a fixed (static) budget and a flexible budget is that a fixed budget
cannot be change after the period begins, whereas a flexible budget can be changed after the period ends
is concerned only with future acquisitions of fixed assets, whereas a flexible budget is concerned with expenses that vary with sales.
is a plan for a simple level of production, whereas a flexible budget is several plans (one for each of several production levels)
includes only fixed costs, whereas a flexible budget includes only variable costs
If a company's flexible budget formula is $9.50 per unit plus $68,550, what would be the total budget for evaluating operating performance if 23,850 units were sold and 28,460 units were produced.
A flexible budget is most useful
for budgeting and planning purposes
when actual output equals budget output
as a cost control tool to help evaluate performance
when a product's cost structure includes variable costs only