Term
| What are the 3 types of revenue producing activities for organizations? |
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Definition
1) Service
2) Merchandising
3) Manufacturing |
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Term
| What happens on the income statement as inventories are sold or used? |
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Definition
| They are matched against expenses |
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Term
| In a service organization, what is the asset that gets expensed? |
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Definition
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Term
| In a service organization, what is the expense that appears on the income statement? |
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Definition
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Term
| In a merchandising organization, what are the assets that get expensed? |
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Definition
- Merchandising inventory
- Supplies inventory |
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Term
| What is the associated expense for merchandising inventory? |
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Definition
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Term
| In merchandising organization, what is the associated expense for supplies inventory? |
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Definition
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Term
| In a manufacturing organization, what are the starting assets in the process toward expensing? |
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Definition
1) Raw materials inventory
2) Manufacturing inventory
3) Office supplies inventory |
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Term
| What are the steps toward expensing raw materials inventory and manufacturing supplies inventory? |
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Definition
| Raw materials inventory + manufacturing supplies inventory --> Work-in-Process inventory --> Finished Goods inventory |
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Term
| What are the expenses in manufacturing organization? |
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Definition
1) COGS
2) Office supplies expense |
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Term
| Managers use product costs to evaluate what? |
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Definition
1) Product profitability
2) Organizational performance |
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Term
| What is the equation to evaluate product profitability? |
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Definition
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Term
| How do you evaluate organizational performance? |
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Definition
| Lower costs means higher profit |
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Term
| What are the problems with unreliable cost information? |
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Definition
1) Noncompetitive pricing of goods and services
2) Wrong conclusions about performance
3) Bad decisions regarding product mix |
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Term
| All costs are broken into _____ costs or _____ costs for product costing purposes. |
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Definition
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Term
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Definition
| All production costs necessary to get a product ready to sell |
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Term
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Definition
| All costs other than product costs |
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Term
| How are costs classified? |
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Definition
| Based on whether or not they relate to the production process |
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Term
| What are the 3 steps to expensing product costs? |
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Definition
1) Relate to production activities
2) Assign to asset inventory
3) Expense when inventory is sold |
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Term
| How are period costs expensed? |
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Definition
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Term
| What are the 3 product cost components? |
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Definition
1) Direct materials
2) Direct labor
3) Factory overhead |
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Term
| What are conversion costs? |
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Definition
| Costs of converting raw materials into finished goods |
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Term
| What do conversion costs consist of? |
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Definition
1) Direct labor cost
2) Manufacturing overhead |
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Term
| What is the biggest challenge in measuring the cost of a product? |
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Definition
| Determining the amount of overhead incurred to produce it |
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Term
| What are 3 other product cost challenges? |
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Definition
1) Actual manufacturing overhead not known, delaying calculation of unit product cost
2) Seasonal costs are not incurred each period making actual product costs differ between months
3) Costs assigned to products vary period to period |
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Term
| Cost drivers are used to do what? |
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Definition
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Term
| What are some overhead cost per unit flaws? |
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Definition
1) Units requiring extensive manufacturing activity have too little cost assigned
2) Units requiring little manufacturing activity have too much cost assigned |
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Term
| What is the solution to the overhead cost per unit flaws? |
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Definition
| Use an overhead application cost driver other than the number of units produced |
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Term
| When are the predetermined overhead rates established? |
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Definition
| At the beginning of the year |
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Term
| What are the different cost drivers that you can use to calculate the predetermined overhead rate? |
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Definition
1) Predicted total direct labor hours
2) Predicted total machine hours |
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Term
| How do you calculate the predetermined manufacturing overheard rate (using yearly numbers)? |
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Definition
= Predicted total manufacturing overhead cost for year
Predicted total direct labor hours for the year |
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Term
| Why does the predetermined overhead rate use predicted amounts? |
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Definition
| Because actual amounts are unknown |
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Term
| How do you apply overhead to products? |
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Definition
| Add to product costs as direct labor hours are incurred |
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Term
| Manufacturing overhead assigned to work-in-process inventory = ? |
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Definition
Actual direct * Predicted manufacturing
labor hours overhead rate |
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Term
| What is technology's impact on manufacturing? |
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Definition
- (Automation) Major shifts away from direct labor to manufacturing overhead
- Direct labor may no longer be a good cost driver
- One cost driver may not be sufficient
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Term
| When a company gets rid of direct labor and shifts manufacturing overhead to automated systems, the company creates more _____ costs and less _____ costs? |
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Definition
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Term
| Production scheduling depends on what? |
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Definition
| Which production method is used |
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Term
| What is process manufacturing? |
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Definition
| Production of identical units on a continuous basis |
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Term
| In process manufacturing, are you producing one product or multiple products? |
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Definition
| One product, or closely related products |
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Term
| What is job production (job order production)? |
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Definition
| Products are manufactured in single units or batches of identical units |
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Term
| What does a production order do? |
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Definition
| Specifies details for the unique production job |
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Term
| Who prepares the production order? |
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Definition
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Term
| What documents are included in a production order? |
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Definition
- Bill of Materials
- Operations List
- Work Ticket
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Term
| How does a company specify how much material they need for a product? |
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Definition
Through a bill of materials:
Specifies the kinds and quantities of raw materials needed to produce one unit |
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Term
| What is an operations list (activities list)? |
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Definition
| Specifies the manufacturing operations and the related times for one unit or a batch of product |
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Term
| What is included in the production order? |
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Definition
- Job ID #
- Quantity to be produced
- Raw materials requirements
- Manufacturing operations
- Other activities to be performed
- Time each manufacturing operations should be performed
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Term
| What is a job cost sheet? |
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Definition
| Document used to accumulate the costs for a specific job |
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Term
| What does a job cost sheet serve as? |
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Definition
| Basic record for recording actual progress on a job |
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Term
| What kinds of production costs are included in a job cost sheet? |
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Definition
All production costs:
Direct materials
Direct labor
Manufacturing Overhead |
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Term
| What kind of account is Raw Materials Inventory? |
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Definition
| Control Account - a summary account in the general ledger |
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Term
| Where are the details for the control account held? |
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Definition
| In the subsidiary ledger - holds all the details that go into the control account |
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Term
| A materials requisition form indicates what? |
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Definition
| Type and quantity of each raw material issued to the factory |
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Term
| A materials requisition form is used to record what? |
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Definition
- The transfer of responsibility for materials
- Materials changes on raw materials and job cost sheet records
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Term
| A work ticket is used to record what? |
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Definition
| The time a job spends in a specific manufacturing operation |
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Term
| How is time information used? |
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Definition
Used by:
- Production scheduling, and
- To assign labor costs to jobs
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Term
| Review Basic Production Cost Flows |
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Definition
| Basic Production Cost Flows |
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Term
| How do you write the journal entry for purchasing raw materials? |
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Definition
Raw Materials xx
----------A/P xx |
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Term
| What is the journal entry for purchasing manufacturing supplies? |
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Definition
Manufacturing Supplies xx
--------------------- A/P xx |
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Term
| What is the journal entry for materials requisition to the factory? |
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Definition
Work-in-Process Inventory xx
--------------Raw Materials xx |
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Term
| What is the journal entry for direct labor costs incurred? |
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Definition
Work-in-Process Inventory xx
---------Wages Payable xx |
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Term
| What is the journal entry for other production costs or production labor costs incurred? |
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Definition
Manufacturing Overhead xx
---------------------A/P xx |
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Term
| What accounts go into manufacturing overhead? |
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Definition
- Wages Payable
- Other Payables
- Manufacturing Supplies
- Accumulated Depreciation (factory assets)
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Term
| What is the journal entry for applying manufacturing overhead to products? |
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Definition
Work-In-Process Inventory xx
--------Manufacturing Overhead xx |
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Term
| When applying manufacturing overhead to products, the manufacturing overhead applied to work-in-process as a debit is based on what?? |
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Definition
predetermined overhead rate as
predetermined activity occurs
(direct labor hours, machine hours) |
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Term
| What is totaled on the job cost sheet? |
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Definition
| Accumulated production costs |
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Term
| What is the journal entry for transferring items from work-in-process inventory to finished goods inventory? |
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Definition
Finished Goods Inventory xx
----Work-in-Process Inventory xx |
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Term
| What is the journal entry for COGS? |
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Definition
Cost of Goods Sold Inventory xx
-------Finished Goods Inventory xx |
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Term
| When an item is sold, what is the journal entry? |
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Definition
Cost of Goods Sold xx
----Finished Goods Inventory xx
Cash or A/R xx
----Sales Revenue xx |
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Term
| When incurred, costs are assigned to where? |
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Definition
- Work-in-Process account
- Job Cost Sheet
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Term
| When jobs are completed, how is finished goods inventory determined? |
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Definition
| By looking at the sheet for the completed job, and transferring that amount from work-in-process to finished goods inventory |
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Term
| The balance in work-in-process equals what? |
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Definition
| The costs assigned to the total cost of the jobs in process |
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Term
| Job Cost Sheets allow management to properly do what? |
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Definition
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Term
| On the income statement, what one line differs between a manufacturer and a merchandiser? |
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Definition
| Cost of Goods Manufactured vs. COGS |
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Term
| Why do over and under applied overhead exist? |
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Definition
| Because the amount of overhead applied is likely not the same amount as the overhead incurred |
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Term
| How do you find out how much overhead is over or under applied? |
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Definition
| It is the balance of manufacturing overhead at the end of the period |
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Term
| Why might the actual overhead differ from the applied overhead? |
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Definition
- Predicted total manufacturing overhead cost is not accurate
- Predicted activity level differs from the actual activity level (predicted activity level used in computing the predetermined rate)
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Term
| Because the over or under applied overhead must be eliminated at period's end, where do you transfer these extraneous costs? |
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Definition
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Term
| Why do you transfer over or under applied overhead to COGS? |
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Definition
| Because most of the manufacturing overhead should already be in COGS |
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Term
| What do you do if there is a large remaining balance in manufacturing overhead? |
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Definition
| You must adjust every account as if the actual, rather than the predetermined, overhead rate had been used |
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Term
| What do underapplied and overapplied overhead mean? |
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Definition
- Underapplied = applied < actual
- Overapplied = applied > actual
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Term
| How does COGS change in an under vs. overapplied overhead scenario? |
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Definition
- Under --> increase COGS
- Over --> decrease COGS
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Term
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Definition
| The assignment of costs to services performed |
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Term
| Service costing uses job costing concepts to determine what? |
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Definition
| The cost of filling customer service orders |
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Term
| Many companies regard services costs as ______ rather than ______ ______. |
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Definition
- Expenses
- Product costs |
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Term
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Definition
| System of costing used when products are produced in a continuous manufacturing environment, where production does not have a distinct beginning or end |
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Term
| In process costing, how do you determine the cost per unit? |
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Definition
Total Product Costs during a period
# of units produced during the period |
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Term
| Average Cost per unit = ? |
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Definition
Total Product Costs
# of Equivalent Units Produced |
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Term
| In process costing, what are the sections of the production report? |
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Definition
- Summary of units in process
- Equivalent units in process
- Total cost to be accounted for and Cost/equivalent unit
- Accounting for total cost
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Term
| What are the 2 types of process costing? |
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Definition
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Term
| What is the difference in accounting for beginning units in weighted average vs. FIFO? |
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Definition
Weighted - does not separately account
FIFO - accounts separately for beginning units |
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Term
| How does the weighted average method spread out costs? |
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Definition
Beginning inventory cost + Current manufacturing cost
Units completed + Units in ending inventory
...on average basis |
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Term
| How are costs incurred in the FIFO method? |
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Definition
The first costs incurred each period are assumed to have been used to complete the unfinished units carried over from the previous period |
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Term
| Product costing and cost-based valuations provide vital information that enables managers to do what? |
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Definition
- Set price
- Control costs
- Evaluate management performance
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Term
| What are the 2 methods of valuing inventory? |
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Definition
Absorption Costing
Variable Costing |
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Term
| How do absorption and variable costing differ? |
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Definition
| Differ in how fixed manufacturing overhead costs are accounted for |
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Term
| In absorption costing, product costs consist of what 4 things? |
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Definition
- Direct materials
- Direct labor
- Variable manufacturing overhead
- Fixed manufacturing overhead
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Term
| In variable costing, product costs consist of ...? (3) things |
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Definition
- Direct materials
- Direct labor
- Variable manufacturing overhead
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Term
| Variable costing matches what? |
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Definition
Revenue --> direct cost of producing those revenues |
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Term
| By omitting fixed costs from inventory, variable costing understates what? |
|
Definition
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Term
| How can variable costing mislead management? |
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Definition
| Causes decision makers to underestimate true production costs |
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