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Study set for final exam at Gainesville State College

Conversion Costs

Direct labor and manufacturing overhead costs incurred in converting raw materials into finished goods.

Materials purchased on account during the month amounted to $195,000. Materials requisitioned and placed in production totaled $168,000. What's the entry to record the transaction on the day the materials were bought?

Debit Materials $195,000; Credit Accounts Payable $195,000

If Department K had 2,000 units, 45% completed, in process at the beginning of the period, 12,000 units were completed during the period, and 1,200 units were 40% completed at the end of the period, what was the number of equivalent units of production for the period if the first-in, first-out method is used to cost inventories?

11,580

What's an example of a factory overhead cost?

Factory heating and lighting cost.

What is the flow of manufacturing costs?

Raw materials, work in process, finished goods, cost of goods sold 100%.

What is the formula for predetermined factory overhead rate?

Estimate total factory overhead costs divided by estimated activity base.

Prime costs are...

Direct materials and direct labor.

Process cost system

Keeps track of the costs applied to a product as it moves through one or more manufacturing processes.

The recording of the factory labor incurred for general factory use would include a debit to:

Factory Overhead

The recording of the jobs shipped and customers billed would include a credit to:

Finished Goods

The recording of the jobs completed would include a debit to:

Finished Goods

Managerial accounting does not need to conform to ...

GAAP

Three things found on the balance sheet of a manufacturing company, and one not found:

On: materials, finished goods, materials.
Not: Cost of goods sold (retail company maybe)

Scooby Company has applied $567,988 of overhead into production on Jobs in the Work in Process account. Actual overhead at the end of the year is $575,000. What is the adjustment for over or underapplied overhead?

$7012 Underapplied, increase Cost of Goods Sold

Which of the following systems provides for a separate record of the cost of each particular quantity of product that passes through the factory?

Job order cost system

Job order costing and process costing are:

Cost accounting systems.

Part of factory overhead?

Amortization of manufacturing patents; Production supervisors' salaries; Factory supplies used

Types of inventories a manufacturing business report on the balance sheet?

Direct materials inventory, work in process inventory, and finished goods inventory

Costs included in finished goods inventory?

Factory overhead; Direct labor; Direct materials

Period costs are classified as either

Selling expenses or administrative expenses.

Scott Manufacturing Co.'s static budget at 10,000 units of production includes $40,000 for direct labor and $4,000 for electric power. Total fixed costs are $23,000. At 12,000 units of production, a flexible budget would show:

variable costs of $52,800 and $23,000 of fixed costs

Something included in the cost of a product manufactured according to absorption costing?

Double declining balance depreciation expense on factory building.

Direct labor rate variance:

The difference between actual and standard hourly labor rate multiplied by the actual hours of direct labor used.

Direct materials quantity variance:

= standard price x (standard quantity allowed - actual quantity)

Most operating decisions of management focus on a narrow range of activity called the:

relevant range of production.

A favorable cost variance occurs when

Standard costs are more than actual costs.

Variable costing

A costing method that includes only variable manufactuing costs--direct materials, direct labor, and variable manufacturing overhead--in unit product costs.

Absorption costing

A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed overhead—as part of the cost of a product. This term is synonymous with full cost.

Quantity variance

actual quantity of direct materials used in producing a commodity differs from the standard quantity

Contribution Margin

the excess of sales revenue over variable cost

Periodic comparisons between planned objectives and actual performance are reported in:

budget performance reports

contribution margin ratio

Contribution Margin / Sales

unit contribution margin

Unit Selling Price - Unit Variable Cost
(Contribution Margin from the sale of one unit to cover fixed costs)

Example of a mixed cost?

Rental costs of $5,000 per month plus $.30 per machine hour of use

high-low method

a method of separating a mixed cost into its fixed and variable elements by analyzing the change in cost between the high and low activity levels

direct material quantity variance

The difference between actual and standard quantity of materials allowed, given actual output, multiplied by the standard price.

If fixed costs increased and variable costs per unit decreased, the break-even point would:

increase, decrease, or remain the same, depending upon the amounts of increase in fixed cost and decrease in variable cost

Knowing how costs behave is useful to management for all the following reasons

changing an existing product production. ; predicting profits as sales and production volumes change.; estimating costs.

A series of budgets for varying rates of activity is termed a(n):

flexible budget

The budget process involves doing all the following:

establishing specific goals; executing plans to achieve the goals; comparing actual results with the goals

The production budgets are used to prepare which of the following budgets?

Direct materials purchases, direct labor cost, factory overhead cost

The budget that needs to be completed first when preparing the master budget is the:

Sales Budget

In order to be useful to managers, management accounting reports should possess all of the following characteristics

be provided at any time management needs information; provide objective measures of past operations and subjective estimates about future decisions; be prepared to report information for any unit of the business to support decision making

direct labor rate variance

The difference between actual and standard hourly labor rate multiplied by the actual hours of direct labor used.

A) What would cause the break-even point to decrease? B) to increase?

A) Unit variable cost decreases; total fixed costs decrease; Unit selling price increases B) Total fixed costs increase

Service department cost allocation

...

differential cost

...

Internal centralized service departments include ...

Information systems department; Payroll accounting department; Purchasing department

What is a measure of a manager's performance working in a cost center?

budget performance report

The costs of services charged to a profit center on the basis of its use of those services are called:

service department charges

The following are advantages of decentralization:

Decentralized managers can respond quickly to customer satisfaction and quality service; Expertise in all areas of the business is difficult, decentralization makes it better to delegate certain responsibilities; Managers make better decisions when closer to the operation of the company.

income from operations

Gross profit - operating expenses

gross profit

the excess of net sales over the cost of goods sold

cost of goods sold

the total cost of buying raw materials and paying for all the factors that go into producing finished goods

All of the following should be considered in a make or buy decision:

quality issues with the supplier; cost savings; future growth in the plant and other production opportunities

cost center

a business segment whose manager has control over cost but has no control over revenue or investments in operating assets

profit center

A business segment whose manager has control over cost and revenue but has no control over investments in operating assets

investment center

a business segment whose manager has control over cost, revenue, and investments in operating assets

revenue center

a division within a company that generates sales or revenues.

In evaluating the profit center manager, the income from operations should be compared:

to historical performance or budget

A measure of a manager's performance working in a profit center...

divisional income statements

A responsibility center in which the department manager is responsible for costs, revenues, and assets for a department is called:

an investment center

stockholders' equity

Capital stock (investments by stockholders) and Retained earnings (earnings kept for use)

par value of stock

a value assigned to a share of stock and printed on the stock certificate

In which section of the financial statements would Paid-In Capital from Sale of Treasury Stock be reported?

stockholders' equity on balance sheet

The cumulative effect of the declaration and payment of a cash dividend on a company's financial statements is to

decrease total assets and stockholders' equity.

What is the appropriate general journal entry to record the declaration of a cash dividends?

Cash Dividends
Cash Dividends Payable

Paid-in capital on the balance sheet...

donated capital; common stock distributable; common stock

When common stock is issued in exchange for a noncash asset, the transaction should be recorded at

the fair market value of the asset acquired or the fair market value of the stock, whichever can be determined more objectively.

Major characteristics of a corporation...

A corporation can own property in its name; The financial loss that a stockholder may suffer from owning stock in a public company is limited; Corporations are required to file federal income tax returns.

Continuous life
Separate legal existence
Limited liability of stockholders

Treasury stock should be reported in the financial statements of a corporation as a(n)

deduction from total paid-in capital and retained earnings.

Corporations pay _______ and state income taxes.

federal

What is reported in the paid-in capital/stockholders' equity section of the corporate balance sheet?

Preferred Stock

Nexis Corp. issues 1,000 shares of $15 par value common stock at $25 per share. When the transaction is recorded, credits are made to:

Common Stock $15,000 and Paid-in Capital in Excess of Par Value $10,000.

The authorized stock of a corporation...

is indicated in its charter.

Prerequisites to paying a cash dividend?

formal action by the board of directors; sufficient cash; sufficient retained earnings

Treasury stock shares are

issued shares that are held by the treasurer of the corporation

Cash dividends are usually not paid on...

treasury stock

If Everly Company issues 1,000 shares of $5 par value common stock for $75,000, the account

Paid-in Capital in excess of Par Value will be credited for $70,000.

The excess of sales price of treasury stock over its cost should be credited to

Paid-In Capital from Sale of Treasury Stock

Under the corporate form of business organization

ownership rights are easily transferred.

The date on which a cash dividend becomes a binding legal obligation is on the

declaration date.

The primary purpose of a stock split is to

reduce the market price of the stock per share

The entry to record the issuance of stock certificates for a common stock dividend that had been declared would include a debit to

Stock Dividends Distributable

All of the following are normally found in a corporation's stockholders' equity section

Paid-In Capital in Excess of Par; Retained Earnings; Common stock

One of the main disadvantages of the corporate form is the

double taxation of dividends

When the bonds are sold for more than their face value, the carrying value of the bonds is equal to

face value plus the unamortized premium

A business issues 20-year bonds payable in exchange for preferred stock. This transaction would be reported on the statement of cash flows in

a separate schedule

Which of the following should be deducted from net income in calculating net cash flow from operating activities using the indirect method?

a decrease in accounts payable

A ten-year bond was issued at par for $250,000 cash. This transaction should be shown on a statement of cash flows under

financing activities

Financing activities involve

issuing debt.

The journal entry a company records for the payment of interest, interest expense, and amortization of bond premium is

debit Interest Expense and Premium on Bonds Payable, credit Cash

Cash receipts received from the issuance of a mortgage notes payable would be classified as

financing activities.

The market interest rate related to a bond is also called the

effective interest rate

Cash dividends paid on capital stock would be reported in the statement of cash flows in

the cash flows from financing activities section

A corporation issues for cash $8,000,000 of 8%, 25-year bonds, interest payable semiannually. The amount received for the bonds will be

present value of 50 semiannual interest payments of $320,000, plus present value of $8,000,000 to be repaid in 25 years

Which of the following should be added to net income in calculating net cash flow from operating activities using the indirect method?

a decrease in accounts receivable

The entry to record the amortization of a premium on bonds payable on an interest payment date includes:

debit Interest Expense, debit Premium on Bonds Payable, credit Cash

In calculating cash flows from operating activities using the indirect method, a gain on the sale of equipment is

deducted from net income.

Selling the bonds at a premium has the effect of

causing the total cost of borrowing to be lower than the bond interest paid.

Depreciation on factory equipment would be reported in the statement of cash flows prepared by the indirect method in

the cash flows from operating activities section

If the straight-line method of amortization of bond premium or discount is used, which of the following statements is true?

Annual interest expense will remain the same over the life of the bonds with the amortization of bond discount.

indirect method

A method of preparing a statement of cash flows in which net income is adjusted for items that do not affect cash, to determine net cash provided by operating activities

If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount

greater than face value.

If bonds are issued at a premium, the stated interest rate is

higher than the market rate of interest.

The adjusting entry to record the amortization of a discount on bonds payable is

debit Interest Expense, credit Discount on Bonds Payable

The journal entry a company records for the issuance of bonds when the contract rate and the market rate are the same is

debit Cash, credit Bonds Payable

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