ACCT 2 CHAP 13-16 TF

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A company with a high inventory turnover requires a smaller investment in inventory than one producing the same sales with a lower turnover.

T

Ratios analysis eliminates all of the differences of GAAP versus IFRS financial reporting.

F

The return on total assets can be calculated as the profit margin times the total asset turnover.

T

A good financial statement analysis report often includes the following sections: Executive summary, analysis overview, evidential matter, assumptions, key factors and inferences.

T

A high level of expected risk suggests a low price-earnings ratio.

T

A materials requisition is a source document used by materials managers of a manufacturing company to order raw materials from suppliers; it serves the same purpose as a purchase order in a merchandising company.

F

A company's acid-test ratio will always be less than or equal to its current ratio.

T

The evaluation of company performance and financial condition includes evaluation of (1) past and current performance, (2) current financial position and (3) future performance and risk.

T

Efficiency refers to how productive a company is in using its assets and is usually measured relative to how much revenue is generated from a certain level of assets.

T

The fact that one department may be labor intensive while another department is machine intensive may explain in part the existence of multiple predetermined overhead rates in larger companies.

T

Capital structure refers to a company's long-run financial viability and its ability to cover long-term obligations.

F

Common-size statements are financial statements of companies of similar size.

F

When computing the return on common equity, the income available for common stockholders is determined by deducting preferred dividends from net income.

T

A company can change from one acceptable accounting principle to another as long as the change improves the usefulness of information in its financial statements.

T

Manufacturing overhead is an indirect cost with respect to units of product

T

When the attitude of continuous improvement exists throughout an organization, every manager and employee seeks to continuously experiment with new and improved business practices.

T

Extraordinary items are reported in the operating section of the income statement.

F

The return on total assets ratio is a profitability measure.

T

Managerial accounting places greater emphasis on the future than financial accounting, which is primarily concerned with the past.

T

The use of horizontal and vertical analysis eliminates many differences between GAAP and IFRS, but the user must exercise some caution when drawing conclusions from these reports.

T

When carrying out planning activities, managers rely on feedback to ensure that the plan is actually carried out and is appropriately modified as circumstances change

F

A time ticket is a source document an employee uses to record the number of hours at work and that is used each pay period to determine the total labor cost.

F

An opportunity cost requires a future cash outlay and is relevant for decision making.

F

Prime cost is the sum of direct labor and manufacturing overhead.

F

When carrying out their directing and motivating activities, managers mobilize the organization's human and other resources so that the organization's plans are carried out.

T

Managerial accounting information can be forwarded to the managers of a company quickly since external auditors do not have to review it, and estimates and projections are acceptable.

T

The orientation of just-in-time manufacturing is that products are "pulled" through the manufacturing process by the orders received from customers.

T

Both financial and managerial accounting affect people's decisions and actions.

T

Profitability is the ability to generate positive market expectations.

F

Product costs are expenditures necessary and integral to finished products.

T

Nonmanufacturing costs are expensed as incurred, rather than going into the Work in Process account.

T

If a company closes any under- or overapplied overhead to the Cost of Goods Sold account, then Cost of Goods Sold will be credited if manufacturing overhead is overapplied for the period.

T

The formula for computing the predetermined overhead rate is:
Estimated underhead costs / Estimated activity base.

F

A clock card is a source document used by an employee to record the total number of hours worked during the pay period.

T

If actual overhead incurred during a period exceeds applied overhead, the difference will be a credit balance in the Factory Overhead account at the end of the period

F

Job cost sheets contain entries for actual direct material, actual direct labor, and actual manufacturing overhead cost incurred in completing a job.

F

Job cost sheets are used to track all of the costs assigned to a job, including direct materials, direct labor, overhead, and all selling and administrative costs.

F

A manufacturing company that uses a cost accounting system normally has only two inventory accounts: Finished Goods Inventory and Goods in Process Inventory.

F

In a job-order cost system, indirect labor is assigned to a job by using the labor time ticket as a source document.

F

Fraud involves the deliberate or accidental misuse of the employer's assets.

F

Companies that use a series of manufacturing processes to produce standardized products should use a process cost accounting system.

T

The units in beginning work in process inventory plus the units started into production must equal the units transferred out of the department plus the units in ending work in process inventory.

T

In process costing, indirect materials are charged directly to Goods in Process Inventory.

F

Process and job order manufacturing operations both combine materials, labor, and overhead items in the process of producing products.

T

In process cost accounting, materials are always classified as indirect if they are not physically incorporated into the final product.

F

If a company uses predetermined overhead rates, actual manufacturing overhead costs of a period will be recorded in the Manufacturing Overhead account, but they will not be recorded on the job cost sheets for the period

T

Process cost accounting systems consider direct costs to include those costs that can be readily identified with a particular process.

T

Process cost accounting systems consider overhead costs to include those costs that cannot be readily identified with any specific process.

T

Equivalent units of production are always the same as the total number of physical units finished during the period.

F

In process cost accounting, the classification of materials as direct or indirect depends on whether they are clearly linked with a specific process.

T

Horizontal analysis is used to reveal changes in the relative importance of each financial statement item.

F

Common-size statements are financial statements of companies of similar size.

F

The cost of goods manufactured is calculated by adding the amount of work in process at the end of the year to the cost of raw materials used, direct labor worked, and manufacturing overhead incurred for the year and then subtracting work in process at the beginning of the year.

F

A materials consumption report is a source document that summarizes the materials used during a reporting period.

T

Earnings per share is computed by dividing net income (after deducting preferred dividends) by the average number of common shares outstanding.

T

General standards or guidelines of comparisons include the 2 to 1 for the current ratio and 1 to 1 for the acid-test ratio.

T

Profitability is the company's ability to generate future revenues and meet long-term financial obligations.

F

The return on total equity measures a company's success in reaching the goal of earning net income for its owners.

T

Comparative financial statements are reports that show financial amounts placed side by side in columns on a single statement for analysis purposes.

T

Standards for comparison are necessary when making judgments about a company's financial performance.

T

The main difference between the income statement of a manufacturer and a merchandiser is that the merchandiser includes cost of goods manufactured rather than cost of goods purchased.

F

Rent on a factory building used in the production process would be classified as a period cost and as a fixed cost.

F

An out-of-pocket cost requires a future cash outlay and is relevant for decision making.

T

Decentralization means the delegation of decision-making authority throughout an organization by allowing managers at various operating levels to make key decisions relating to their own area of responsibility.

T

Much of managerial accounting is directed at gathering useful information about costs for planning and control decisions.

T

Raw materials inventory includes only direct materials.

F

Financial accounting and managerial accounting reports must be prepared in accordance with generally accepted accounting principles (GAAP).

F

One of the usual differences between financial and managerial accounting is the time dimension of the information reported

T

Thread used in the production of mattresses, an indirect material, is classified as manufacturing overhead.

T

The series of activities that add value to a company's products or services is called a value chain.

T

Factory overhead is often collected and summarized in a factory overhead ledger.

T

The entire difference between the actual manufacturing overhead cost for a period and the applied manufacturing overhead cost is typically closed to the Work In Process account.

F

Process costing is used in those situations where many different products or services are produced each period to customer specifications

F

The formula for computing the predetermined overhead rate is:
Estimated underhead costs / Estimated activity base.

F

The raw materials section of a job cost sheet shows the materials costs assigned to a job, but the direct labor section only shows the total hours of labor exerted by employees on the job.

F

Any material amount of under- or overapplied factory overhead must always be closed to Cost of Goods Sold at the end of an accounting period.

F

Materials requisitions and time tickets are cost accounting source documents.

T

The Factory Overhead account will have a credit balance at the end of a period if overhead applied during the period is greater than the overhead incurred.

T

A clock card is a source document that an employee uses to report how much time was spent working on a job or on overhead and that is used to determine the amount of direct labor to charge to the job or to determine the amount of indirect labor to charge to factory overhead.

F

A company's file of job cost sheets for finished but unsold jobs equals the balance in the Finished Goods Inventory account.

T

Process costing is applied to operations with repetitive production and heterogeneous products.

F

The use of process costing is of little benefit to a service type of operation.

F

The process cost summary is an important managerial accounting report produced by a process cost accounting system.

T

In process cost accounting, all labor that is applied exclusively in a single production department is considered to be direct labor.

T

The process cost summary presents calculations of the cost of units completed during the reporting period, but does not present any information about the ending goods in process inventory.

F

Liquidity refers to the availability of resources to meet short-term cash requirements.

T

Process cost accounting systems are commonly used by companies that manufacture standardized products by passing them through a series of manufacturing steps.

T

A company that uses a process cost accounting system maintains separate Goods in Process Inventory accounts for each of its manufacturing departments.

T

Whether a cost is controllable or not controllable by an employee depends on the employee's level of responsibility.

T

When materials are purchased in a process costing system, a work in process account is debited with the cost of the materials.

F

Product costs can be classified as one of three types: direct materials, direct labor, or overhead.

T

Although financial and managerial accounting differ in many ways, they are similar in that both rely on the same underlying financial data.

T

Much of managerial accounting is directed at gathering useful information about costs for planning and control decisions.

T

Period costs are also known as inventoriable costs.

F

Indirect labor refers to the cost of the workers whose efforts are directly traceable to specific units or batches of product

F

The Lean Business Model should have no effect on cost in a modern manufacturing environment.

F

A manufacturer's cost of goods manufactured is the sum of direct materials, direct labor, and factory overhead costs incurred in producing products.

T

A variable cost changes in proportion to changes in the volume in activity.

T

Although direct labor and raw materials costs are treated as manufacturing costs and therefore make up part of the finished goods inventory cost, factory overhead is charged to expense as it is incurred because it is a period cost.

F

The manufacturing statement is also known as the schedule of manufacturing activities or the schedule of cost of goods manufactured.

T

In a job-order cost system, depreciation on factory equipment should be charged directly to the Work in Process account.

F

A flour manufacturer is more likely to use process costing than job-order costing whereas a manufacturer of customized leather jackets is more likely to use job-order costing than process costing.

T

Equivalent units of production need to be determined only if a processing department adds materials and labor to its products at different rates.

F

When raw materials are purchased, they are recorded as an expense.

F

Multiple departmental overhead rates generally provide more accurate product costs than a single plant-wide overhead rate.

T

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T

When time ticket information is entered into the accounting system, the journal entry is a debit to Factory Payroll and a credit to Goods in Process Inventory

F

Indirect materials are not charged to a specific job but rather are included in manufacturing overhead.

T

Under a job order cost accounting system, individual jobs are always charged with actual overhead costs when they are transferred to finished goods.

F

A rough guideline states that for a company with no discounts offered, days' sales uncollected should not exceed 1 times the days in its credit period.

F

The FIFO method of process costing assigns costs to units assuming a first-in, first-out flow of product.

T

A process cost summary for a production department accounts for all costs assigned to that department during the period plus costs that were in the department's Goods in Process Inventory account at the beginning of the period.

T

Once equivalent units are calculated for materials, this number will also be used for direct labor and factory overhead.

F

If Department T uses $89,000 of direct labor and Department V uses $11,000 of direct labor, the following journal entry would be recorded by the process cost accounting system:

F

A production department is an organizational unit of a factory that has the responsibility for at least partially manufacturing or producing a product or service.

T

The following journal entry would be made to record the use of direct labor in the reporting period covered by the information:

F

Direct costs in process cost accounting include only those costs that can be readily identified with particular product units.

F

Under job-order costing, costs are accumulated by department and are assigned equally to all units passing through the department during the period.

F

If the indirect materials cost for a reporting period was $37,500, the following journal entry would be recorded by the process cost accounting system:

T

Depreciation on office equipment would not be included in the cost of goods manufactured.

T

Vertical analysis of financial statements is accomplished through the preparation of common-size statements.

T

A company that has days' sales uncollected of 30 days and days' sales in inventory of 18 days implies that inventory will be converted to cash in about 12 days.

F

Comparative horizontal analysis is used to reveal patterns in data covering successive periods.

T

Financial statement analysis can be used for personal investment decisions.

T

Financial reporting includes not only general purpose financial statements, but also information from SEC filings, press releases, shareholders' meetings, forecasts, management letters, auditor's reports and Webcasts.

T

Working capital is computed as current liabilities minus current assets.

F

Market prospects are the ability to provide financial rewards sufficient to attract and retain financing.

F

Managerial accounting is not needed in a non-profit or governmental organization

F

Traditionally, companies have maintained large amounts of raw materials, work in process, and finished goods inventories to act as buffers so that operations can proceed smoothly even if there are unanticipated disruptions.

T

Newly completed units are combined with beginning finished goods inventory to make up total ending goods in process inventory.

F

All costs in a merchandising company are period costs.

F

Conversion cost is the sum of direct labor and manufacturing overhead.

T

Managerial accounting is a branch of financial accounting and serves essentially the same purposes as financial accounting.

F

After all process cost accounting journal entries are recorded and posted for a reporting period, the Factory Payroll account should have a zero balance.

T

When defining direct costs and indirect costs in process costing, it is the process that is the cost object

T

A process cost summary includes the amounts of equivalent finished units of production for the period.

T

A process cost accounting system records all factory overhead costs directly in the Goods in Process Inventory accounts.

F

In a process costing system, direct labor cost combined with manufacturing overhead cost is known as conversion cost.

T

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