Accounting 211 Exam 1
Chapter 1 - correct answer
managerial accounting - correct answer field of accounting that provides economic and financial
information for managers and other internal users
main differences between managerial and financial - correct answer managerial:
-for internal users
-doesn't have to follow GAAP
-detailed reports for a specific decision
-reports as frequently as needed
3 activities and responsibilities of management - correct answer 1. planning
2. directing
3. controlling
planning - correct answer requires management to look ahead and establish objectives
-goal is to add value (increase stock price or selling price of company)
directing - correct answer coordinating diverse activities and human resources to produce a smooth-
running operation
-implementing planned objectives
-selecting executives, appointing managers and supervisors, and hiring and training employees
controlling - correct answer process of keeping the firm's progress on track
-determine whether planned goals are being met and any necessary changes to get back on track
manufacturing - correct answer activities and processes that convert raw materials into finished goods
3 main types of manufacturing costs - correct answer 1. direct materials
2. direct labor
3. manufacturing overhead
raw materials - correct answer basic materials and parts that are to be used in the manufacturing
process
direct materials - correct answer raw materials that can be physically and directly associated with the
finished product during the manufacturing process
direct labor - correct answer work of factory employees that can be physically and directly associated
with converting raw materials into finished goods
indirect labor - correct answer their efforts have no physical associated with the finished product
ex.) wages of maintenance people, timekeepers, and supervisors
manufacturing overhead - correct answer costs that are indirectly associated with the manufacture of
the finished product
-includes indirect materials, indirect labor, depreciation on factory buildings and machinery, insurance,
taxes, and maintenance on factory facilities
product costs - correct answer include each of the manufacturing elements (direct materials, direct
labor, and manufacturing overhead)
-are not expensed until company sells the finished goods inventory
period costs - correct answer -matched with the revenue of a specific time period
-relate to non-manufacturing costs
include selling and administrative expenses
cost of goods sold for a merchandiser - correct answer = beginning inventory + cost of goods purchased -
ending inventory
cost of goods sold for a manufacturer - correct answer = beginning finished goods inventory + cost of
goods manufactured - finished goods inventory
total cost of work in process formula - correct answer = beginning work in process inventory + total
current manufacturing costs
cost of goods manufactured formula - correct answer = total cost of work in process - ending work in
process inventory
3 balance sheet inventory accounts for a manufacturer - correct answer 1. raw materials
2. work in process
3. finished goods
3 reasons the competitive environment in the US is changing - correct answer 1. changing regulations
2. intensified global competition
3. technological changes
value chain - correct answer all activities associated with providing a product or service
ex.) R&D, raw materials, production, sales and marketing, delivery, and customer relations
just-in-time (JIT) inventory method - correct answer goods are manufactured or purchased just in time
for use
-increased emphasis on quality because goods are purchased only as needed
-Total Quality Management (TQM): zero defects
activity-based costing (ABC) - correct answer allocates overhead based on use of specific activities or
functions of the company
balanced scorecard - correct answer a performance-measurement approach to evaluate operations
using both financial and non-financial measures
5 major effects of SOX - correct answer 1. CEOs and CFOs have to verify financial statements
2. top management must certify there is a system of internal control
3. severe penalties for fraud
4. increased independence of auditors
5. increases responsibilities for board of directors
triple bottom line - correct answer evaluates the company's performance with regard to people, profit,
and the planet
Chapter 2 - correct answer
cost accounting - correct answer measuring, recording, and reporting product costs
cost accounting system - correct answer accounts for the various manufacturing costs
-fully integrated into the general ledger of a company
-perpetual inventory
two basic types of cost accounting systems - correct answer 1. job order cost system
2. process cost system
process cost system - correct answer used when a series of connected manufacturing processes or
departments produce a large volume of similar products
-cost accumulates for a determined period of time
ex.) potato chip production
job order cost system - correct answer costs are assigned to each job (ex. manufacture high speed
drilling machine) or each batch (ex. 225 wedding invitations)
entry to record initial purchase of raw materials for job order costing - correct answer dr. raw materials
inventory, cr. form of payment
-don't assign the materials to any specific job at this point
entry to record labor costs incurred for job order costing - correct answer dr. factory labor, cr. factory
wages payable, and/or cr. employer payroll taxes payable
entry to record manufacturing overhead incurred for job order costing - correct answer dr.
manufacturing overhead, cr. utilities payable, prepaid insurance, accounts payable, accumulated
depreciation, or property taxes payable
job cost sheet - correct answer a form used to record the costs chargeable to a specific job and to
determine the total and unit cost of the completed job
-postings are made daily
materials requisition slip - correct answer authorization slip for issuing raw materials
-when raw materials goes to work in process
-indicates the quantity, type (indirect or direct), and account charged
entry to assign raw materials to a specific job for job order costing - correct answer dr. work in process
inventory, dr. manufacturing overhead (for indirect materials), and cr. raw materials inventory
time ticket - correct answer factory labor costs are assigned to jobs on the basis of these
-indicates the employee, the hours worked, the account and job to be charged, and total labor costs
entry to assign factory labor to a specific job for job order costing - correct answer dr. work in process
inventory, dr. manufacturing overhead (for indirect labor), cr. factory labor
predetermined overhead rate - correct answer = estimated annual overhead costs / expected annual
operating activity
entry to assign manufacturing overhead to a specific job through job order costing - correct answer dr.
work in process inventory, cr. manufacturing overhead (actual activity x rate)
entry to finish a job through job order costing - correct answer dr. finished goods inventory, cr. work in
process inventory
entry to record sale of finished goods for job order costing - correct answer dr. form of payment, cr. sales
revenue and dr. COGS, cr. finished good inventory
service contracts in process - correct answer account used by service companies in place of work in
process inventory
entry to record assignment of materials to project in a service company for job order costing - correct
answer dr. service contracts in process, dr. operating overhead (for indirect supplies), cr. supplies
entry to complete a project for service company for job order costing - correct answer dr. cost of
completed service contracts, cr. service contracts in process
advantages of job order costing - correct answer -more precise in assignments of costs to projects
-more useful information to determine profitability of project
-better for estimating costs on future jobs
disadvantages of job order costing - correct answer -significant amount of data entry
-time consuming
-data has to be entered exactly correct
under applied overhead - correct answer -manufacturing overhead has a debit balance
-overhead assigned to work in process is less than overhead incurred
-debit COGS
over applied overhead - correct answer -manufacturing overhead has a credit balance
-overhead assigned to work in process if greater than overhead incurred
-credit COGS
entry to fix under-applied overhead - correct answer dr. COGS, cr. manufacturing overhead (for the
difference)
Chapter 4 - correct answer
when is appropriate to use direct labor to assign manufacturing overhead to products? - correct answer
-direct labor is a significant part of the product costs
-a high correlation exists between direct labor and changes in the amount of overhead costs
activity based costing (ABC) - correct answer allocates overhead to multiple activity pools and assigns the
pools to production with cost drivers
activity - correct answer any event, action, transactions, or work sequence that incurs cost when
producing a product or incurring a cost
activity cost pool - correct answer a distinct type of activity
ex.) ordering materials or setting up machines
cost driver - correct answer any factor or activity that has a direct cause-effect relationship with the
resources consumed
ex.) machine hours, square feet, or number of products
activity based overhead rate - correct answer = estimated overhead per activity / expected use of cost
drivers per activity
what happens to costs of products as companies switch from traditional cost methods to ABC costing? -
correct answer costs move from high volume products to low volume products
-lower ones often cost more
3 primary benefits of ABC - correct answer 1. more accurate product costing
2. enhanced control over overhead costs
3. supports better management decisions
unit level activities - correct answer performed for each unit of production
ex.) machine related: drilling, cutting, pressing
labor related: assembling, sewing, painting
batch level activites - correct answer performed every time a company produces another batch of a
product
ex.) equipment setups, purchasing, inspection
product level activites - correct answer performed every time a company produces a new type of a
product
ex.) product design, engineering changes
facility level activities - correct answer activities required to support or sustain an entire production
process
ex.) plant depreciation, taxes, management salaries
value added activities - correct answer increase the worth of a product or service to customer
ex.) engineering design, machining, assembling
non value added activities - correct answer production or service related activities that simply add costs
to, or increase the time spent on, a product or service without increasing its market value
ex.) repair of machines, storage of inventory, moving of materials, inspection
-are not totally wasteful and can't all be eliminated
activity based management (ABM) - correct answer an extension of ABC from a product costing system
to a management function that focuses on reducing costs and improving processes and decision making
limitations of ABC - correct answer 1. more expensive
2. more complex
3. some arbitrary allocations remain
when to use ABC - correct answer 1. Product lines differ greatly in volume and manufacturing
complexity.
2. Product lines are numerous and diverse
3. Overhead costs are a significant portion of total costs.
4. The manufacturing process or the number of products has changed significantly
ex.) from labor-intensive to capital-intensive due to automation.
5. Production or marketing managers are ignoring data provided by the existing system and are instead
using "bootleg" costing data
Chapter 5 - correct answer
cost behavior analysis - correct answer the study of how costs respond to changes in the level of
businesses activity
activity index - correct answer identifies the activity that causes changes in the behavior of costs
-allows costs to be classified as variable, fixed, or mixed
-ex.) number of tablets produced
variable costs - correct answer vary in total directly and proportionately with changes in the activity level
-remains the same per unit at every level of activity
fixed costs - correct answer costs that remain the same regardless of changes in the activity level
-fixed costs per unit vary inversely with activity
relevant range - correct answer range over which a company expects to operate during a year
-straight-line relationship normally for fixed and variable costs
mixed cost - correct answer contain both variable and fixed cost elements
high low method - correct answer uses the total costs incurred at the highest and lowest levels of activity
to compute the change in total costs
-variable cost per unit = change in total costs / high minus low activity level
cost-volume-profit (CVP) analysis - correct answer study of the effects of changes in costs and volume on
a company's profits
-important for profit planning and management decisions
5 assumptions of CVP analysis - correct answer 1. behavior of costs and revenues is linear throughout
relevant range
2. costs are either variable or fixed
3. changes in activity are the only factors that affect costs
4. all units produced are sold
5. with more than one type of product, sales mix are constant
CVP income statement - correct answer -classifies costs as variable or fixed
-reports contribution margin
-internal use
contribution margin - correct answer amount of revenue remaining after deducting variable costs
=unit selling price - unit variable costs
contribution margin ratio - correct answer = unit contribution margin / unit selling price
net income CVP analysis formula - correct answer = required sales - variable costs - fixed costs = net
income
break even point in units - correct answer = fixed costs / unit contribution margin
break even point in dollars - correct answer = fixed costs / contribution margin ratio
required sales in units - correct answer = (fixed costs + target net income) / unit contribution margin
required sales in dollars - correct answer = (fixed costs + target net income) / contribution margin ratio
margin of safety in dollars - correct answer = total sales - break even sales
margin of safety ratio - correct answer = margin of safety in dollars / actual expected sales
Chapter 6 - correct answer
sales mix - correct answer relative percentage in which each product is sold when a company sells
multiple products
= units of specific product / all types of total units sold
weighted average unit contribution margin - correct answer = (unit contribution margin x sales mix
percentage) + (unit contribution margin x sales mix percentage) ...
break even point in units with multiple products - correct answer = fixed costs / weighted average unit
contribution margin
total contribution margin - correct answer = unit sales x unit contribution margin
weighted average contribution margin ratio - correct answer = (sales mix percentage x contribution
margin ratio) + (sales mix percentage x contribution margin ratio)
break even point in dollars with multiple products - correct answer = fixed costs / weighted average
contribution margin ratio
cost structure - correct answer relative proportion of fixed costs to variable costs
-can have a significant effect on profitability
operating leverage - correct answer extent to which a company's net income reacts to a given change in
sales
-when sales increase, want high so net income increase
degree of operating leverage - correct answer = total contribution margin / net income
-higher equals more volatile --> riskier
