Decision Making

Question 1

product cost

Answer 1

direct material (DM) (physically included in final product)
direct labor (DL) (direct material from raw state to finished goods)
overhead (include indirect material and labor, payroll taxes, fringe benefit, manufacturing employees, rent, depre on assets, shop supplies, )

DM
DL
OH

Question 2

prime cost

Answer 2

direct material and direct labor

DM+DL

Question 3

conversion cost

Answer 3

direct labor and overhead

DL+OH

Question 4

product cost

Answer 4

manufacturing cost

normal spoilage

Question 5

period cost

Answer 5

non manufacturing cost

selling, general, and admin exp

marketing cost, freight out, rehandling cost

exp in period incurred

(abnormal spoilage)

EXCLUDED from product cost

Question 6

relevant cost

Answer 6

anticipated future cost that differs among alt. plans

Question 7

avoidable cost

Answer 7

cost that will not be incurred if planned act. is changed or discontinued.

Question 8

marginal cost

Answer 8

add. cost incurred owing to one more output unit

Question 9

overhead cost

Answer 9

estimated OH cost/estimated DL $/hrs

Question 10

cost of sales for MERCHANDISING company

one that purchases from outsiders the products that it sells

Answer 10

beg inventory
\+purchases
=goods avail for sale
-end inventory
= cogs

Question 11

direct material used:

Answer 11

beg DM inventory
+ DM purchased
-end DM inventory
=DM used

Question 12

cost of goods manufactured:

Answer 12

DM used
\+DL
\+OH
=cost added to production
\+beg WIP inventory
-end WIP inventory
=COGmanufactured

Question 13

cost of goods sold

Answer 13

beg finished goods
\+cost of goods manufactured
=cost of goods avail for sale
-ending finished goods
=cost of sales

Question 14

cost of job
aka manufacturing cost
aka product cost
aka inventoriable cost

Answer 14

=
DM
+DL
+MOH

Question 15

actual MOH incurred

Answer 15

includes indirect materials

Question 16

fixed overhead application rate is equal to

Answer 16

expected fixed costs divided by expected volume

Question 17

break even sales

Answer 17

=fixed cost/contribution margin ratio

Question 18

margin of safety

Answer 18

=total sales-break even

Question 19

MOH

Answer 19

includes all cost besides DL and DM

Question 20

normal spoilage

Answer 20

included in DM

Question 21

abnormal spoilage

Answer 21

included in period cost.

Question 22

under variable or direct costing

Answer 22

all fixed costs as well as all selling, general, and administrative costs are recognized as expense as incurred (period cost)

The variable costing method is used for internal or managerial purposes and is not permissible under GAAP.

costs of production are immediately expensed. Since variable costing recognizes expenses that would otherwise be capitalized, net income is lower under variable costing than under absorption costing

Question 23

under absorption costing

Answer 23

fixed manufacturing overhead is included in inventory rather than expense, increasing income in that period

GAAP are required for external reporting purposes and require use of the absorption costing method

costs of production are added to inventory and expensed only when the inventory is sold

Since absorption costing recognizes previously inventoried expenses that variable costing does not recognize, net income is higher under absorption costing

Question 24

variable cost

Answer 24

break even - fixed cost

=DM+DL+VOH

Question 25

predetermined variable factory overhead application rate

Answer 25

Estimated variable factory overhead/Estimated machine hours

Question 26

special order, whats lowest price to accept

Answer 26

variable cost + opportunity cost of next best option

the variable cost of each unit plus the opportunity cost of forgoing the alternative use of production capacity.

Question 27

gross profit

Answer 27

sales - COGS

Question 28

Return on Sales

Answer 28

(Amount of Sales) - (Variable Costs) - (Fixed Costs)

Question 29

selling price

Answer 29

cost + desired margin

Question 30

contribution margin ratio

Answer 30

(sale - variable cost)/sale

Question 31

which product to sell

Answer 31

one that creates highest contribution margin ratio

(sale-variable cost)/sale

Question 32

COGS =

Answer 32

DM + conversion cost