Vocabulary
A cost that remains constant, in total, regardless of the changes in the level of activity within the relevant range
What is a fixed cost?
The wages of a factory worker
What is direct labor (or product cost)?
Which income statement (traditional or contribution) is used for CVP (cost-volume-profit) and other cost behavior analysis?
Contribution approach income statement
Units of product that have been completed but not yet sold to customers
What is finished goods?
The wages of the company's accountant
What is administrative expense (or period cost)?
What is the formula to calculate the predetermined overhead rate?
Estimated manufacturing overhead costs / Estimated total units in allocation base = Predetermined overhead rate
What is the difference between the flow of product costs and period costs?
Product costs flow through inventory accounts on the balance sheet until sold. Period costs are expensed right away on the income statement.
What is the conversion cost?
Direct labor + Manufacturing Overhead
Depreciation of factory equipment
What is manufacturing overhead?
What is the contribution margin if: sales is 300k, variable COGS is 180k, variable selling & admin is 40k and fixed selling and admin is 25k
CM = 300k - 180k - 40k = 80k
What would the journal entry be for 50k of direct labor and 12k of indirect labor?
Dr. Work in Process 50k
Dr. Manufacturing Overhead 12k
Cr. Salaries & Wages Payable 62k
The excess of budgeted or actual dollar sales over the break-even dollar sales
What is margin of safety?
In a job-order costing system, indirect materials are usually recorded as debit to
What is manufacturing overhead?
What is the gross margin if: sales is 300k, variable COGS is 180k, variable selling & admin is 40k and fixed selling and admin is 25k
Gross margin = 120k
What is the difference between cost of goods manufactured, finished goods, and cost of goods sold?
COGM - units of product completed during the period
Finished goods - units of product completed but not yet sold to customers
COGS - units of product sold to customers during the period
A costing system that applies overhead to a job by multiplying a predetermined overhead rate by the actual amount of allocation base used by the job
What is the opportunity cost: A manufacturing company is considering whether to continue producing a component part in-house or to outsource its production to an external supplier. Currently, the company uses a section of its factory floor and several employees to produce the component. If the company outsources production, it can use the freed-up factory space to expand its high-demand product line, which is expected to generate an additional $50,000 in profit annually.
The $50,000 additional profit from expanding the high-demand product line
If sales are currently $750 and the contribution margin is $225 and sales are expected to increase by $100, but all other cost behavior patterns remain the same, how much (what $ amount) would net operating income increase by?
Increase in operating income = increase in sales x CM ratio
increase in NOI = 100 * 0.3 = $30
Assume that a company is closing out their manufacturing overhead account at the end of the year. If the MOH is overapplied, what would the journal entry be? And what's the impact on net income?
A debit to the MOH account and a credit to the COGS sold. And net income would increase as a result of the over application and the credit to COGS.