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Conceptual
Chapter 1
Chapter 2
Chapter 2 (part 2)
Chapter 5
100

What are the 3 purposes of managerial accounting?

Planning, controlling, decision-making

100

What is the difference between direct and indirect costs? Give an example.

Direct costs are costs that can be easily and conveniently traced back to a specific cost object, whereas indirect costs cannot. An example of a direct cost is the cost of the sugar that goes into making one cupcake (assuming that the cupcake is the cost object), and an example of an indirect cost is the bakery manager’s salary.

100

How is predetermined overhead rate calculated?

By adding together all estimated manufacturing overhead costs and dividing by the estimated amount of a specific cost driver.

100

If manufacturing overhead is overapplied, what is the total effect on net income?

Net income decreases because COGS is higher than it should be

100

Describe the difference between job order and process costing, and when each would be used.

In job order costing, manufacturing overhead costs for each product is accumulated and divided by the main cost driver. In process costing, equivalent units of products must be calculated. Job-order costing is used when most of the products that the company makes are unique (ex, film studio), and process costing is used when a company makes mass produced products (ex, chips company). Most companies use a mix of the two.

200

Name 3 differences between managerial and financial accounting.

  • Users – managerial is for internal use and financial is for external use.
  • Rules – managerial has no rules, financial is governed by GAAP
  • Time – managerial projects the future, financial looks at the past
  • Verifiability vs usefulness – managerial focuses more on usefulness, financial focuses more on verifiability
  • Relevance vs timeliness – managerial focuses more on relevance, financial focuses more on timeliness
200

What is included in product costs, and what is the difference between product and period costs?

Product costs are (mainly) consisted of direct material, direct labor, and manufacturing overhead. These are also known as manufacturing costs. Period costs generally consist of selling, general, and administrative (SG&A) costs, and the difference between the two is how they are expensed. Product costs start on the balance sheet as inventory (raw materials -> WIP -> finished goods, depending on what stage of production they’re in), and are expensed on the income statement as cost of goods sold once the product is sold. Period costs are expensed straight to the income statement as an expense in the period the cost is incurred.

200

How is applied overhead calculated?

Applied overhead is calculated by multiplying the PDOHR (calculating using estimates) by the actual amount of a specified cost driver.

200

Your company estimates $150,000 of total manufacturing overhead for an estimated activity level of 13,000 direct labor hours. The company actually incurred $115,000 of manufacturing overhead and 11,000 direct labor-hours during the period. Determine the amount of underapplied or overapplied manufacturing overhead for the period and how it affects the company's gross margin.

Underapplied OH = $11,500

  • PDOHR 150,000 / 13,000 = $11.5
  • Applied OH = 11.5 * 11,000 = 126,500
  • Underapplied OH = 126,500 – 115,000 = 11,500

  • Underapplied overhead increases the company’s gross margin, because COGS is less than it should be. The extra $11,500 is sitting in finished goods inventory.
200

The beginning WIP on March 1 has 5,000 units. During March, 12,000 units are started. On March 31, 3,000 units remain in ending WIP. Calculate the number of units completed and transferred out during March.

  • Beginning wip + started = ending wip + completed and transferred
  • 5,000 + 12,000 = 3,000 + x; x = 14,000
300

What is the purpose of the job cost sheet in a job-order costing system?

To record the costs for a job so that we can determine appropriate sales price

300

How do variable and fixed costs behave as production increases on a per unit AND total level? Give an example.

  • Variable costs – as production increases, total variable costs increase but per unit variable costs stay the same. For example, let’s say I want to increase production from 100 to 200 cupcakes and each cupcake costs me $3 to make. Whether I make 100 or 200 cupcakes, each cupcake will still cost me $3, that cost doesn’t change. But my total variable costs increase from $300 ($3 x 100) to $600 ($3 x 200).
  • Fixed costs – as production increases, total fixed costs stay the same but per unit fixed costs decrease. If I pay my bakery manager $100,000, I pay him that same amount of money regardless of if I make 100 or 200 cupcakes. But if I make 100 cupcakes, each cupcake has $1000 of fixed cost allocated to it (100,000 / 100), whereas if I make 200 cupcakes, each cupcake only has $500 of fixed cost allocated to it.
300

A company computes its plantwide PDOHR annually based on the rate of machine hours. At the beginning of the year, they estimate that 35,000 machine hours and 43,000 direct labor hours are required. Additionally, they estimate $78,000 of fixed MOH cost as well as $3.5 per machine hour. Their actual MOH cost for the year was $210,000, actual machine hours were 37,714, and actual DL hours were 45,000. Calculate the PDOHR.

  • Estimated MOH = 78,000 + (3.5*35,000) = $200,500
  • Estimated cost driver = 35,000
  • PDOHR = $5.73
300

Your company estimates $720,000 of total manufacturing overhead for an estimated activity level of 50,000 direct labor hours. The company actually incurred $815,000 of manufacturing overhead and 55,000 direct labor-hours during the period. Calculate the amount of over/underapplied overhead

Overapplied OH = $72,000

  • 720,000 / 50,000 = 14.4
  • 14.4 * 55,000 = 792,000
  • overapplied OH = 815,000 – 792,000 = 23,000
300

300: During the month, 15,000 units were completed and transferred out. The following information about the ending WIP inventory has been given:


Direct Materials:           2,000 units 60% complete

Conversion:                       1,500 units 80% complete


Calculate the total amount of equivalent units.

Total = 32,400

  • Materials: (15,000 * 100%) + (2,000 * 60%) = 16,200
  • Conversion: (15,000 * 100%) + (1,500 * 80%) = 16,200
400

Assume the cost driver is direct labor. What are 2 reasons why overhead might be overapplied in a given year?

Cost of labor was more than we expected, we needed more labor than we expected, etc.

400
  • A company reported the following per unit costs and expenses for the month after selling 1,500 units:

DM - $17

DL - $13

Total MOH - $22

                  Variable - $15

                  Fixed - $17

Total Selling - $14

                  Variable - $6

                  Fixed - $8

Total Administrative - $10

                  Variable - $7

                  Fixed - $3

What is the total fixed cost per unit sold if the company increases production to 2,000 units?

  • Total fixed cost per unit @ 2,000 units = $21
  • First calculate the total amount of fixed costs. Since the information given to us is the per unit costs when 1,500 units are made, multiply all the costs by 1,500. 17 + 8 + 3 = $28 * 1,500 = 42,000.
  • Now divide by 2,000 to get the per unit cost at 2,000 units. 42,000 / 2,000 = 421
400

A company computes its plantwide PDOHR annually based on the rate of DL hours. At the beginning of the year, they estimate that 75,000 DL hours are required. Additionally, they estimate $560,000 of fixed MOH cost as well as $1.5 per DL hour. Their actual MOH cost for the year was $680,000, and actual DL hours were 80,000. During the year, the following job was completed:

DM - $15,000

DL - $28,000

DL hours worked – 300

Calculate the total cost of the job.

PDOHR = (560,000 + 1.5 (75,000) / 75,000 = $9

Cost of the job:

  • DM - $15,000
  • DL = $28,000
  • MOH = 9 * 280 = 2,520
  • Total = $45,520
400

The beginning WIP on April 1 has 4,000 units. During April, 14,500 units are started. The following information has been given about costs incurred:

                                                                                                    Materials                              Conversion

Beginning WIP: $5,000                            $4,000

Added during month:  $65,000                  $36,000

Additionally, the ending WIP inventory has 2,000 units. The following information has been given:

Direct Materials:           70% complete

Conversion:                  75% complete

Calculate the total amount of equivalent units.

  • Units completed = 16,500
  • EU; Materials – (16,500 * 100%) + (2,000 * 70%) = 17,900. Conversion - (16,500 * 100%) + (2,000 * 75%) = 18,000
  • Total = 25,900
500

Draw a contribution margin and traditional income statements, and explain the difference between the two.

  • CM format:
  • Sales
  • Less Variable expenses
  • Contribution Margin
  • Less fixed expenses
  • NOI
  • Traditional format:
  • Sales
  • Less COGS (product costs)
  • Gross margin
  • Less SG&A (period costs)
  • Net income
  • CM format focuses on cost behavior (fixed vs variable) whereas the traditional format focuses on cost function (product vs period)
500

The following information is reported based on 2,000 units sold:

Sales - $400,000

Direct materials - $50,000

Direct labor – $75,000

Fixed MOH – $20,000

Variable MOH - $30,000

Fixed advertising expense - $35,000

Fixed administrative expense - $15,000

Variable sales commission - $15,000

Variable administrative expense - $45,000

Prepare a contribution margin income statement.

Sales - $400,000

Less Variable Expenses - $215,000

                  DM + DL + VMOH + Variable sales + variable admin

Gross Margin - $185,000

Less Fixed Expenses - $70,000

                  FMOH + Fixed advertising + fixed admin

Net Income - $115,000

500

See the problem on the answer sheet.

  • Plantwide PDOHR = total estimated MOH / total estimated DL hours = 700,000 / 54,000 = 12.96
  • Applied OH = PDOHR * actual cost driver = 12.96 * 22 = $285
500

Calculate the cost per equivalent unit and perform a cost reconciliation.


  • 7000 + 33500 = x + 5800; x = 34,700
  • EU; Materials: (34700 * 100%) + (5800 * 65%) = 38,470. Conversion: (34700 * 100%) + (5800 * 55%) = 37,890