ACC 406 Lecture Notes - Lecture 2: Gross Margin, Income Statement, Finished Good

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raspberryfish809

7 Mar 2016

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Cost: the amount of cash or cash equivalent that you pay to get a good or service. As cost are used to produce revenues they are said to expire. Cost objects: items for which costs are measured and assignment. Mixed: part ixed, part variable (didn"t start from zero, started at another point then increased) Direct: traceable ex) how much cost went into a product being sure that it is accurate. Indirect: non-traceable, it"s not clear where the cost came from. There is a secondary way to allocate the cost to the product. Hard to put a price on small things that are used parially. Product cost classiicaions: direct materials, direct labor, producion overhead. All product costs other than direct materials or direct labour. Total product cost= direct materials +direct labour+ manufacturing overhead. Unit product cost=total product cost/ no. of units produced. Prime cost = direct material + direct labour. In order to convert labour into a inished good.

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1. A cost pool is :

A. a collection of homogeneous cost to be assigned.

B. almost always the combined result of decision made bydifferent responsibility center manager.

C. The primary function of a responsibility accountingsystem.

D. the amount of cost that has been allocated say, 10% to a userdepartment.

E. The tool used to allocate cost dollars to userdepartments.

2.Variable costs are those costs that:

A. vary (in total ) inversely with changes in activity.

B. vary (in totals) directly with in activity.

C. remain constant (in total) as activity changes.

D. Decrease on a per unit basis as activity increase.

E. Increase on a per unit basis as activity increases.

3. When comparing EOQ and JIT inventory system, which of thefollowing statement is false?

A. The EOQ approach takes the viewpoint that some inventory isnecessary.

B. The EOQ system assumes a constant order quantity.

C. JIT argues that inventory investments should beminimized.

D. The EOQ system focuse on acquistion and holding costs.

E. JIT argues that safety stocks are necessary to reduce theprobability of a stock shortage.

4. Procust costing in manufacturing firm is the process of:

A. Accumulating the company 's period costs

B. Allocating costs among the firm departments.

C. Placing a value on the company's fixed assets.

D. Assigning cost to the firm's inventory.

E. Assinging costs to the comapny's managers.

5.Decentralized firms can delegate authority by structuring anorganization into responsibility centers. Which of the followingorganizational segments is most like a totally independent,standalone business where managers are expected to "make it on theown?

A. Cost center

B. Revenue Center

C. Profit Center

D. Investment center

E. Contribution center

6. Costs that are expensed when incurred are called:

A. Product costs

B. Direct Costs

C. Inventoriable Cost

D. Period Cost

E. Indirect costs

7. A budget serves as a benchmark against which:

A. Actual result can be compared

B. Allocated results can be compared

C. actual result be inconsequential

D. Alloated results become inconsequential.

E. Cash balances can be compared to expense totals.

8. Activity based costing system.

A. use a single volume based cost driver.

B. Assign overhead to product based on the products' relativeusage of direct labor.

C. often reveal products that were under or over costed bytraditional costing.

D. Typically use fewer cost driver than more traditional costingsystem.

E . Have a tendency to distort product costs/

9.The point in a joint production process where each individualproduct becomes separately identifiable is commonly called the:

A. Decision point

B. Separation point

C. Individual product point

D. Split-off point

E. Joint product point.

10.The RIO calculation will indicate:

A. the percentage of each sale dollar that is invested inassets.

B. The sale dollars generated from each dollar of income.

C.How effectively a company used its invested capital

D. the invested capital generated from each dollar of income

E. the overall quality of the company's earnings.

burgundyrhinoceros92

1. (TCO 3) The Mixing Department is the thirddepartment in the MZS Inc. factory. During January, there were4,000 units of beginning inventory in the Mixing Department, and80,000 units were transferred in from the prior process. There were8,000 units in ending inventory. The transferred-in cost in thebeginning inventory was $170,000 and there was $600,000 intransferred-in cost during the month.

What is the cost per equivalent unit for transferred-incost? (Points : 25)

Question 2. 2. (TCO 4) Assume that we aremanufacturing a product and assume that the sales price per unit is$80, the variable cost is $20 per unit, and the fixed cost is$90,000; a) how many units would we need to sell to break even? b)How many units would we need to sell to earn a profit of $120,000?c) How many units do we need to sell to double that profit to$240,000? D) Why didn't the number of units double from Part B toPart C? (Points : 25)

Question 3. 3. (TCO 5) Sivan Co. manufacturesand sells one product. For the year, they started with no openinginventory; produced 100,000 units, but only sold 70,000 units. Theselling price per each unit is $60.

The variable costs per unit were:
Direct materials.........................7
Direct Labor .............................6
Variable manufacturing overhead ....5
Variable selling and administrativeâ¦6
Fixed costs per year:
Fixed manufacturing Overhead ................$700,000
Fixed Selling and Administrative expenses.. $300,000

(a) Prepare the Income Statement using Absorption Costing.
(b) Prepare the Income Statement using Variable Costing. (Points :25)

Question 4. 4. (TCO 6) At Long Co., electricitycost starts with a minimum fixed cost, and after that, there is aperfectly variable expense. Using estimated machine hours:

Machine hours Cost
50,000 $98,000
60,000 $112,000

What is the a) estimated variable cost per machine hour and what isthe b) estimated TOTAL fixed cost? (Points : 25)

Question 5. 5. (TCO 7) North Company produces asmall part that it uses in the production of its Product H. Thecompany's unit product cost for the part, based on a production of100,000 parts per year, is as follows:
.................................................Per part....................Total
Direct Materials............................$7.00...........$700,000
Direct Labor..................................6.00............$600,000
Variable Manufacturing Overhead 2.00...........$200,000
Plus:
Fixed manufacturing Overhead, (Traceable or avoidable) $400,000TOTAL, equal to $4 per unit
Fixed manufacturing Overhead,( Common---not traceable to anyproduct. Will stay even if no product is manufactured) allocated onbasis of labor-hours 5.00) $500,000Total

Unit Product Cost........................... $24.00 (7+ 6+ 2,variable of $15. Plus Fixed 4+ 5=9, total)

An outside supplier has offered to supply parts to the NorthCompany for only $21.25 per part.(it appears to the President ofthe company that he could save $2.75 per unit.
100 percent of the traceable or avoidable fixed manufacturing costis supervisor salaries and other costs that can be ELIMINATED ifthe parts are purchased. The decision to buy the parts from theoutside supplier would have no effect on the common fixed costs ofthe company, and the space being used to produce the parts wouldotherwise be idle. Ignore the impact of income taxes in yourcalculation.
How much would profits increase or decrease as a result ofpurchasing the parts from the
outside supplier rather than making them inside the company?(Points : 25)

Question 6. 6. (TCO 9) (TCO 9) Harry Corp buysequipment for $224,888 that will last for 9 years. The equipmentwill generate cash flows of $36,000 per year and will have nosalvage value at the end of its life. Ignore taxes. Use 10%required rate of return.

(a) What is the Present Value (PV) of this investment (at10%)?.

(b) What is the NET Present Value (NPV) of this investment? If youneed 10%, should you buy the equipment?

(c) What is the Internal Rate of Return (IRR) of thisinvestment?
(d) What is the payback period? . (Points : 25)

Question 7. 7. (TCO 10) Tanya Corp sells itsproducts on both credit and cash basis. Monthly sales are sold 20%for cash, 80% for credit. Credit sales are collected 65% in themonth of sale and 35% the following month. Salesfor the first quarter are BUDGETED as follows: January $200,000;February $300,000; March $300,000.

Compute cash collections Budgeted for February.How much cash was collected in the month? (Points: 25)

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ACC 406 Lecture Notes - Lecture 2: Gross Margin, Income Statement, Finished Good

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