FNEC-2600 Study Guide - Midterm Guide: Finished Good, Financial Statement, Management Accounting
15 May 2018
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FNEC 2600 – Test 1 Review
Multiple Choice Topics: (12 Questions, 36 Points)
1. Characteristics of Managerial & Financial Accounting
Financial Accounting
1. Adherence to GAAP & other regulatory agencies
2. Designed to meet the needs of external users
3. Objective information (reports past performance) that can be verified
4. Focuses on preparation of periodic financial statements
5. Reports contain only financial information
Management Accounting
1. Evolves from best practices
2. Designed to meet the needs of internal users
3. Objective & Subjective information (i.e. forecasts & budgetary information)
4. Focuses on the future
5. Reports contain financial and nonfinancial data
6. Broad (includes aspects of economics, engineering, & mgt. science)
2. Know what is included in the COGM and COGS and what each represents
To determine COGS, a manufacturer must first determine Cost of Goods Manufactured:
Cost of Goods Manufactured
Direct Materials Used *
$
Direct Labor Incurred
$
Overhead Applied **
+
$
Current Manufacturing Costs
$$
Beginning WIP Inv
+
$
Total Manufacturing Costs
$$
Less: Ending WIP Inv
-
$
COGM
SS
*Direct Materials Used = Beginning Materials Inventory
+ Purchases
– Ending Materials Inventory (never made their way to production process)
– Indirect Materials Used
**We will list the individual Overhead costs in our schedules: materials handling, supervision, supplies,
etc.
Once COGM is determined, then you can determine COGS:
Finished Goods Inv., Beginning of Period
+ Cost of Goods Manufactured
- Finished Goods Inv., End of Period
= Cost of Goods Sold
find more resources at oneclass.com
find more resources at oneclass.com
3. Understand the characteristics/behaviors of and be able to identify different
cost types
Product Costs – Costs incurred to create the finished product or service; accounted for as inventory costs (not
expensed until the product is sold)
1. Direct Materials (e.g. wood for the guitar)
a. must be an integral part of the product
b. significant portion of the total product cost
2. Direct Labor (e.g. assembly line worker’s wages)
a. must be an integral part of the product
b. significant portion of the total product cost
3. Manufacturing Overhead (All considered indirect)
a. Indirect Materials: e.g. glue & buffing compound
b. Indirect Labor: e.g. janitorial wages & plant mgr. salary
c. Other overhead (such as depreciation or utilities)
Period Costs – costs that are expensed as incurred.
1. Selling Costs: marketing, distribution, & service costs
2. Administrative Costs: research, development, & general admin. (e.g. accounting, legal, executives)
4. What causes under or over applied factory overhead?
Unlike other components of job costing, such as labor and material costs, manufacturing overhead is
estimated and allocated based on a predetermined overhead rate. Discrepancies occur because it is
difficult to forecast. Underapplied overhead may appear when the overhead rate is not accurate, the
initial estimate for a job was too low or if overhead spending wasn't monitored and controlled during
job completion.
At the end of the year, with the full benefit of hindsight, the company knows what its actual factory
overhead expenses have been. Say that amount comes out to $300,000. Since the company
charged off only $288,450, it has "underapplied overhead" of $11,550. If the actual overhead had
come to $270,000, the company would have charged off more than was necessary, and it would
have "overapplied overhead" of $18,450. Note that the preliminary estimate of overhead costs,
$250,000, doesn't factor in here. It was just used to set the estimated hourly rate.
Always do the T-account thing when it comes to overhead. What gets recoreded in factory
overhead? Property taxes, indirect materials, indirect labor. When you incur those, debit factory
overhead. You only credit it when you apply it because you’re moving it out of overhead and into
work in process. So it’s the difference between actual and the amount you apply. The only thing we
are using estimated data for is the rates. So when you have poor estimates, that’s what causes it to
be over/under applied. Which item causes it to be overapplied? Underapplied? What did you apply
vs. actual overhead costs?
5. How costs are recorded (i.e. journal entries) in a manufacturing setting
• stuff that starts with “factory” goes under manufacturing overhead in product costs
6. Differences between job order and process costing
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find more resources at oneclass.com
