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ACCTG 231 Chapter Notes - Chapter 1: Matching Principle, Opportunity Cost, Variable Cost

152 views6 pages
greenimpala586
3 Feb 2017
School
WSU
Department
Accounting
Course
ACCTG 231
Professor
A.Simonov

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Document Summary

A cost object is anything for which cost data are desired: for example, products, customers, jobs, and organizational subunits. Indirect costs: direct costs can be easily and conveniently traced to a speci c cost object. For example, salaries are a direct cost of an of ce: indirect costs cannot be easily traced. For example, a soup factory manager"s salary is an indirect cost of a speci c soup. Common costs are incurred to support a number of cost objects but cannot be traced to them individually. Generally, costs are recognized as expenses on the income statement in the period that bene ts from the cost. Product vs. period costs: product costs include all costs involved in acquiring or making a product. Direct materials + direct labor + manufacturing overhead. In manufactured goods: direct materials, direct labor, and manufacturing overhead. Attach to units of product as goods are purchased/manufactured and remain attached as goods go into inventory.

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Related Questions

Multiple Choice Questions

1. A cost center is a unit of a business that incurs costs butdoes not directly generate revenues. Which of the following woulddefinitely not be considered a cost center?
A. Accounting department.
B. Purchasing department.
C. Research department
D. Advertising department.
E. All of these could be considered cost centers.

2. A unit of a business that not only incurs costs, but alsogenerates revenues, is called a:
A. Performance center.
B. Profit center.
C. Cost center.
D. Responsibility center.
E. Expense center.

3. Regardless of the system used in departmental costanalysis:
A. Direct costs are allocated, indirect costs are not.
B. Indirect costs are allocated, direct costs are not.
C. Both direct and indirect costs are allocated.
D. Neither direct nor indirect costs are allocated.
E. Total departmental costs will always be the same.

4. An accounting system that provides information thatmanagement can use to evaluate the profitability and/or costeffectiveness of a department's activities is a:
A. Departmental accounting system.
B. Cost accounting system.
C. Service accounting system.
D. Revenue accounting system.
E. Standard accounting system.

5. Expenses that are easily traced and assigned to a specificdepartment because they are incurred for the sole benefit of thatdepartment are called:
A. Direct expenses.
B. Indirect expenses.
C. Controllable expenses.
D. Uncontrollable expenses.
E. Fixed expenses.

6. Costs that the manager has the power to determine or at leaststrongly influence are called:
A. Uncontrollable costs.
B. Controllable costs.
C. Joint costs.
D. Direct costs.
E. Indirect costs.

7. Responsibility account performance reports:
A. Become more detailed at higher levels of management.
B. Become less detailed at higher levels of management.
C. Are equally detailed at all levels of management.
D. Are useful in any format.
E. Are irrelevant.

8. Which of the following is an example of a performance measureof internal business processes which would be found in a balancedscorecard?
A. Product defect rates
B. Number of new customers
C. Employee satisfaction
D. Return on Investment
E. Sales growth

9. Which of the following is an example of a performance measureof the customer perspective which would be found in a balancedscorecard?
A. Product defect rates
B. Number of new customers
C. Employee satisfaction
D. Return on Investment
E. Sales growth

Multiple Choice Questions

1. A cost center is a unit of a business that incurs costs butdoes not directly generate revenues. Which of the following woulddefinitely not be considered a cost center?
A. Accounting department.
B. Purchasing department.
C. Research department
D. Advertising department.
E. All of these could be considered cost centers.

2. A unit of a business that not only incurs costs, but alsogenerates revenues, is called a:
A. Performance center.
B. Profit center.
C. Cost center.
D. Responsibility center.
E. Expense center.

3. Regardless of the system used in departmental costanalysis:
A. Direct costs are allocated, indirect costs are not.
B. Indirect costs are allocated, direct costs are not.
C. Both direct and indirect costs are allocated.
D. Neither direct nor indirect costs are allocated.
E. Total departmental costs will always be the same.

4. An accounting system that provides information thatmanagement can use to evaluate the profitability and/or costeffectiveness of a department's activities is a:
A. Departmental accounting system.
B. Cost accounting system.
C. Service accounting system.
D. Revenue accounting system.
E. Standard accounting system.

5. Expenses that are easily traced and assigned to a specificdepartment because they are incurred for the sole benefit of thatdepartment are called:
A. Direct expenses.
B. Indirect expenses.
C. Controllable expenses.
D. Uncontrollable expenses.
E. Fixed expenses.

6. Costs that the manager has the power to determine or at leaststrongly influence are called:
A. Uncontrollable costs.
B. Controllable costs.
C. Joint costs.
D. Direct costs.
E. Indirect costs.

7. Responsibility account performance reports:
A. Become more detailed at higher levels of management.
B. Become less detailed at higher levels of management.
C. Are equally detailed at all levels of management.
D. Are useful in any format.
E. Are irrelevant.

8. Which of the following is an example of a performance measureof internal business processes which would be found in a balancedscorecard?
A. Product defect rates
B. Number of new customers
C. Employee satisfaction
D. Return on Investment
E. Sales growth

9. Which of the following is an example of a performance measureof the customer perspective which would be found in a balancedscorecard?
A. Product defect rates
B. Number of new customers
C. Employee satisfaction
D. Return on Investment
E. Sales growth

When overhead costs are incurred they are recorded in an Accounttitled Manufacturing Overhead Control Account. The account isdebited for each overhead expense billed and an appropriate accountsuch as Cash or Accounts Payable is credited. Since overhead costscannot be traced directly to a cost object or to a Job, the totalannual overhead cost for the coming year are estimated at the endof the preceeding year and a formula is used to estimate the amountof overhead that should be charged to each job or product. Theamount charged to jobs or products is credited to the MOH accountand debited to the Work In Process Account. This estimated amountis a surrogate for the actual overhead costs that are incurredduring the year. At the end of the accounting period, the estimatedamounts charged to all jobs or products may be higher or lower thanthe actual overhead costs incurred during the year. This situationgives rise to the phenomenon of Under /Over applied overhead. Sinceoverhead expenses are just like ordinary expenses except for thefact that they are incorporated in the cost of product, then theMOH account is like any other temporary account and therefore itmust be closed at the end of the accounting period.

Applied overhead is calculated using the following formula:Predetermined Overhead Application Rate (POHAR) x Actualconsumption of the Activity Base. For example, if the POHAR is $10per direct labor hour consumed by a product and the productconsumes 5 direct labor hours, then Applied Overhead would be: 10 X5 = $50. Under/ Over applied overhead is calculated as: ActualOverhead costs - Applied Overhead. If Actual is greater thanapplied then Overhead is described as under applied and if theApplied is greater than Actual then it is described as overapplied.

Assignment: The estimated overhead costs of Abel Furniture were$2,200,000 and the estimated basis used for charging overhead toproduction is direct labor hours estimated at 500,000. The actualoverhead incurred during the year was $2,800,000 and the amountcharged to production was $2,400,000. Calculate the amount ofUnder/Over applied overhead and close the balance to Cost of Goodssold.