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USC / Accounting / ACCT 226 / How to calculate by looking at a list of accounts with balances and de

How to calculate by looking at a list of accounts with balances and de

How to calculate by looking at a list of accounts with balances and de

Description

School: University of South Carolina
Department: Accounting
Course: Introduction to Managerial Accounting
Professor: Debbie brumbaugh
Term: Fall 2016
Tags: Accounting, Managerial, acct226, and ACCT
Cost: 50
Name: Acct 226 Exam 1 Study Guide
Description: This study guide covers the important definitions and everything needed to review for the first exam.
Uploaded: 09/12/2016
5 Pages 45 Views 2 Unlocks
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ACCT 226 Test 1 Study Guide


How to calculate by looking at a list of accounts with balances and determining the total amount of?



Understand not only the definition but how to calculate by looking at a list of  accounts with balances and determining the total amount of…

∙ Prime costs = Direct Materials + Direct Labor … be able to identify examples of  each

o Direct materials: the materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished  product

 Ex: seats the airbus purchases from subcontractors to install in its  aircraft, electronic components Apple uses in its iPhones

o Direct Labor: labor costs that can be easily traced to individual units of  product If you want to learn more check out What programs did johnson create to fight poverty?

 Ex: assembly-line workers, carpenters, and electricians

o Prime costs: the direct cost of a commodity in terms of the materials and  labor involved in its production, excluding fixed costs


How to record the journal entry for the cost flow when you have two department?



∙ Conversion costs = Direct Labor + Manufacturing Overhead … be able to identify examples of each

o Manufacturing overhead: includes all manufacturing costs except direct  materials and direct labor

 Ex: indirect materials, indirect labor, maintenance/repairs on  production equipment, heat and light, property taxes, depreciation,  insurance on manufacturing facilities

o Conversion costs: the amount of direct labor and overhead costs that are  required to turn raw materials into an actual product

∙ Total Manufacturing Costs = Direct Materials + Direct Labor + Manufactured  Overhead Don't forget about the age old question of What do i look for to tell if something is alive?
Don't forget about the age old question of What is the data base?
Don't forget about the age old question of How genetic and environmental influences come together to create an organism’s physical appearance and behavior?

∙ Total Non-Manufacturing Costs = Selling + General & Administrative Expenses o Selling Costs: all costs that are incurred to secure customer orders and get the finished product to the customer


How to calculate equivalent units?



We also discuss several other topics like Who is martin luther and what did he do?

 Ex: advertising, shipping, sales travel, sales commissions, sales  salaries, cost of finished goods warehouses

o Administrative costs: all costs associated with the general management of an organization rather than with manufacturing or selling

 Ex: Executive compensation, general accounting, secretarial, public  relations

∙ Product Costs = Total Manufacturing Costs

o Product Costs: all costs involved in acquiring or making a product ∙ Period Costs = Total Non-Manufacturing Costs

o Period Costs: all costs that are not product costs

 Ex: sales commissions, advertising, executive salaries, public  relations, rental costs of administrative offices

∙ Total Costs = Fixed Costs + (Variable Cost Rate per unit * # units) o Fixed costs: cost that remains constant, in total, regardless of changes in  the level of activity We also discuss several other topics like What are the cyclades and what was their importance in ancient greek culture?

o Variable cost: varies, in total, in direct proportion to changes in the level of activity

 Ex: cost of goods sold, direct materials, direct labor, commissions,  shipping costs

ACCT 226 Test 1 Study Guide

∙ Y = a + bX formula for a line … use to solve for Total Fixed Costs or for  Variable Costs…where

 Y = total costs;  

 a = total fixed costs;  

 b = variable cost rate  

 X = number of units

∙ Variable Cost Rate = change in Y/change in X  

∙ High Low Method to separate a mixed cost into fixed and variable costs  amounts…know how to calculate…limitation on use…only uses 2 points o Based on the rise over run formula for the slope of a straight line o If the relation between cot and activity can be represented by a straight  line

o Slope of the straight line=variable cost per unit of activity

o Mixed Costs

o Variable cost is estimated by dividing the difference in cost between the  high and low levels of activity by the change in activity between those  points

∙ Manufacturing Overhead … consists of indirect labor; indirect materials; and  general overhead expenses like depreciation on factory equipment or wages of  maintenance employees, etc…understand that Manufacturing Overhead consists of FACTORY costs but not Direct Material and not Direct Labor…

∙ Cost Behaviors within the Relevant Range

o Fixed costs remain the same in total…regardless of the number of units  produced or the activity level

o Average Fixed costs per unit decrease as number of units produced  increase…or as the activity level increases

o Average Fixed costs per unit increase as number of units produced  decrease

o Variable costs remain the same per unit

o Total Variable Costs increase proportionately as number of units increase o Be able to calculate Total Costs = Fixed Costs + Variable Costs o Be able to use a table and identify at varying levels of activity … that

 Fixed Costs in Total stay the same for varying levels of production  Variable Costs have the same variable cost rate per unit  

o Be able to provide or identify examples of Variable Cost items…like direct  materials; direct labor; any other expenses that will stay the same per unit but vary in total because level of production varies

o Be able to provide or identify examples of Fixed Costs items…like Rent on  the Factory; or Advertising expenses….Salaries of Executives, etc… o Be able to identify items considered as Manufacturing Overhead costs ∙ Contribution Margin = Sales Revenue – Variable Expenses

o Contribution Margin: amount remaining from sales revenues after variable  expenses have been deducted

 This amount contributes toward covering fixed expenses and then  toward profits for the period

∙ Over applied OH: amount applied to job exceeds actual overhead expenses  incurred

ACCT 226 Test 1 Study Guide

∙ Under applied OH: amount applied to job is less than actual overhead expenses  incurred

∙ Know two approved methods of allocated any over or under applied amounts  when they occur

o Can be allocated in total to Cost of Goods Sold….

 debit Cost of Goods Sold if under applied; credit Manufacturing OH  credit Cost of Goods Sold if over applied; debit Manufacturing OH o Can be allocated between the 3 accounts where OH was applied…those 3  are WIP; Finished Goods; and COGS

∙ Traditional Income Statement

 Sales Revenue

- Cost of Goods Sold

= Gross Margin

- Selling & General and Administrative Expenses

- = Net Income from Operations

∙ Contribution Format of Income Statement:

Sales Revenue

- Variable Expense

= Contribution Margin

- Fixed Expenses

= Net Income from Operations

∙ Predetermined Overhead Rate (POHR) = Estimated Manufacturing Overhead  Costs 

 Estimated Activity Base o First estimate the total amount of the allocation base that will be required  for next period’s estimated level of production

o Then estimate the total fixed manufacturing overhead cost for the coming  period and the variable manufacturing overhead cost per unit of the  allocation base

o Then use the cost formula (Y= a + bx) to estimate the total manufacturing overhead cost for the coming period

o Then compute the POHR

∙ Understand the types of Activity Bases that can be used when calculating  POHR….Direct Labor Hours; Machine Hours; Direct Labor $’s; Cost of Raw  Materials in production….whatever base activity selected for use in the POHR …  you must apply the POHR to that number for the job you are costing

ACCT 226 Test 1 Study Guide

∙ Journal Entries to record

o Applying Overhead

 Answer: Debit WIP

 Credit MOH

o Purchase of Raw Materials

 Answer: Debit Raw Materials

 Credit Accounts Payable (if on  account…Cash if paid)

o Issuing Raw Materials to production areas

 Answer: Debit WIP

 Credit Raw Materials

o Direct Labor and Indirect Labor

 Answer: Debit WIP (for Direct Labor)

 Debit MOH (for Indirect Labor)

 Credit Salaries or Wages Payable (if  accrued…Cash if Paid)

o Transfer of Goods from WIP to Finished Goods

Answer: Debit Finished Goods

 Credit WIP

o Record Cost of Goods Sold  

Answer: Debit Cost of Goods Sold

 Credit Finished Goods

Note: There is usually a second entry … if asked to record the Sale  Debit Accounts Receivable (if sold on  

account…or Cash)

 Credit Sales  

∙ Be able to calculate POHR…

o from a list of accounts and balances when given the activity base to use… o must know the types of account balances to include in the Estimated Total Manufacturing Overhead Costs…

o you include only those accounts that are Overhead…so you do not include Direct Materials nor do you include the Direct Labor…nor do you include  Selling & Administrative Expenses…

o you include only FACTORY costs that are NOT direct materials and NOT  direct labor

∙ Process Costing…using Weighted Average method only

o Understand how to record the journal entry for the cost flow when you  have two departments

Debit WIP Department A

Debit WIP Department B

 Credit Raw Materials  

Or….when applying overhead

ACCT 226 Test 1 Study Guide

Debit WIP Department A

Debit WIP Department B

 Credit Manufacturing Overhead

o The units completed and transferred out of Department A during a  month will become the units started in production for Department B  during that same month

o When the weighted-average method of process costing is used, a  department's equivalent units are computed by adding the units  transferred out to the equivalent units in ending inventory.

o Units completed and transferred out = Units in beginning work in  process inventory + Units started into production or transferred in -  Units in ending work in process inventory

o Understand how to calculate equivalent units

o Equivalent Units: the product of the number of partially  

completed units and the percentage completion of those units  with respect to the processing in the department

o Equivalent Units = number of partially completed units x  

percentage completion

o Equivalent Units of Production= # of units transferred to the  next department + the equivalent units in the department’s  

ending work in process inventory

o Understand how to reconcile the Costs to be Accounted For to the  Costs Accounted For

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