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Acct 2102 Exam 2 Study Guide

by: Penelope Young

Acct 2102 Exam 2 Study Guide ACCT 2102

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Georgia State University: Spring 2016 Acct 2102 Exam 2 Study Guide
Kathleen S. Partridge (P)
Study Guide
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This 15 page Study Guide was uploaded by Penelope Young on Friday March 25, 2016. The Study Guide belongs to ACCT 2102 at Georgia State University taught by Kathleen S. Partridge (P) in Fall 2015. Since its upload, it has received 75 views. For similar materials see PRIN OF ACCT II in Accounting at Georgia State University.


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Date Created: 03/25/16
Chapter 4: 1.  Determine which items qualify as direct material, direct labor, indirect material, indirect labor and other manufacturing overhead.  Direct Material   Materials that can be physically and conveniently traced directly to the  manufacture of the product  Raw Material (fabric) o Can see the fabric on the item produced  o Directly connect to item  Direct Labor  Labor that can be physically traced to the production of the product in a “hands  on” sense (production line)  Includes wages, taxes and benefits  Work of all the workers that are actually putting the product together o Ex) All ppl cutting out patter and sewing the item    More automation   direct labor drops  Have seen a drop in importance due to automation  o Fewer worker building the product, increase in cost of item with  automation o Indirect Material & Indirect Labor   Manufacturing overhead  All costs that are not direct material or direct labor  Costs related to running the factory and providing productive capacity   Ability to produce product  Ex) building cost or cost of machinery   EX) book produced? o How much glue used to produce book, can’t calculate  incorrect material   Indirect labor involved in production process but don’t actually touch the  products (security guards, machinery mantainece people) includes the supplies  used in supporting the production process, which may or may not be part of the  final product Other Manufacturing Overhead rent, electricity, everything else  2.  Calculate materials purchased during an accounting period.  Direct material + Direct Labor + Overhead BB + CA [cost added] – CR [cost removed] = Ending Balance 3.  Complete inventory reconciliation.     Ppt 12 *calculate purchases  4.  Understand and distinguish between the concepts of period costs and product costs.  Period Cost  Associated with the passage of time, not the direct production of products  Cost incurred just because company exist   Non­inventorial  Selling, general and administrative (SG &A)  Any cost that is not product cost (nothing to deal with product) Product Cost  Direct material, direct labor and manufacturing overhead   All cost incurred in producing a product  Inventorial­ included in inventory on balance sheet  Expensed on income statements as COGs when unites are sold   Any cost (direct material, direct labor and manufacturing overhead) that a  company incurs to acquire raw materials and converts them to finished goods  ready for sale 5.  Calculate the predetermined overhead rate based on given facts.   Predetermined Overhead Rate  o “POR”  A “standard” rate based on estimated activity used to assign or  “apply” overhead to products Estimate the activity level for the coming year Estimate the total amount of overhead for the planned production level  Divide estimated overhead by estimated activity level  EX) Assume that the Davis Company expects to incur total manufacturing overhead of  $600,000 in 2014. Davis allocates overhead to products based on direct labor hours.  The plant is scheduled to operate 75,000 direct labor hours during 2014.  600,000/ 75,000 =$8,00/ DLH / machine hours / DL (estimated)  Budget Total Manfu Overhead Cost / Budgeted Total level of application base 6.  Given direct material, labor and overhead, calculate unit cost.  Total cost/ number of units actually produced  ­OR­ Direct Labor/ # of Units  7.  Understand how to account for under and over applied overhead.  [C] adding the COG (+) to make (­) Under to zero out Under applied (­)  Debit balance  Actual Overhead > applied OH; OH has been under applied  Not enough manufacturing OH has been added to product costs  Over applied (+)  Ending balance   Actual OH < applied OH; overhead has been over applied   Too much manufacturing overhead has been added to product costs 8.  Understand the process flow from raw material inventory to work in process  inventory to finished goods inventory.  [1] Chapter 5: 9.  Given facts in a problem, calculate standard costs for direct materials.   [1] (Standard price of direct material inputs) x (Stand quantity of direct material inputs) =  Standard costs for direct material Standard quantity x Standard price = Standard product cost Price X Quantity   What are the inputs  How much of each inputs are required?  What is the required quantity for each input?  How much does each unit/ input cost? 10 .Given facts in a problem, calculate standard price and standard quantity for  direct labor.  [1] (Standard wage rate per direct labor input [S/DLH]) x (Standard quantity of direct labor  hours) = Standard quantity for direct labor   Quantity standard is the time needed to produce one unit of product o Add them up  Standard price o Base hourly rate o Payroll taxes o Fringe benefits What are the operation required to produce the product? How long does it take to perform each operation? Who performs each operation and how much are they paid? 11 .Understand the concept of master budget.    [c] Master budget   a collect of smaller budgets that lead to pro­forma (budgeted)  financial statements  Whether a company uses standard costs or last year’s actual costs, incremental  or zero­ based budgeting, top­down or bottom­up budgeting, the final product is  the mater budget  12 .Understand the characteristics of the different types of budgeting.  @@ Sales Budget Forecasts the # of units expected to be sold, as well as the prices expected to be  charged  Shows budgeted sales revenue for the period, which flows to the budgeted  income statement period  Begins with the sales forecast, which typically will be prepared by the sales and  marketing department   Requires a forecasted sales price in addition to the sales volume forecast  Prepared for each budget Selling and Administrative Expense Budget Estimated when and how much selling and administrative expense will be incurred  Shows expenses to be incurred to support the budgeted levels of sales  Includes variable and fixed expense  Pay special attention to non­cash expense and depreciation expenses. (these  expenses do not flow to cash budget) Production Budget  Shows when and how many units to produce in order to meet budgeted sales  volume  Includes budgeted ending inventory of finished goods to provide a cushion for  unexpected sales  A retail establishment will have a purchases budget rather than a production  budget Direct Material Purchase Budget  Shows when and how much each direct material to purchase in order to meet the production budget 13 Calculate budgeted direct labor cost.    [1] [3­1] [3­2]  Direct budget Labor: calculates the number of direct labor house required to  meet the budgeted levels of production, and it is prepared using the following  steps o Enter budgeted production from the production budget o Calculate the numbers of direct labor hours needed to meet the production schedule by multiplying the number of units to be produced during the  period by the standard number of direct labor hours of one unit o Calculate the total budget direct labor payroll by multiplying the total  required direct labor hours by the standard average wage rate for the  period. If the company pays a wide range of direct labor wage rates, the  direct labor hours are calculated separately for each pay level Budgeted production X Standard direct labor hours/ unit X standard average wage rate 14 .Calculate a cash budget and determine if a company needs short term  financing. LOOK INTO Material Purchases Cash available to spend        [BB + collected from sales] Direct Labor ­Cash disbursement   ­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­ nufacturing Overhead Selling & Admin Expenses =Cash excess or cash needed Equipment purchases +Short­term financing =Ending cash balance  Only prepared if there is a need to borrow money or replay previously  borrowed money  Shows principal and interest amounts  Provides the ending cash balance for the budgeted balance sheet and  interest expense for the budgeted income statement  Short­Term Financing  ­ This section is only prepared if there is a need to borrow money or repay  previously borrowed money ­ Shows principal and interest amounts ­ Provides the ending cash balance for the budgeted balance sheet and interest  expense for the budgeted income statement  15 .Calculate budgeted production and sales.   [3­3, 4­1] HW {5­31} Production Budget Formula: Direct materials purchase budget +Direct labor budget +Manufacturing overhead budget =Production budget Sales Budget Formula Sales Budget = Sales + administrative expense budget 16 .Define and identify budget slack. The process of over or understating budget items to make actual results look  favorable when compared to the budget AKA budgeting padding Chapter 6: 17 .Understand the concept of budget variances.   any difference between what you expected and what you achieved  Actual results achieved and Budgeted (expected) results Favorable Variance: if it increases net income Unfavorable Variance: if it decreases net income  Actual results achieved­ Budgeted (expected) results = Budget Variance Static Budget Variance: variance resulting from the difference between actual results  and the static budget 18 .Calculate sales volume variances.  Flexible Budget Formula Budgeted Price x Actual Sales Volume = Flexible Budget Sales Volume Variances Formula Flexible Budget – Static Budget = Sales Volume Variances 19 .Calculate direct materials quantity, direct material price, direct labor rate and  direct labor efficiency variances. (AQ x AP ) –( AQ x SP) Direct Material Variance Ex) Direct Labor Rate Variance #17 20 .Calculate budgeted fixed overhead.  Budgeted Fixed Overhead Formula Fixed overhead rate X budgeted activity base = budgeted fixed overhead 21 . Interpret whether a variance is favorable or unfavorable.  22 .Understand methods used to reduce labor costs including outsourcing.  Chapter 7: 23 .Understand activity costs pools.  Activity Cost pools  A group of cots combined based on their activity cost drivers and the resources  to be consumed o Ex) Product design, warehousing/ packaging, cutting, sewing, general  Once determined, manufacturing costs can be assigned to them first stage  allocation 24 .Understand the properties of batch and organization level activities.  Batch­ level   Incurred when a group of similar things are made, handled or processed at the  same time o Volume or level of activity is proportional to the number of batches  produced o Costs are incurred when a group of similar things are made or handled at  the same time o Ex) Moving batches of products, cutting fabric  Organization­Level  Incurred to support and sustain a business unit  o Activities preformed to maintain the plant facility and provide managerial  infrastructure o Not dependent on the volume of production, just the number of facilities  maintained o The cost of these resources is not allocated to products o Ex) Renting factory space 25 .Given facts in a problem, calculate the activity rate.  Activity Rate Formula: Activity Rate= Total activity cost pool resources/ Total activity driver volume  Ex) For product design, the activity cost total $83,889. Since the number of product  lines is the cost driver and C&C has three product lines (pants, jerseys, and jackets),  the denominator is 3 product lines. $833,889 / 3 product lines = $27,963/ product line 26 .Calculate cost per unit under activity­based costing.  Direct material +Direct Labor Costs +Overhead Cost =Cost per Unit 27 .Identify cost drivers using activity based costing.  Product lines  # of batches produced (warehousing and packaging)  # of cuts (cutting)  direct labor hours (sewing) 28 .Understand the allocation of overhead to departments and products.  Costs are assigned first to the activity pool before being assigned to cost objects Allocated cost= Activity rate X Activity driver comsumption 29 .Identify organizational level activities.  An activity required to provide productive capacity and to keep the business in operation Chapter 8: 30 .Understand the concept of relevant costs.  Avoidable cost cost occurring only with the implementation of a particular alternative.  They are relevant to a decision because they differ between alternatives Unavoidable Costs a cost incurred under all alternative; thus they are irrelevant  31 .Understand the concept of special orders and contribution margin.  Concept of Special Orders:  Sometimes a company may get an order from a customer asking for a “special  price” that is less than the stated selling price  Ex) grocery chain approaching Kleenex maker Kimberly­Clark to produce a  “private label” facial tissues  Sometimes the price requested appears to be less than the full product cost Why accept special order pricing?  For product made to customer specs  For unusual order (quantity, packaging, means for delivery, etc)  One­time job  Utilize idle production facilities Qualitative issues to consider What precedents does this special order set for future jobs? How will regular customers react? ID there enough capacity to produce the order without reducing normal  production? Overall  Decision: should we accept an order at a price less than normal selling price?  Factors: differential income for the order  Qualitative issues: affect on regular sales, expectation of continued special  treatment  Watch out: unavoidable fixed costs  Decision Rule: as long as the special order covers differential costs and  provides profit, accept the order 32 .Given a special order, calculate operating income.  Sales­ Variable Costs= Contribution margin – fixed costs 33 .Define and understand sunk cost, opportunity cost and relevant cost.  Sunk Cost  A cost that has already incurred in the past and cannot be changed o Sunk cost are NEVER relevant to a decision or in deciding between two  alternative because they were incurred in the past, not future Opportunity Costs:  The contribution margin forgone by not selecting the next­best alternative o    Opportunity costs of using our facilities may be relevant o What alternatives uses of the capacity exist? o Can we generate additional income by using the freed up facilities in some way? Relevant Costs:  Occurs in the future; this information has an impact on decisions o Price we have to pay to buy the component o All avoidable costs we would incur to make the component o Watch out for fixed overhead per unit; It may or may not be avoidable 34.Understand how to use relevant costs when deciding whether to accept a  special order.  Decision Rule: as long as the special order covers differential costs and provides profit,  accept the order EX :Coopersmith produces premium wooden barrels. A one liter barrel sells for $25, but a fancy Swiss ski resort has offered to buy 10,000 barrels for $18 each for its St. Bernard patrol. The barrel has the following product costs, based on annual production of 30,000 barrels: DM $ 5 ✔ DL 2 ✔ VOH 3 ✔ FOH 9 ✖ $ 19 $ 10 a. Fixed costs will not change with the special order. Accepting the special order will result in an extra $80,000 in contribution ($8/barrel x 10,000 barrels), so ACCEPT IT! 35.Calculate relevant cost of production.  Ex (cont. from last problem): Additional variable costs of $2/barrel will be incurred, thus the relevant cost per barrel is $12. The special order will result in an extra $60,000 in contribution margin: ($6/barrel x 10,000 barrels) DM $ 5 ✔ DL 2 ✔ VOH 3 ✔ FOH 9 ✖ $ 19 $ 10 VS&A 2 ✔ $ 12 EX: Thomas Company makes bicycles. It has always made its own tires but has recently received a bid from Tiny Tires, Inc. to supply the tires for $12 each. Thomas’s tire costs are shown below. Of the fixed overhead, 40% is related to plant occupancy costs that will continue even if tires are purchased from Tiny. Should Thomas make or buy the 5,000 tires it needs? DM $ 3 DL 4 VOH 1 FOH 6 $ 14 DM $ 3 ✔ DL 4 ✔ VOH 1 ✔ FOH 6 ✔ But only $3.60 $ 14 total: $11.60 (new relevant cost) 36.Calculate a purchase or production decision using accounting information.  37Understand methods used to reduce labor costs includi g outsourcing.


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