D101 Cost and Managerial Accounting - Set 5 - Part 1

Correct Answer: Debit work-in-process inventory, credit raw materials inventory

Direct materials used in production are debited to work-in-process inventory, indicating that the materials have been used, and credited to raw materials inventory to reduce the balance of materials on hand.

Correct Answer: Direct labor

Product costs include all costs related to the manufacturing of a product, such as direct labor, direct materials, and manufacturing overhead. Administrative and advertising expenses are considered period costs.

Correct Answer: To allocate indirect costs to individual jobs

A predetermined overhead rate is used to allocate indirect costs, such as utilities and supervisor salaries, to jobs based on a selected cost driver like machine hours or labor hours.

Correct Answer: Number of machine setups

In activity-based costing, cost drivers are the activities that cause overhead costs to be incurred. Machine setups can be used to allocate costs to products based on the number of setups required.

Correct Answer: They remain constant in total regardless of production levels

Fixed costs, such as rent and salaries, do not change with the level of production. However, fixed costs per unit decrease as production increases because the total fixed cost is spread over more units.

Correct Answer: By department or process

In process costing, costs are accumulated by department or process since it is used for industries that produce large quantities of identical items, such as chemicals or beverages.

Correct Answer: Estimated manufacturing overhead / expected annual activity level

The predetermined overhead rate is calculated by dividing estimated total manufacturing overhead costs by the expected activity level (e.g., machine hours, labor hours) for the year.

Correct Answer: To determine break-even points

Cost-volume-profit (CVP) analysis focuses on understanding how changes in costs, sales volume, and price affect profits, which is critical for calculating break-even points and making pricing decisions.

Correct Answer: Debit finished goods inventory, credit work-in-process inventory

When a job is completed, the total costs associated with it are transferred from work-in-process to finished goods inventory, indicating that the goods are ready for sale.

Correct Answer: Sales revenue - variable costs

The contribution margin is the amount remaining after variable costs have been deducted from sales revenue. It contributes to covering fixed costs and generating profit.

Correct Answer: When manufacturing unique, custom-made products

Job order costing is used when each job or product is unique, such as in construction or custom manufacturing, where costs are accumulated for each individual job.

Correct Answer: 10,000 units

The break-even point in units is calculated by dividing total fixed costs by the contribution margin per unit. In this case, $200,000 / $25 = 8,000 units.

Correct Answer: Administrative salaries

Period costs are costs that are not directly related to the production process, such as administrative salaries, marketing expenses, and office rent.

Correct Answer: They remain constant

Variable costs per unit remain constant regardless of production levels, but total variable costs increase as more units are produced.

Correct Answer: They are included in work-in-process inventory

Partially completed units are accounted for in the work-in-process inventory, with costs assigned based on the percentage of completion.

Correct Answer: It occurs when applied overhead is greater than actual overhead

Overapplied overhead occurs when the amount of overhead allocated to jobs exceeds the actual overhead incurred, leading to an adjustment that decreases the cost of goods sold.

Correct Answer: To track the costs of individual jobs

A job cost sheet is used in job order costing to track the costs of direct materials, direct labor, and overhead for a specific job.

Correct Answer: It is debited to cost of goods sold

Underapplied overhead occurs when actual overhead exceeds applied overhead. To close this, the difference is debited to cost of goods sold, increasing the expense.

Correct Answer: Units completed + percentage completion of ending inventory

Equivalent units of production account for both completed units and partially completed units, measured as a percentage of completion.

Correct Answer: Direct costs can be traced directly to products, while indirect costs cannot

Direct costs, such as direct materials and labor, can be traced directly to products, while indirect costs, such as factory utilities, are allocated through manufacturing overhead.