D196 Principles of Financial and Managerial Accounting - Set 5 - Part 1

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Retained earnings represent the accumulated net income retained by the company and are classified as an equity account.

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Contribution margin ratio is calculated by dividing the contribution margin by the sales price.

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Wood used in furniture production is a direct material because it can be directly traced to the final product.

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Period costs, like office rent, are expensed in the period they are incurred and are not tied directly to production.

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Variable costs change in total as the level of production changes, while remaining constant per unit.

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The sales budget helps forecast the number of units the company expects to sell, which drives production planning.

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Manufacturing overhead includes indirect costs, such as depreciation on factory equipment, associated with production.

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Dividends paid reduce retained earnings, and the statement of retained earnings shows changes in equity over a period.

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Direct labor costs are debited to work-in-process inventory, and wages payable is credited when recording labor used in production.

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Issuing common stock is a financing activity because it involves raising capital for the business.

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A flexible budget adjusts based on changes in the level of production or sales activity, allowing for better cost control.

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Indirect costs, like factory maintenance, cannot be traced directly to specific units of production.

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The predetermined overhead rate is calculated by dividing estimated overhead by estimated machine hours. ($200,000 / 25,000 = $8 per machine hour).

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The statement of cash flows categorizes cash inflows and outflows into operating, investing, and financing activities.

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Break-even in sales dollars is calculated by dividing fixed costs by the contribution margin ratio.

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Paying employees is classified as an operating activity because it is part of the company’s core business operations.

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Mortgage payable is a long-term liability because it is not expected to be settled within one year.

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Direct labor is a controllable cost because management can influence the amount of labor used in production.

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Contribution margin per unit is calculated by subtracting the variable cost per unit from the sales price per unit.

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Wages expense is reported on the income statement as part of the company’s operating expenses.