WGU C213 ACCOUNTING FOR DECISION MAKERS EXAM QUESTIONS AND
ANSWERS LATEST () (VERIFIED ANSWERS)
Variable Costs:
A cost that changes directly with changes in the level of sales or production.
Examples are direct materials costs and sales commission.
Fixed Costs:
A cost that doesn't change based on changes in the level of sales or production. Examples are
building rent and executive salaries.
Product Costs:
A cost incurred as part of the production process.
These costs are first reported as an asset (inventory) and then as an expense (cost of goods
sold) when the product is sold.
Period Costs:
A cost incurred outside the factory or production facility.
These costs are reported as an expense in the period in which they are incurred.
Direct Materials:
The cost of the primary raw materials used in production. In producing French fries, the direct
materials cost is the cost of the potatoes.
Indirect Materials:
Materials that are necessary to a manufacturing or service business but are not directly
included in or are not a significant part of the actual product.
Direct Labor:
The cost of the wages of the workers who are assembling the direct materials into the finished
product. In producing an automobile, the direct labor cost is the compensation cost of the auto
workers on the assembly line.
Indirect Labor:
Labor that is necessary to a manufacturing or service business but is not directly related to the
actual production of the product.
Manufacturing Overhead:
,All factory costs that are not direct materials or direct labor. Examples are factory supervisor
salaries, factory building depreciation, and miscellaneous indirect materials such as glue or
screws.
Direct Costs:
The costs that are created by a particular product or segment that is being analyzed. If a product
or segment is dropped, the direct costs created by that product or segment will disappear.
Indirect Costs:
The costs that are assigned to a particular product or segment but that are not actually caused
by that product or segment. If a product or segment is dropped, the indirect costs assigned to
that product or segment will remain.
Differential Costs:
A future cost that can be changed by a decision made now. An example is monthly rent for an
apartment.
Sunk Costs:
A past cost that cannot be changed by any decision made now. An example would be last
month's paid rent.
Out-of-Pocket Costs:
Costs that involve the outlay of cash or the use of some other asset (like equipment).
Opportunity Costs:
The benefits not received because of actions NOT taken. For example, the opportunity cost of
going to a basketball game is the increased points that you could have received on the next
day's accounting exam if you had spent that time studying.
Calculate the cost of a product
Product costs = Direct labor + Direct Materials + Factory Overhead
Factory overhead = Indirect labor + Indirect materials + “Factory expenses”
Can you calculate the product costs for September?
Factory overhead = 5,000 + 3,000 + 7,000 + 8,000 = 23,000
Total product costs = 20,000 + 25,000 + 23,000 = 68,000
Total non-product costs = 2,000 + 5,000 = 7,000
, Identify overhead cost activities
Describe the purpose of accounting.
Accounting is the recording of the day-to-day financial activities of a company and the
organization of that information into summary reports used to evaluate the company's financial
status.
Bookkeeping is a part of accounting. Bookkeeping refers to the process of recording transactions
into various accounts, which is the first step in accounting. The next step is to analyze the
accounts and organize them into financial statements and other useful reports.
Describe the three financial statements.
The balance sheet reports a company's assets, liabilities, and owners' equity. It reports the
financial position of a firm at a point in time.
The income statement reports the amount of net income earned by a company during a period.
Net income is the excess of a company's revenues over its expenses. It reports the financial
performance of a firm over a period of time.
The statement of cash flows reports the amount of cash collected and paid out by a company in
the following three types of activities: operating, investing, and financing over a period of time.
Lenders
Banks use companies' financial statements in making decisions about commercial loans. The
financial statements are useful because they help the lender predict the future ability of the
borrower to repay the loan.
Investors
Investors want information to help them estimate how much cash they can expect to directly
receive from the business in the future if they invest in it now.
Company Management
Managers use financial accounting data to formulate company goals, to compute bonuses for
employees, and to illuminate company weaknesses.
Suppliers and Customers
Suppliers, customers, and employees use financial statements to tell them about the long-run
prospects of a company.
Employees
ANSWERS LATEST () (VERIFIED ANSWERS)
Variable Costs:
A cost that changes directly with changes in the level of sales or production.
Examples are direct materials costs and sales commission.
Fixed Costs:
A cost that doesn't change based on changes in the level of sales or production. Examples are
building rent and executive salaries.
Product Costs:
A cost incurred as part of the production process.
These costs are first reported as an asset (inventory) and then as an expense (cost of goods
sold) when the product is sold.
Period Costs:
A cost incurred outside the factory or production facility.
These costs are reported as an expense in the period in which they are incurred.
Direct Materials:
The cost of the primary raw materials used in production. In producing French fries, the direct
materials cost is the cost of the potatoes.
Indirect Materials:
Materials that are necessary to a manufacturing or service business but are not directly
included in or are not a significant part of the actual product.
Direct Labor:
The cost of the wages of the workers who are assembling the direct materials into the finished
product. In producing an automobile, the direct labor cost is the compensation cost of the auto
workers on the assembly line.
Indirect Labor:
Labor that is necessary to a manufacturing or service business but is not directly related to the
actual production of the product.
Manufacturing Overhead:
,All factory costs that are not direct materials or direct labor. Examples are factory supervisor
salaries, factory building depreciation, and miscellaneous indirect materials such as glue or
screws.
Direct Costs:
The costs that are created by a particular product or segment that is being analyzed. If a product
or segment is dropped, the direct costs created by that product or segment will disappear.
Indirect Costs:
The costs that are assigned to a particular product or segment but that are not actually caused
by that product or segment. If a product or segment is dropped, the indirect costs assigned to
that product or segment will remain.
Differential Costs:
A future cost that can be changed by a decision made now. An example is monthly rent for an
apartment.
Sunk Costs:
A past cost that cannot be changed by any decision made now. An example would be last
month's paid rent.
Out-of-Pocket Costs:
Costs that involve the outlay of cash or the use of some other asset (like equipment).
Opportunity Costs:
The benefits not received because of actions NOT taken. For example, the opportunity cost of
going to a basketball game is the increased points that you could have received on the next
day's accounting exam if you had spent that time studying.
Calculate the cost of a product
Product costs = Direct labor + Direct Materials + Factory Overhead
Factory overhead = Indirect labor + Indirect materials + “Factory expenses”
Can you calculate the product costs for September?
Factory overhead = 5,000 + 3,000 + 7,000 + 8,000 = 23,000
Total product costs = 20,000 + 25,000 + 23,000 = 68,000
Total non-product costs = 2,000 + 5,000 = 7,000
, Identify overhead cost activities
Describe the purpose of accounting.
Accounting is the recording of the day-to-day financial activities of a company and the
organization of that information into summary reports used to evaluate the company's financial
status.
Bookkeeping is a part of accounting. Bookkeeping refers to the process of recording transactions
into various accounts, which is the first step in accounting. The next step is to analyze the
accounts and organize them into financial statements and other useful reports.
Describe the three financial statements.
The balance sheet reports a company's assets, liabilities, and owners' equity. It reports the
financial position of a firm at a point in time.
The income statement reports the amount of net income earned by a company during a period.
Net income is the excess of a company's revenues over its expenses. It reports the financial
performance of a firm over a period of time.
The statement of cash flows reports the amount of cash collected and paid out by a company in
the following three types of activities: operating, investing, and financing over a period of time.
Lenders
Banks use companies' financial statements in making decisions about commercial loans. The
financial statements are useful because they help the lender predict the future ability of the
borrower to repay the loan.
Investors
Investors want information to help them estimate how much cash they can expect to directly
receive from the business in the future if they invest in it now.
Company Management
Managers use financial accounting data to formulate company goals, to compute bonuses for
employees, and to illuminate company weaknesses.
Suppliers and Customers
Suppliers, customers, and employees use financial statements to tell them about the long-run
prospects of a company.
Employees
