Study Notes Acct 212 Chapters 14, 15 & 16 Exam verified solutions and explanations.

Study Notes Acct 212 Chapters 14, 15 & 16 Exam verified solutions and explanations Managerial accounting applies to ____, ____, and ____ _____? - Correct Answers: service, merchandising and manufacturing firms/businesses Managerial accounting reports are generally prepared for _____ _____? - Correct Answers: internal users, managers. What is the differences between Financial Accounting vs Managerial Accounting? - Correct Answers: A. Primary Users 1. Financial accounting: External users - stockholders, creditors, and regulators. 2. Managerial accounting: Internal users - officers and managers B. Types and Frequency of Reports 1. Financial accounting: Financial statements. Quarterly and annually. 2. Managerial Accounting: Internal reports. As frequently as needed. C. Purpose of Reports 1. Financial accounting: General-purpose 2. Managerial accounting: Special-purpose for specific decisions. D. Content of Reports 1. Financial accounting: Pertains to business as a whole. highly aggregated (condensed). Limited to double-entry accounting and cost data. Generally accepted accounting principles (GAAP). 2. Pertains to submunits of the business. Very detailed. Extends beyond double-entry accounting to any relevant data. Standard is relevance to decisions. E. Verification Process 1. Financial accounting: Audited by CPA. 2. Managerial accounting: No independent audits. Managerial accounting functions are to ___, ___, and ___? - Correct Answers: Plan, Direct and Control (Power Point Slide 14-8) What are the 3 purposes of Cost Accounting? - Correct Answers: a. To measure, record and report product costs b. To control costs c. To assist in making decisions What are the differences between Internal vs external users? - Correct Answers: Internal: any employee, managers etc. External: not an employee, investors, bankers/creditors, SEC, IRS, any government agency What are the three product also known as Manufacturing Costs? - Correct Answers: Direct materials, Direct Labor, Manufacturing overhead What are the steps to assign overhead to work in process? - Correct Answers: 1. First estimate the expected annual overhead costs 2. Determine the activity type that will be used and estimate the annual activity 3. Step 1/Step 2 (Estimated ,expected annual overhead costs/estimate, expected Activity) called the Predetermined Rate 4. Multiply the predetermined rate by the actual activity Be able to compute cost of goods manufactured given the following: a. Beginning raw materials purchases, ending raw materials b. Direct labor c. Manufacturing overhead d. Work in process beginning and ending balances - Correct Answers: Cost of goods manufactured: Add the following or subtract when indicated Beginning work in process Beginning raw materials Plus purchases Less ending raw materials Direct labor Overhead costs Less ending work in process -costs that are matched with the revenue of a specific time period and charged to expense as incurred a. Charged to expense as incurred b. Non manufactured costs c. Includes selling and some administrative costs (administrative costs could also be product costs if incurred in regards to manufacturing as overhead) Examples: Salesperson salaries, office costs for selling and marketing personnel, freight out costs, etc. - Correct Answers: Period costs What are the two types of cost accounting systems: - Correct Answers: Job costing system, process cost system What is the journal entry for purchasing raw materials? - Correct Answers: Debit raw materials, credit accounts payable Assign overhead to work in process. Example: Expected annual overhead costs are $600,000 Expected direct labor costs $ 200,000 Actual direct labor costs $ 210,000 Actual annual overhead $ 605,000 - Correct Answers: ANSWER: Expected annual overhead costs / Expected direct labor costs = Predetermined Rate Predetermined rate: $600,000 / $200,000 = 3 to 1 or 300% of direct labor costs Applied manufacturing overhead for the year: Predetermined rate times actual direct labor costs Applied manufacturing overhead = 300% times $210,000 = $630,000 Under/over applied for the year: Actual overhead less applied overhead = $605,000 - $630,000 = $25,000 over applied If manufacturing overhead is over applied (credits in the manufacturing overhead account exceed the debits, leaving a credit balance), adjusting entry to zero this account at the end of the year: Manufacturing overhead Cost of goods sold If manufacturing overhead is under applied (debits exceed the credits), the adjusting entry Cost of goods sold Manufacturing overhead Also see homework problems. Materials that can be directly and physically associated with the finished product during the manufacturing process (tracked by material requisition sheets). - Correct Answers: Direct materials work of factory employees that can be directly and physically associated with converting raw materials into finished goods (Tracked by time cards, etc) - Correct Answers: Direct labor -Manufacturing costs that are indirectly associated with the manufacture of the finished product. -Relates to production as a whole, cannot be assigned to specific jobs or units in production for process costing, applied to production (jobs or work in process) on a predetermined rate - Correct Answers: Manufacturing overhead What are some Examples of Manufacturing overhead costs? - Correct Answers: electricity, insurance on machinery and plant buildings, indirect materials (materials insignificant or cannot be directly linked to production units) indirect labor (supervisors, fork lift operators, material management control employee etc), What is the journal entry for Transferring to Work in Process? - Correct Answers: Used for unique, custom, large projects such as buildings construction, custom orders of any type, etc. - Correct Answers: Job costing system Identical mass produced products, such as basketballs, clothing mass produced, pencils, coke, etc - Correct Answers: Process cost system supervisors, fork lift operators, material, mangement control employee, etc. - Correct Answers: indirect labor Materials insignificant or cannot be directly linked to production units. - Correct Answers: indirect materials Costs that are a necessary and integral part of producing the finished product - Correct Answers: product costs -Costs are assign to each job or batch. -Each job or batch has its own distinguishing characteristics. -Measures costs for each job completed - not for set time periods. -The company assigns costs to each job or to each batch of goods. An example is the manufacture of a mainframe computer by IBM, the production of a movie by Disney, or the making of a fire truck by American LaFrance. - Correct Answers: Job order cost system -Used when a large volume of similar products are manufactured - (cereal, refining of petroleum, production of ice cream). -Costs are accumulated for a time period- (week or month). - Costs are assigned to departments or processes for a specified period of time. -A company uses this system when it manufactures a large volume of similar products - Correct Answers: Process cost system Journalize this: Purchase of raw materials on credit - Correct Answers: debit raw materials, credit accounts payable Journalize this: Transfer of raw materials to production - Correct Answers: debit work in process, credit raw materials Journalize this: Job is completed and all costs have been accumulated - Correct Answers: debit finished goods, credit work in process Journalize this: Finished goods are sold (do not record the sales part) - Correct Answers: debit cost of goods sold, credit finished goods How do you calculate Cost of Goods Sold? - Correct Answers: Beginning Merchandise Inventory + Cost of Goods Purchased - Ending Merchandise Inventory = cost of goods sold ALSO beginning finished goods inventory + cost of goods manufactured - ending finished goods inventory = cost of goods sold Calculate cost of goods sold - Correct Answers: Beginning Finished Goods Inventory + Cost of Goods Manufactured - Ending Finished Goods Inventory In a process cost system what would be the flow of costs? - Correct Answers: work in process ---> finished goods ---> cost of goods sold A major purpose of cost accounting is to ...? - Correct Answers: measure, record, and report product costs. What is the journal entry for Transferring raw materials to production? - Correct Answers: debit Work in Process, credit Raw Materials What is the journal entry for Job Completion and All Costs have been Accumulated? - Correct Answers: debit finished goods, credit work in process What is the journal entry for Finished Goods are Sold (do not record the sales part)? - Correct Answers: debit Cost of Goods Sold, credit Finished Goods