ACC 350 Exam 1 Study Materail

Sarah Takash

ACC 350

spring 2018

Exam 1 -

Study Material

Preface :

The original study guide

ACC 350
Topics for first test:

• Chapters 1 and 2
o Concepts and Terminology, e.g., product and period costs, direct labor,

÷material, and OH costs, relevant range, opportunity costs, cost drivers,

fixed and variable costs, etc.
o Know how to sort expenses by category, e.g., direct material, direct labor,

and overhead.
o Understand how to prepare an income statement and a schedule of cost of

goods manufactured and sold.
• Chapter 5: Activity-Based Costing and Activity-Based Management

o Concepts and Terminology.
o Understand why traditional costing could lead to under- and over-costing

products and services.
o Determine the cost of activities and calculate cost driver rates.
o Assign activity costs to goods and services.
o Calculate product cost using both the “traditional” and activity-based

approach.
o Determine the profitability of products and customers.
• Chapter 15: Allocation of Support Department Costs, Common Costs & Revenues
o Concepts and terminology
o Know the direct and sequential (step) methods to allocate service

department costs to producing departments. For sequential, be able to
determine which service department is allocated first.
o Know how to calculate overhead rates from the operating departments to
assign overhead costs to products, jobs, or services.
• Time-Driven Activity Based Costing article.

The test will approximate the following:

Conceptual: ​ ​25 points
​ 7​ 5 points
Numerical:
100 points
Sum ​

Not : Highlighted text corresponds to highlighted

text in " Overview " on next page

Page 1

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

OVERVIEW

● Chs. 1 & 2 :​ I​ ntroduction to Cost Accounting
○ Complete List of Terms (from end of chs in textbook, with corresponding page #s)
○ Terminology ​Definitions (terms list in study guide)
○ Other Terminology Definitions (terms not listed in study guide, but worth noting) .
○ How to S​ ort Expenses By Category (e.g. DM, DL, & OH)
○ How to ​Prepare an Income Statement
○ How to P​ repare a Schedule of Cost of Goods Manufactured and Sold
○ Chapter 1 Post-Test (on MyLab Accounting, followed by solutions)
○ Chapter 2 Post-Test (on MyLab Accounting, followed by solutions)
○ Blackboard Problems:
■ Review Problems (followed by solutions)
■ Exam 1 Practice Problems (followed by solutions)
■ In-class Problem (followed by solutions)

● Ch. 5 :​ ABC (Activity Based Costing)
○ Complete List of Terms (from end of chs in textbook, with corresponding page #s)
○ Terminology​ Definitions
○ Traditional Costing Effects: Under- and Over-Costing
○ Determining the ​Cost of Activities
○ Calculating ​Cost Driver Rates
○ Assigning Activity Costs​ to Goods & Services
○ Calculating Product Cost Using the ​Traditional Approach
○ Calculating Product Cost Using​ ABC
○ Determining the ​Profitability of Products
○ Determining the ​Profitability of Customers
○ Blackboard Problems
■ Practice Problem (followed by solutions)
■ In-class Problem (followed by solutions)
■ Milwaukee Problem (followed by solutions)
■ Brrrr Problem (followed by solutions)

● Ch. 15 :​ Allocation of Support Dept. Costs, Common Costs, and Revenues
○ Complete List of Terms (from end of chs in textbook, with corresponding page #s)
○ Terminology​ Definitions

Textbook​ ​referenced:​ H​ orngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16n​ d​ Edition, Pearson Education

Page 2

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

○ Direct Method
○ Sequential (Step) Method
○ Calculating O​ H Rates from Operating Departments to assign OH Costs to Products, Jobs and

Services
○ Blackboard Problems

■ In-Class problem (followed by solutions)
■ Case Problem (followed by solutions)
■ Haliburton Problem (followed by solutions)
■ Service Department Problem (followed by solutions)
● Time-Driven Activity Based Costing
○ TDABC Article Information (Problem, Solution, & Moral)
○ Concepts and Terms (from article)
○ How-To: TDABC

Textbook​ ​referenced:​ ​Horngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16n​ d​ Edition, Pearson Education

Page 3

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

Chs. 1 & 2 - Intro. To Cost
Accounting:

Complete List of Terms

Textbook​ ​referenced:​ ​Horngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16​nd​ Edition, Pearson Education

Page 4

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

Terminology Definitions (Terms from Study
Guide)

1. Product/Service cost

a. The sum of the costs assigned to a product
b. Can be different amounts for the same cost object, depending on the purpose of

measurement
c. Image illustrating some different product costs for different purposes and the value chain

activities they include in their calculations (below):

Textbook​ r​ eferenced​: ​Horngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16​nd​ Edition, Pearson Education

Page 5

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

2. Period cost

a. Also known as “SG&A” costs
b. All costs in the income statement other than COGS
c. Examples:

i. Design
ii. Marketing
iii. Distribution
iv. Customer Service
v. R&D
d. For manufacturing firms:
i. All non-manufacturing costs in the income statement
e. For retail firms:
i. All costs not related to the cost of goods purchased for resale
f. Treated like expenses in the periods in which they occur

3. Direct labor (DL)

a. Compensation for manufacturing labor
b. Assignment method: Tracing/Traced
c. Examples:

i. Wages paid to workers who convert RM to FG
ii. Benefits paid to workers who convert RM to FG

Textbook​ ​referenced​: ​Horngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16n​ d​ Edition, Pearson Education

Page 6

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

4. Direct material (DM)

a. Acquisition costs​ of all materials that eventually become part of the cost object as WIP or
FG

b. Assignment methods: Tracing/Traced

5. Overhead (OH)

a. Can refer to:
i. Nonmanufacturing OH
1. Also known as:
a. SG&A
b. Period costs
ii. Manufacturing OH
1. Are manufacturing costs related to the product (other than DM & DL)
2. Is inventoriable
3. Are expenses that relate to plants, property and equipment used to convert
RM into FG
4. Also known as:
a. MOH
b. Indirect manufacturing costs
c. factory OH
5. Examples:
a. Supplies
b. Plant depreciation
c. Plant managers compensation
d. Quality inspectors salary

b. CANNOT be traced t​ o individual products/services in an economically feasible way
1. Assignment method:​ Allocation

6. Relevant range

a. is the band or range of normal activity level or volume in which there is a specific
relationship between the level of activity or volume and the cost in question.

b. Example

Textbook​ ​referenced​: ​Horngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16n​ d​ Edition, Pearson Education

Page 7

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

i. a fixed cost is fixed only in relation to a given wide range of total activity or
volume (at which the company is expected to operate) and only for a given time
span (usually a particular budget period).

7. Opportunity Costs

a. the loss of potential gain from other alternatives when one alternative is chosen.

8. Cost Driver

a. a variable that causally affects costs over a given time span
b. The cause in a cause-and-effect relationship with costs being the effect
c. Examples:

i. Level of activity
ii. Volume of production
d. Note that:
i. Fixed costs​ have ​no​ cost driver in the short run​ but may have a cost driver in the

long run.

9. Fixed Costs

(within a relevant range)
a. Total​ fixed costs:
i. Are​ constant
1. Unchanged, despite significant changes in levels of total activity or volume.

when considering fixed costs, always focus on total costs.
b. Per unit​ fixed costs

i. Are​ inversely proportional
1. Decrease as the activity level or volume increases

c. Cannot be easily changed in the short run, rather are changed
in the long run by managerial decision making

d. Examples:
i. Salaries to plant supervisors
ii. Labor union agreements to set workers
hours/compensation

10. Variable costs

Textbook​ ​referenced​: ​Horngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16​nd​ Edition, Pearson Education

Page 8

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

a. Total​ variable costs​:
i. Are ​proportional​ within a relevant range
1. Total variable cost changes in proportion to changes in the related level of
total activity or volume of output produced.
ii. graphed as a diagonal, upward sloping line

b. Per unit​ of activity:
i. Is c​ onstant ​within a relevant range
ii. Is graphed as a horizontal line

c. Examples:
i. Hourly wages

Other Terminology Definitions (Terms not
listed in study guide)

11. Cost Classifications

a. Costs can be classified b​ ased on:​
i. Function/department:
1. R&D
2. Design
3. Production
4. Marketing
5. Distribution
6. Customer Service
ii. Assignment method:
1. Direct
a. Uses tracing to assign costs to cost objects
2. Indirect
a. Uses allocation to assign costs to cost objects

iii. Behavior:
1. Variable

Textbook​ ​referenced:​ ​Horngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16n​ d​ Edition, Pearson Education

Page 9

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

2. Fixed
iv. Number of units (of the cost object):

1. Total
2. Unit
v. Financial statement-treatment:
1. Inventoriable

a. Are assets when incurred
b. Later expensed as COGS
c. Includes ONLY Manufacturing/Production costs (WIP & FG)

i. DM - direct materials
ii. DL - direct labor
iii. MOH - manufacturing overhead
2. Period (“SG&A”)
a. Are expenses in the period incurred
b. Include any costs outside of the manufacturing function
c. Examples:
i. Company officers’ compensation
ii. Office supplies, utilities, computers & staff
iii. Marketing, sales, & finance staff
b. Image summarizing cost classifications other than product/service costs (below):

12. Semi-variable costs

a. Have both fixed and variable components

Textbook​ r​ eferenced​: H​ orngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16​nd​ Edition, Pearson Education

Page 10

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

b. Examples:
i. Phone bill that has a monthly fixed cost plus a per-minute used, variable cost

13. Total Manufacturing Costs (TMC)

a. Is the total of i​ nventoriable costs​ incurred during the measurement period.
b. = DM + DL + MOH (used during the measurement period)

14. Manufacturing-Process T-accounts

a. T-account representations of the following accounts:
i. RM - raw materials
ii. WIP - work-in-process

iii. FG - finished goods
iv. MOH - manufacturing overhead

15. Net Change ( Δ) in the Account Balance

i. = Δ Acct
ii. = BegAcct - EndAcct

16. Cost of Goods Manufactured (COGM)

a. Is the cost of goods finished in the period
b. = TMC + Δ WIP

17. Cost of Goods Sold (COGS)

a. Is the cost of finished goods that were sold in the period
b. = COMG + Δ FG

Textbook​ ​referenced​: H​ orngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16​nd​ Edition, Pearson Education

Page 11

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

18. Cost of Goods Available-For-Sale (COGAFS)

a. Total cost all goods that were a part of FG-inventory (i.e. were a dr. in FG account) ​at
any point during​ the measurement period.

b. Calculation:
i. For a manufacturing firm:
1. = BegFG + COGM
ii. For a merchandising firm:
1. = purchases of inventory + BegInventory

c. Note: COGAFS is NOT the same as simply the amount in EndFG or EndInventory
i. Why:
1. it includes COGS, the cost of goods that were sold during the measurement
period and therefore no longer caputred in ending account balances

How to Sort Expenses by Category: DM, DL

& OH

Summary:

Direct materials (DM), direct labor (DL), and overhead (OH) are categories of expenses.

19. Direct Materials

a. Refer to (#4) “Direct materials (DM)” definition
b. Acquisition costs for raw materials (RM) in work in process (WIP) or finished goods

(FG)

20. Direct Labor

a. Refer to (#3) “Direct labor” definition
b. Compensation for workers who convert RM into FG

Textbook​ r​ eferenced​: ​Horngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16​nd​ Edition, Pearson Education

Page 12

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

21. Overhead

a. Refer to (#5) “Overhead (OH)” definition
b. Either

i. non-manufacturing (SG&A, period cost, expense)
ii. manufacturing (MOH, inventoriable cost, asset into COGS)

How to Prepare an Income Statement

Summary:

An income statement measures the success of a company over a given period of time. It
summarizes the transactions that result in net income (i.e. revenue, expense, gain and loss
transactions). It can classify income by categories such as by product, customer, operating, or
non-operating income. Determinations and predictions can be made about aspects of the company
from analyzation of the income statement (e.g. profitability, level of risk, and timing of future cash
flows).

● Example:
○ simple format of an income statement (below):

Textbook​ r​ eferenced​: H​ orngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16​nd​ Edition, Pearson Education

Page 13

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

22. Income Statement Quick Facts

a. Is ​comparative​ - meaning it represents changes over a period rather than depicting a
single point in time

b. Facilitates ​determination or prediction​ of
i. profitability
ii. investment value

iii. creditworthiness
iv. risk
v. Amounts, timing and uncertainties of future cash flows
c. Method of income statement measurement = transaction approach
i. Focuses on income-related activities that occurred in the period
ii. Can further ​classify income by categories​, such as:

1. Customer
2. Product line

Textbook​ r​ eferenced​: ​Horngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16​nd​ Edition, Pearson Education

Page 14

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

3. Function
4. Operating & non-operating
5. Continuing & discontinued
6. Regular & non recurring
iii. Major elements:
1. Revenues

a. Inflows or enhancements of assets
b. Examples:

i. Sales
ii. Fees
iii. Interest received
iv. Dividends received
2. Expenses
a. Outflows or using up of assets
b. Examples:
i. COGS
ii. Depreciation
iii. Rent paid
iv. Interest paid
v. Wages paid
3. Gaines
a. Increases in equity (net assets) that result from peripheral or incidental
transactions
4. Losses
a. Decreases in equity (net assets) that result from peripheral or
incidental transactions

23. Multi-step Income Statement

a. Is a common format of income statement
b. Sections summarized (below):

Textbook​ r​ eferenced:​ ​Horngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16​nd​ Edition, Pearson Education

Page 15

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

c. Example:
i. multi-step income statement (below):

Textbook​ ​referenced​: H​ orngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16n​ d​ Edition, Pearson Education

Page 16

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

Textbook​ r​ eferenced​: H​ orngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16​nd​ Edition, Pearson Education

Page 17

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

How to Prepare a Schedule of Cost of Goods
Manufactured and Sold

Summary:

The schedule of Cost of Goods Manufactured and sold summarizes and uses the flow of
materials and goods through the T-accounts of RM, WIP & FG to calculate COGM & COGS.

24. Steps (create a line for each of the following):

a. Positive (add):
i. Purchases

b. Negative (subtract):
i. MOH-RM used
ii. RM-net increase

Textbook​ r​ eferenced​: H​ orngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16n​ d​ Edition, Pearson Education

Page 18

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

c. Total:
i. (a - b) = → DM used

d. Positive:
i. DL
ii. MOH

e. Total:
i. (c+d) = → Total Manufacturing Costs

f. Positive:
i. Beg-WIP

g. Negative
i. End-WIP

h. Total:
i. (e+f+g) = → COGM

i. Positive:
i. FG-net decrease

j. Total:
i. (h+i) = → COGS

NOTE: Do N​ OT include S​ G&A (non-production) costs anywhere in the schedule

Blackboard Problems: Ch 2

Textbook​ ​referenced​: H​ orngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16n​ d​ Edition, Pearson Education

e.Ptt Rev1ie1w32 Problems

chs
.

Ch. 2 Review Problems

TRUE / FALSE QUESTIONS
1. Product costs become expenses in the period they are purchased.

2. Cost of goods sold does not include the costs of selling merchandise.

3. Factory heating and air conditioning should be considered a product cost in a manufacturing
operation.

4. Depreciation of office equipment is a manufacturing overhead cost at Dell Computer, a large
manufacturer of personal computers.

5. Overtime premium costs should theoretically be considered part of direct labor cost.

6. Conversion costs equal direct materials and manufacturing overhead costs.

7. Non-manufacturing costs include selling and administrative costs, which are not used to produce
products.

8. Tracing costs is generally considered a more accurate method of cost assignment than allocating
costs.

CONCEPTUAL MULTIPLE CHOICE QUESTIONS
9. Which of the following should be considered part of a manufacturing company's direct labor cost?
A) Factory supervisor's salary
B) Receiving forklift operator's hourly wages

C) Employer-paid health insurance on factory assemblers' wages
D) Cost of idle time
E) None of the above

10. Wages paid to supervisors in the factory are typically classified as:
A) Direct manufacturing labor costs
B) Manufacturing overhead costs
C) Prime costs
D) Period costs

11. Prime costs are the same as:
A) Manufacturing overhead costs.

B) Indirect labor costs.
C) Total manufacturing costs.
D) Direct labor and direct materials used.
E) Direct labor and direct materials purchased.

e.P. 7-2

12. Which of the following describes the formula for cost of goods manufactured?
A) Direct materials used plus direct labor plus overhead minus beginning inventory of work- in-process

plus ending inventory of work- in -process.
B) Direct materials used plus direct labor plus overhead plus beginning inventory of work- in- process

minus ending inventory of work- in- process.
C) Beginning inventory of raw materials plus purchases of raw materials less ending inventory raw

materials.
D) Beginning inventory of finished goods plus purchases of direct materials less ending inventory of

finished goods.

COMPUTATIONAL PROBLEM
13. Pringlay Company had the following transactions last month:

Purchased Raw Materials - $10,000
Issues RM as supplies - $1,000
Incurred Direct labor costs - $5,000
Paid freight-in - $2,000
Paid freight-out - $7,000
Depreciation on plant - $6,000
Depreciation on office equipment - $4,000
Plant manager’s salary - $2,500
Quality Inspector’s salary - $1,500
Marketing Manager’s salary - $3,500
Sales Commissions – 5% of sales
Sales - $65,000
Ending Raw Materials Inventory increased $3,000 from beginning of the month
Ending WIP Inventory did not change from beginning of the month
Ending FG Inventory decreased $8,000 from the beginning of the month

What was COGS for last month?

P 7 3- solutions

per. Ch. 2 Review Problem Solutions

1. FALSE
2. TRUE
3. TRUE
4. FALSE
5. FALSE
6. FALSE
7. TRUE
8. TRUE
9. C
10. B
11. D
12. B
13. $32,000

TRUE / FALSE QUESTIONS
1. Product costs become expenses in the period they are purchased.

FALSE –product costs become expenses in the period they are SOLD

2. Cost of goods sold does not include the costs of selling merchandise.
TRUE – selling costs are nonmanufacturing or period costs and are not included in COGS

3. Factory heating and air conditioning should be considered a product cost in a manufacturing
operation.
TRUE –costs related to the plant or factory are manufacturing costs. Factory heating and air
conditioning would be considered MOH (which is a product cost).

4. Depreciation of office equipment is a manufacturing overhead cost at Dell Computer, a large
manufacturer of personal computers.
FALSE –costs related to the office are considered nonmanufacturing costs

5. Overtime premium costs should theoretically be considered part of direct labor cost.
FALSE – overtime premium costs are considered part of MOH

12g.7a-4s

6. Conversion costs equal direct materials and manufacturing overhead costs.
FALSE - Conversion Costs = DL plus MOH

7. Non-manufacturing costs include selling and administrative costs, which are not used to produce
products.
TRUE –these are considered period costs

8. Tracing costs is generally considered a more accurate method of cost assignment than allocating
costs.
TRUE –allocating is usually based on some arbitrary method

CONCEPTUAL MULTIPLE CHOICE QUESTIONS
9. Which of the following should be considered part of a manufacturing company's direct labor cost?
A) Factory supervisor's salary
B) Receiving forklift operator's hourly wages
C) Employer-paid health insurance on factory assemblers' wages
D) Cost of idle time
E) None of the above

“C” is correct. A, B and D would be considered indirect labor which is part of manufacturing
overhead.

10. Wages paid to supervisors in the factory are typically classified as:
A) Direct manufacturing labor costs
B) Manufacturing overhead costs
C) Prime costs
D) Period costs

“B” is correct.

11. Prime costs are the same as:
A) Manufacturing overhead costs.
B) Indirect labor costs.
C) Total manufacturing costs.
D) Direct labor and direct materials used.
E) Direct labor and direct materials purchased.

“D” is correct (based on discussion in class)

12. Which of the following describes the formula for cost of goods manufactured?
A) Direct materials used plus direct labor plus overhead minus beginning inventory of work- in-process

plus ending inventory of work- in -process.
B) Direct materials used plus direct labor plus overhead plus beginning inventory of work- in- process

minus ending inventory of work- in- process.
C) Beginning inventory of raw materials plus purchases of raw materials less ending inventory raw

materials.
D) Beginning inventory of finished goods plus purchases of direct materials less ending inventory of

finished goods.
“B” is correct.

P b7-e5
.

COMPUTATIONAL QUESTION
13. Pringlay Company had the following transactions last month:

Purchased Raw Materials - $10,000
Issues RM as supplies - $1,000
Incurred Direct labor costs - $5,000
Paid freight-in - $2,000
Paid freight-out - $7,000
Depreciation on plant - $6,000
Depreciation on office equipment - $4,000
Plant manager’s salary - $2,500
Quality Inspector’s salary - $1,500
Marketing Manager’s salary - $3,500
Sales Commissions – 5% of sales
Sales - $65,000
Ending Raw Materials Inventory increased $3,000 from beginning of the month
Ending WIP Inventory did not change from beginning of the month
Ending FG Inventory decreased $8,000 from the beginning of the month

What was COGS for last month?

+ Purchases 12,000 Include freight-in
- Indirect RM Issues 1,000
- Increase in RM Inventory 3,000 RM Supplies + Depr on plant + Plant Mgr
DM used in Production $8,000 Salary + Quality Inspector salary
DL 5,000 No Change
Manufacturing Overhead 11,000

Total Manufacturing Costs $24,000
+ Beginning WIP 0
- Ending WIP 0
Cost of Goods Manufactured
+ Reduction in FG $24,000
8,000
Cost of Goods Sold
$32,000
The following items are SG&A Expenses:
Freight-out
Depreciation on office equipment
Marketing manager’s salary
Sales commissions

•P. 7-6

Ch . 2 : Exam 1 Practice Problems

ACC 350
Review Problems, Chapter 2

Inventory Equation: Beginning Inventory + Additions = Withdrawals + Ending Inventory

1. The records of Custom Choppers, Inc. for September 2014 shows the following information:

Sales $820,000
Selling and administrative expenses 140,000
Direct materials purchases 176,000
Direct labor 200,000
Factory overhead 270,000
Direct materials, September 1 24,000
Work in process, September 1 50,000
Finished goods, September 1 46,000
Direct materials, September 30 28,000
Work in process, September 30 56,000
Finished goods, September 30 38,000

The net income for the month of September is:
$3
a. $644,000
b. $ 36,000

c. $636,000

d. $180,000

2. The following information for the Sutton Glass Company has been provided:

Cost of goods manufactured $100,000
Work in process:
15,000
Beginning 20,000
Ending 30,000

Direct labor ?
Direct materials used 45,000
Factory overhead

What is the amount of direct materials used?
a. $25,000
b. $30,000
c. $35,000
d. $100,000

7-7EfgP
.

Inventory balances for the Jameson Company in October 2014 are as follows:

Raw materials October 1, 2014 October 31, 2014
Work in process $ 27,000 $21,000
Finished goods 48,000 37,200
108,000 90,000

During October, purchases of direct materials were $36,000. Direct labor and factory overhead costs were
$60,000 and $84,000, respectively.

3. Refer to the above. What are the total manufacturing costs ADDED to production in the period?
a. $186,000
b. $180,000
c. $144,000
d. $174,200

Figure 2-11

Information from the records of the Abel Corporation for July 2014 was as follows:

Sales $1,230,000
Selling and administrative expenses 210,000
Direct materials used 264,000
Direct labor 300,000
Factory overhead * 405,000
*variable overhead is $205,000, fixed overhead is $200,000

4. Refer to Figure 2-11. The variable product costs are
a. $ 969,000
b. $ 769,000
c. $ 764,000
d. $1,179,000

5. Refer to Figure 2-11. The total product cost is
a. $1,179,000
b. $ 969,000
c. $ 615,000
d. $ 764,000

soP . 7- 8

Inventory balances for Spiritlight Ventures for November 2014 are as follows:

Materials November 1, 2014 November 30, 2014
Work in process $ 9,000 $ 7,000
Finished goods 16,000 12,400
36,000 30,000

During November, purchases of direct materials were $18,000. Direct labor and factory overhead
costs were $20,000 and $28,000, respectively.

6. The cost of goods manufactured in November was

a. $68,000.
b. $77,600.
c. $74,000.
d. $71,600.

7. The records for the previous year for Sarasota Boat Builders, Inc., shows the following data:

Selling and administrative expenses $300,000
Direct materials used 530,000
Direct labor (100,000 hours) 600,000
Factory overhead application rate $5 per DLH

Inventories

Beginning Ending

Work in process $150,000 $160,000
Finished goods
80,000 50,000

The cost of goods sold is

a. $1,630,000.
b. $1,880,000.
c. $1,600,000.
d. $1,650,000.

a.P 7-9
.

8. The following information has been provided for Hopen Enterprises:

Cost of goods manufactured $7,500
Work in process
1,200
Beginning 1,400
Ending 4,000
Direct labor 1,500
Materials placed in production
Factory overhead ?

What is the amount of factory overhead?
a. $2,000

b. $2,200
c. $1,400
d. $5,500

9. Morton Manufacturing shows cost of goods sold for the month of March was $90,000. The
finished goods inventory was $15,000 on March 1 and $17,500 on March 31. Beginning and
ending work-in-process inventories were $20,000 and $25,000, respectively. What was the cost of
goods manufactured during March?

a. $92,500
b. $90,000
c. $87,500
d. $97,500

←ee 7- to

solutions

ACC 350
Review Problems, Chapter 2

Inventory Equation: Beginning Inventory + Additions = Withdrawals + Ending Inventory

1. The records of Custom Choppers, Inc. for September 2014 shows the following information:

Sales $820,000
Selling and administrative expenses 140,000
Direct materials purchases 176,000
Direct labor 200,000
Factory overhead 270,000
Direct materials, September 1 24,000
Work in process, September 1 50,000
Finished goods, September 1 46,000
Direct materials, September 30 28,000
Work in process, September 30 56,000
Finished goods, September 30 38,000

The net income for the month of September is:
$3
a. $644,000
b. $ 36,000

c. $636,000

d. $180,000

2. The following information for the Sutton Glass Company has been provided:

Cost of goods manufactured $100,000
Work in process:
15,000
Beginning 20,000
Ending 30,000

Direct labor ?
Direct materials used 45,000
Factory overhead

What is the amount of direct materials used?
a. $25,000
b. $30,000
c. $35,000
d. $100,000

1=S7-e1e1

Inventory balances for the Jameson Company in October 2014 are as follows:

Raw materials October 1, 2014 October 31, 2014
Work in process $ 27,000 $21,000
Finished goods 48,000 37,200
108,000 90,000

During October, purchases of direct materials were $36,000. Direct labor and factory overhead costs were
$60,000 and $84,000, respectively.

3. Refer to the above. What are the total manufacturing costs ADDED to production in the period?
a. $186,000
b. $180,000
c. $144,000
d. $174,200

Figure 2-11

Information from the records of the Abel Corporation for July 2014 was as follows:

Sales $1,230,000
Selling and administrative expenses 210,000
Direct materials used 264,000
Direct labor 300,000
Factory overhead * 405,000
*variable overhead is $205,000, fixed overhead is $200,000

4. Refer to Figure 2-11. The variable product costs are
a. $ 969,000
b. $ 769,000
c. $ 764,000
d. $1,179,000

5. Refer to Figure 2-11. The total product cost is
a. $1,179,000
b. $ 969,000
c. $ 615,000
d. $ 764,000

P .br7e-1e2d

Inventory balances for Spiritlight Ventures for November 2014 are as follows:

Materials November 1, 2014 November 30, 2014
Work in process $ 9,000 $ 7,000
Finished goods 16,000 12,400
36,000 30,000

During November, purchases of direct materials were $18,000. Direct labor and factory overhead
costs were $20,000 and $28,000, respectively.

6. The cost of goods manufactured in November was

a. $68,000.
b. $77,600.
c. $74,000.
d. $71,600.

7. The records for the previous year for Sarasota Boat Builders, Inc., shows the following data:

Selling and administrative expenses $300,000
Direct materials used 530,000
Direct labor (100,000 hours) 600,000
Factory overhead application rate $5 per DLH

Inventories

Beginning Ending

Work in process $150,000 $160,000
Finished goods
80,000 50,000

The cost of goods sold is

a. $1,630,000.
b. $1,880,000.
c. $1,600,000.
d. $1,650,000.

P . 7f--13

8. The following information has been provided for Hopen Enterprises:

Cost of goods manufactured $7,500
Work in process
1,200
Beginning 1,400
Ending 4,000
Direct labor 1,500
Materials placed in production
Factory overhead ?

What is the amount of factory overhead?
a. $2,000

b. $2,200
c. $1,400
d. $5,500

9. Morton Manufacturing shows cost of goods sold for the month of March was $90,000. The
finished goods inventory was $15,000 on March 1 and $17,500 on March 31. Beginning and
ending work-in-process inventories were $20,000 and $25,000, respectively. What was the cost of
goods manufactured during March?

a. $92,500
b. $90,000
c. $87,500
d. $97,500

SpPiat deH

chz : In - class Problem

ACC 350
In-Class Problems – Chapter 2

#1 – Identify Costs
The Temp Company manufactures bicycles and has the following costs:

Period or Fixed or
DM DL MOH Product Variable

1. Assembly-line worker’s salary

2. Factory heating and air conditioning

3. Salaries of the company’s top
executives

4. Sales Commissions
5. Production supervisor’s salary
6. Research and development costs
7. Chains used to make bicycles
8. Supplies (e.g. lubricant) used to make

bicycles
9. Freight-in on direct materials
10. Freight-out to ship goods
11. Quality inspectors’ salaries
12. Material handler salaries
13. Process design engineer salaries
14. Electricity for the machines
15. Overtime premium paid to assembly
workers
16. Property taxes on the factory & office
17. Office rental for cost-management staff

Identify each cost as Direct Material (DM), Direct Labor (DL), or Manufacturing
Overhead (MOH), as a Period or Product Cost, and as a Fixed or Variable Cost.

Bep. 7-15

#2 – COGM / COGS
Hanks Corporation produced 120,000 toy pianos last year. These pianos sell for $100
each. Hanks had 11,350 pianos in finished goods inventory at the beginning of the year.
At the end of the year, there were 7,600 pianos in finished goods inventory. Hanks uses
FIFO method of accounting and the accounting records from last year show the following
information

a. Purchases of Raw Materials $900,000
b. Rent on the factory building 250,000
c. Utilities (50% factory, 50% sales office) 60,000
d. Insurance on the factory 10,000
e. Depreciation, factory equipment 70,000
f. General Administration 175,000
g. Raw Materials used as supplies 35,000
h. Plant receptionist, Plant landscaping, etc. 100,000

i. Salaries 2,500,000
Direct labor 500,000
Factory Supervisors 90,000
Plant Manager 40,000
Plant Controller 60,000
Receiving personnel 150,000
Quality Inspectors 300,000
Salespeople 100,000
Machine Maintenance salary 40,000
RM Inventory manager
3,780,000
Total Salaries

Raw Materials Inventory, January 1 310,000
Raw Materials Inventory, December 31 100,000
Work In Process Inventory, January 1 450,000
Work In Process Inventory, December 31 600,000
Finished Goods Inventory, January 1 454,000

S1e=7e-1d6

Required:
a. Prepare a Cost of Goods Manufactured Statement.

Beginning RM Inventory
+ Raw Material Purchases
= RM Available for Use
- RM used as supplies
- Ending RM Inventory
= DM Used in Production
+ Direct Labor
+ Manufacturing Overhead
= Total Manufacturing Cost
+ Beginning WIP
- Ending WIP
= COGM

b. What was the cost of producing one toy piano last year?

c. Based on the COGM Statement, what is the value of ending FG inventory?

d. What was COGS?
= COGM
+ Beginning FG
- Ending FG
= COGS

a.t 7- it Solutions

ACC 350
In-Class Problems – Chapter 2

#1 – Identify Costs
The Temp Company manufactures bicycles and has the following costs:

DM DL MOH Period or Fixed or
X Product Variable
1. Assembly-line worker’s wages
Product Variable

2. Factory heating and air conditioning X Product Fixed

3. Salaries of the company’s top executives Period Fixed

4. Sales Commissions Period Variable
5. Production supervisor’s salary
X Product Fixed

6. Research and development costs Period Fixed

7. Chains used to make bicycles X Product Variable

8. Supplies (e.g. lubricant) used to make X Product Variable
bicycles

9. Freight-in on direct materials X Product Variable

10. Freight-out to ship goods Period Variable

11. Quality inspectors’ salaries X Product Fixed

12. Material handler salaries X Product Fixed

13. Process design engineer salaries X Product Fixed

14. Electricity for the machines X Product Variable

15. OT premium paid to assembly workers X Product Variable
16. Property taxes on the factory & office*
17. Office rental for cost-management staff* X Product or Fixed
Period

X Product or Fixed
Period

Identify each cost as Direct Material (DM), Direct Labor (DL), or Manufacturing Overhead (MOH), as a
Period or Product Cost, and as a Fixed or Variable Cost.

* Depends on location. If a factory office—MOH; if an administrative office—Period Expense.

Note: many of the fixed costs are fixed within a relevant range. As volume increases beyond the relevant
range, additional supervisors, inspectors, etc. will need to be hired.

2 - 14

am12.7-18 InClass Problems – Chapter 2

#2 – COGM / COGS
Hanks Corporation produced 120,000 toy pianos last year. These pianos sell for $100 each.
Hanks had 11,350 pianos in finished goods inventory at the beginning of the year. At the end of
the year, there were 7,600 pianos in finished goods inventory. Hanks uses FIFO method of
accounting and the accounting records from last year show the following information

a. Purchases of Raw Materials $900,000
b. Rent on the factory building
c. Utilities (50% factory, 50% sales office) 250,000 OH
d. Insurance on the factory
e. Depreciation, factory equipment 60,000 ½ OH ½ S&A
f. General Administration
g. Raw Materials used as supplies 10,000 OH
h. Plant receptionist, Plant landscaping, etc.
70,000 OH

175,000 S&A

35,000 OH

100,000 OH

i. Salaries $2,500,000 DL
Direct labor 500,000 OH
Factory Supervisors 90,000 OH
Plant Manager 40,000 OH
Plant Controller 60,000 OH
Receiving personnel 150,000 OH
Quality Inspectors 300,000 S&A
Salespeople 100,000 OH
Machine Maintenance salary 40,000 OH
RM Inventory manager
$3,780,000
Total Salaries

Raw Materials Inventory, January 1 $310,000
Raw Materials Inventory, December 31 100,000
Work In Process Inventory, January 1 450,000
Work In Process Inventory, December 31 600,000
Finished Goods Inventory, January 1 454,000

2 - 15

softP. 7-19 InClass Problems – Chapter 2

Required:
a. Prepare a Cost of Goods Manufactured Statement.

Beginning RM Inventory $310,000
+ Raw Material Purchases 900,000
= RM Available for Use
- RM used as supplies $1,210,000
- Ending RM Inventory 35,000
= DM Used in Production 100,000
+ Direct Labor
+ Manufacturing Overhead $1,075,000
= Total Manufacturing Cost 2,500,000
+ Beginning WIP 1,475,000
- Ending WIP $5,050,000
= COGM
450,000
600,000
$4,900,000

b. What was the cost of producing one toy piano last year?

$4,900,000/120,000 = $40.83/unit

c. Based on the COGM Statement, what is the value of ending FG
inventory?

$40.83 * 7,600 = $310,308

d. What was COGS?

COGM $4,900,000
+ Beginning FG 454,000
- Ending FG 310,308
= COGS
$5,043,692

2 - 16

Page 19

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

Ch. 5 - ABC:

Complete List of Terms (From end of
chapter)

Terminology Definitions (selected terms)

25. Activity-based costing (ABC)

a. A tool for refining a cost system
b. Identifies individual activities as cost objects
c. For strategic (pricing & product mix) decisions

i. Identify all activities in the value chain
ii. Calculate all costs of individual activities
iii. Assign costs to cost objects on the basis of mix of activities needed
d. Illustration of ABC process:

Textbook​ ​referenced​: ​Horngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16n​ d​ Edition, Pearson Education

Page 20

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

26. Cost hierarchy

a. Categorizes various activity pools
i. Basis:
1. Cost-drivers
2. Cost-allocation bases
3. Degrees of difficulty in determining cause-and-effect or benefits received
relationships
ii. Levels:
1. Output-unit
2. Batch
3. Product/Service-Sustaining
4. Facility-sustaining

27. Traditional Costing

a. “S​ imple costing system”​ or “Peanut-Butter Costing”
b. Uses a single indirect cost pool
c. Broadly averages cost of resources to cost objects
d. Often leads to under/over-costing
e. Works best for:

i. Limited variety of products
ii. Few OH resources used

28. Under-costing

Textbook​ r​ eferenced:​ H​ orngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16n​ d​ Edition, Pearson Education

Page 21

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

a. A product/service is reported as having a lower cost per unit than the level of resources it
actually consumes

b. Strategic consequences:
i. under-pricing
ii. Losses on profits

29. Over-costing

a. A product/service is reported as having a higher cost per unit than the level of resources it
actually consumes

b. Strategic consequence:
i. Over-pricing
ii. Low market share as competition with lower prices gains consumers

30. Product-cost cross-subsidization

a. Common in a traditional/simple costing system
b. Undercosting one item and overcosting one or more of its other products

31. Activity

a. Verb
b. Event, task, or unit of work with a specified purpose
c. Examples

i. Designing products/processes
ii. Setting up machines
iii. Operations of machines
iv. Setting up shipments
v. Distributing
d. Are sources of indirect costs
e. Are used to refine total indirect costs into pools
f. To achieve an effective balance, f​ ocus on activities that account for a sizable fraction of
indirect costs

Textbook​ ​referenced​: H​ orngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16​nd​ Edition, Pearson Education

Page 22

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

g. Individual ​tasks can be combined into single activities if they all have the same cost
driver

i. Example:

1. A firm decides to combine maintenance of molding machines,
operations of molding machines, and process control into a single
activity—molding machine operations—because all these
activities have the same cost driver: molding machine-hours.

32. Indirect-cost pools

a. A grouping of indirect costs caused by activities
b. In ABC:

i. should be ​homogenous
1. Have the same or similar cause-and-effect/benefits-received relationship
with a ​single cost-driver

c. Examples:
i. Distribution costs pool
1. Includes:
a. all costs associated with distribution
ii. Set-up costs pool
1. Includes:
a. all costs associated with setting up a machine

33. Cost-allocation base

a. The c​ ost-driver​ that proportionally causes an indirect cost-pool to increase
b. Examples:

i. Cubic feet of packages
1. Cost pool associated: distribution costs

ii. Setup hours
1. Cost pool associated: set-up costs

34. Activity Based Management (ABM)

a. Uses ABC to improve customer satisfaction and profitability
b. Critical decisions:

Textbook​ r​ eferenced:​ H​ orngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16​nd​ Edition, Pearson Education

Page 23

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

i. Pricing & product mix
ii. Cost reduction
iii. Process improvement
iv. Product & process design

Traditional Costing Effects: Under- and
Over-Costing

Summary:

Traditional costing, also known as “simple costing” or “peanut-butter costing,” often
leads to under/over-costing​ of products/services when applied to modern businesses.
Historically used w​ hen companies produced ​low variety​ products with m​ inimal overhead costs.
The s​ trategic consequences​ of traditional costing include mis-pricing of products/services along
with the effects mis-pricing can lead to [under-pricing → lost profits & Over-pricing → low
market share].

Determining the Cost of Activities

Summary:

Activities are the prime sources of total indirect cost accumulation. In normal ABC, the cost of
activities is measured using s​ urveys and interviews​. Budgeted quantities of indirect costs per cost pool
are then identified.

Textbook​ r​ eferenced:​ ​Horngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16n​ d​ Edition, Pearson Education

Page 24

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

Calculating Cost Driver Rates

Summary:

A ​budgeted indirect cost rate​ is determined for each activity, by dividing its associated,
homogeneous cost pool by the total budgeted quantity of cost-allocation base related to the activity.

● Example calculation:

35. Steps:

a. Determine the total budgeted indirect costs for an activity/indirect cost-pool

Textbook​ ​referenced:​ ​Horngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16​nd​ Edition, Pearson Education

Page 25

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

b. Determine the total budgeted quantity of the activity’s cost-allocation base
c. Divide​ step (a) by step (c):

i. ​ total budgeted indirect costs for an activity/indirect cost-pool

total budgeted quantity of the activity’s cost-allocation base

Assigning Activity Costs to Goods &
Services

Summary:

Take the cost-driver rate (budgeted indirect cost rate) and multiply it by the quantity of cost-
allocation base that the individual product or service consumes.

Calculating Product Cost Using the
Traditional Approach

Summary:

Refer to (#18) “Traditional costing” definition. Simply divide total indirect costs (a single pool)
by one single budgeted cost-allocation base. Use this rate to determine product costs by multiplying
the rate by the amount of cost-allocation base consumed by the particular product.

Textbook​ ​referenced​: H​ orngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16n​ d​ Edition, Pearson Education

Page 26

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

Calculating product cost using ABC

Summary:

Refer to (#16) “Activity Based Costing” definition. ABC groups indirect costs into
homogenous activity-cost pools, each having a cost-allocation base. The cost-allocation base is the
driver of costs in the activity-cost pool. It is used to determine indirect cost-rates for individual
activities. Those rates are used to compute product costs based on the product’s cost-allocation base
consumption per unit.

36. Steps:

a. Identify ​cost objects
i. cost pools
ii. products/services

b. Identify d​ irect costs​ of the product
i. DM
ii. DL

c. Select the ​activities and/or cost allocation bases​ for indirect costs
d. Identify the i​ ndirect costs​ associated with each cost-allocation base
e. Compute the ​rate per unit​ of each cost allocation base
f. Compute ​allocation amounts​ to assign to each product
g. Compute the t​ otal assigned costs​ of a product

i. Sum:
1. All direct costs traced
2. All indirect costs allocated

h. Illustration of steps (below):

Textbook​ r​ eferenced​: ​Horngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16​nd​ Edition, Pearson Education

Page 27

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

Determining the profitability of products

Summary:

The profitability of a product is the ​net gain​ a company receives for providing it. This is
often represented as a percentage called the “operating profit margin.”
● Operating profit margin

○ Also known as:
■ Operating income margin
■ Operating margin

Textbook​ ​referenced​: H​ orngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16n​ d​ Edition, Pearson Education

Page 28

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

■ Return on Sales (ROS)
○ Is a percentage
○ = operating income / revenues

37. Steps:

a. Determine ​total product​ revenues​ a​ ttributable to the particular product
i. = “net sales”
ii. = price * qty sold - returns and sales allowances

b. Determine the t​ otal ​product-cost
i. = Cost of all value chain activities associated with providing the product
ii. = COGS + indirect/period/SG&A costs allocated to the product

iii. = COGS + operating costs ---- (on income statement)
c. Using (a) and (b), Determine t​ he product’s ​operating income​:

i. Subtract total product-cost from total product-revenues to get the product’s
operating income

ii. = (product-operating income) = (total product-revenue) - (total product-cost)
d. Divide total revenues (step a) by operating income (step b)

i. = (Total product-revenue) /​ ​ (product-operating income)
e. Multiply by 100 to ​get a %​ → this is your​ operating profit margin

Textbook​ r​ eferenced:​ ​Horngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16n​ d​ Edition, Pearson Education

Page 29

Sarah Allison Takash
Arizona State University, ACC 350, Spring 2018

Exam 1 Study Material

Example Problem from textbook:

Textbook​ r​ eferenced:​ H​ orngren’s Cost Accounting, a Managerial Emphasis, Datar and Rajan 16n​ d​ Edition, Pearson Education