Accounting Exam 1 Study Guide

Accounting Exam #1 1. Categorize the following costs as direct labor, direct materials, manufacturing overhead, selling, or administrative cost. 1. The cost of a hard drive installed in a computer: direct materials. 2. The cost of advertising in the Puget Sound Computer User newspaper: selling. 3. The wages of employees who assemble computers from components: direct labor. 4. Sales commissions paid to the company’s salespeople: selling. 5. The wages of the assembly shop’s supervisor: manufacturing overhead. 6. The wages of the company’s accountant: administrative. 7. Depreciation on equipment used to test assembled computers before release to customers: manufacturing overhead. 2. Know which costs are product costs/period costs 3. Given that the fixed weekly expense of a coffee is $1,200 and the VCPU per cup is $0.22, complete the table: VCPU= TVC/Activity Level 4. Know how to do high/low method (Ex. 1-5) To find variable cost, use (high cost – low cost)/(high days – low days). You will get $1.56. To find fixed cost, multiply $1.56 by the highest day, which is 2,406. Subtract this total from the highest cost (5,148) to get the fixed cost which is $1,395. 5. Know components of cost equation. (Direct Labor, Direct Material, Manufacturing Overhead) Cost equation: Total Cost = Total Fixed Cost + Total Variable Cost (y=a+bX) 6. Calculate total manufacturing overhead costs given a set of costs. Requires that you know all cost classifications. You will be given costs and will need to know which are MOH. Total MOH Cost = Total Fixed MOH + Total Variable MOH 7. Find product period, conversion, and prime costs. Product costs include DM, DL, MOH. Period costs include expenses only. Conversion costs include MOH and DL. Prime costs include DM and DL. Direct materials $ 80,000 Direct labor 42,000 Manufacturing overhead 19,000 Total product costs $141,000 Selling expenses $22,000 Administrative expenses 35,000 Total period costs $57,000 Direct labor $42,000 Manufacturing overhead 19,000 Total conversion costs $61,000 Direct materials $ 80,000 Direct labor 42,000 Total prime costs $122,000 8. How do costs behave? Variable: Fixed: / --- VCPU: --- FCPU: \ 9. Know journal entries for purchasing raw materials and requisitioning (moving). Direct materials go to work in progress, indirect go elsewhere (overhead). 10. When does over applied or under applied overhead occur? Over applied occurs when the PDOHR > actual overhead. Under applied occurs when PDOHR < actual overhead. 11. Calculating PDOHR - Most missed question on exam! Harris Fabrics computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 20,000 direct labor-hours would be required for the period’s estimated level of production. The company also estimated $94,000 of fixed manufacturing overhead expenses for the coming period and variable manufacturing overhead of $2.00 per direct labor-hour. Harris's actual manufacturing overhead for the year was $123,900 and its actual total direct labor was 21,000 hours. 12. Calculate product costs in activity base costing (ABC), given a set of information. You will be given list of activities, estimated overhead in each pool, estimated level of activity in each pool, direct materials per unit, direct labor per unit). Calculate activity rate. *Make sure to divide by number of units (4,000) then add that number to DL and DM costs. 13. Calculate under/over applied overhead, given PDOH rate data and actual overhead (pg. 103). 14. Calculate activity rate for cost pool. Very simple. 15. Classify activities based on activity hierarchy (unit level, batch level, product level, and facility level) (Ex. 3-6) 16. Calculate activity rate for three products. 17. Definitions. Know opportunity, differential, and sunk costs. Opportunity Cost – potential benefit that is given up when one alternative is selected over another. Differential Cost – difference in cost between two alternatives Sunk Cost – a cost that has already been incurred 18. Calculate job costs for job cost sheet. DM, DL, MOH. (Applied) (Ex. 2-3) 19. Compute total overhead under ABC, given activity cost pools, activity rates, and actual activity. (Ex. 3-5) (Pg. 148)