manufacturing companies
______________ report three types of inventory on the balance sheet.

inventory (merchandise)
for a company such as Best Buy​ (consumer electronics) includes all of the costs necessary to purchase products and get them onto the store shelves.


service companies, merchandising companies and manufacturing companies
Most​ for-profit organizations can be described as being in one​ (or more) of three​ categories:_________________, ___________________ and ____________

work in process inventory
____________is composed of goods partially through the manufacturing process​ (not finished​ yet).

merchandising companies
Forever​ 21, Target, and​ Kohl's are all examples of ______________

service companies
_______________
typically do not have an inventory account.

raw materials inventory
Johnson​ & Johnson, a personal care products​ manufacturer, converts __________ into finished products.

service companies
A law​ office, an advertising​ agency, and a hospital are all examples of ___________

wholesalers
buy products in bulk from​ producers, marks them​ up, and resell to retailers.

conversion costs
are the costs of transforming direct materials into finished goods.

period costs
include​ R&D, marketing, distribution and customer service costs.

prime costs
Direct material plus direct labor equals ___________


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direct costs
​Steel, tires,​ engines, upholstery,​ carpet, and dashboard instruments are used in the assembly of a car. Since the manufacturer can trace the cost of these materials​ (including freight-in and import​ duties) to specific units or batches of​ vehicles, they are considered ______________ of the vehicles.

cost object , direct costs
Costs that can be directly traced to​ a(n)
________________ and __________________

product costs, assets
_______________ are initially treated as ________ on the balance sheet

assigned, cost objects
The allocation process results in a less precise cost figure being
_______________ to the _____________
.

indirect costs, cost object
______________ cannot be directly traced to a _____________

total costs
include the costs of all resources used throughout the value chain

product costs
U.S. GAAP requires companies to use only
_____________________for inventory reported on external financial statements.

fringe benefits
company-paid ___________ may include health insurance, retirement plan contributions, payroll taxes and paid vacations

cost of goods sold
When manufacturing companies sell their finished​ products, the costs of those finished products are removed from inventory and expensed as ____________________

A. Manufacturing
Which of the following types of companies would have work in process​ inventory?
A.
Manufacturing
B.
Merchandising
C.
Service
D.
All of the above

A. Retailer
Kohl's Department​ Store, a clothing and home goods​ store, is primarily what type of​ company?
A.
Retailer
B.
Real estate
C.
Service
D.
Manufacturer

B. Marketing
Advertising expenses would be considered which element of the value​ chain?
A.
Customer service
B.
Marketing
C.
Research and development
D.
Production

C. direct costs
A cost that can be traced to a cost object is known as​ a(n)
A.
product cost.
B.
period cost.
C.
direct cost.
D.
indirect cost

C. All of them, except production or purchases
The value chain describes the costs associated with making a product. What​ box(es) are expensed immediately when incurred on the income statement as operating​ expenses/SGA ("period​ costs")?
A.
All of them
B.
Marketing
C.
All of​ them, except production or purchases
D.
Production or Purchases

B. direct labor
An assembly line worker in the factory would be​ considered?

A.
indirect labor and manufacturing overhead.
B.
direct labor.
C.
period costs.
D.
direct materials.

A. manufacturing overhead
Rent paid for the plant factory would be​ considered?
A.
manufacturing overhead.
B.
direct labor.
C.
direct materials.
D.
indirect labor and manufacturing overhead.

A. Costs of Goods Manufactured
Costs of Goods Sold of a manufacturing represents the costs related to building a product that are expensed when it is sold. To determine Costs of Goods​ Sold, three formulas where used representing the three different categories of inventory. Which schedule is based on work in process​ inventory?
A.
Costs of Goods Manufactured
B.
Income Statement
C.
Direct Materials Used
D.
Cost of Goods Sold

B. little or no inventory
The balance sheet of a service company has
A.
two categories of inventory.
B.
little or no inventory.
C.
raw materials inventory.
D.
three categories of inventory.

D. Production
Which element of the value chain would​ maintenance, depreciation,​ utilites, plant​ supervison, property taxes of a manufacturing plant be classified​ as?
A.
Distribution
B.
Design
C.
Research and development
D.
Production

Cost of the automobiles engines
Which of the following is not an example of an indirect cost incurred in manufacturing​ automobiles?
A.
Plant supervisor salary
B.
Machinery depreciation in the factory
C.
Cost of the automobile engines
D.
Plant utilities

B. Production or Purchases
The value chain describes the costs associated with making a product. What box captures the costs to build the​ product; the inventory related costs​ ("inventoriable product​ costs") that is used for reporting inventory on the balance sheet until it is sold and then is reported as Costs of Goods Sold on the income​ statement?
A.
All of them
B.
Production or Purchases
C.
Reserach​ & Development
D.
Marketing

C.indirect labor and manufacturing overhead
A janitor in the factory would be​ considered?

A.
direct materials.
B.
period costs.
C.
indirect labor and manufacturing overhead.
D.
direct labor.

D. manufacturing overhead
Rent paid for the plant factory would be​ considered?
A.
direct materials.
B.
direct labor.
C.
indirect labor and manufacturing overhead.
D.
manufacturing overhead.

C. Direct Materials Used
Costs of Goods Sold of a manufacturing represents the costs related to building a product that are expensed when it is sold. To determine Costs of Goods​ Sold, three formulas where used representing the three different categories of inventory. Which schedule is based on raw materials​ inventory?
A.
Cost of Goods Sold
B.
Income Statement
C.
Direct Materials Used
D.
Costs of Goods Manufactured

a.
Conversion costs
are the costs of transforming direct materials into finished goods.
b.
Period costs
include​ R&D, marketing, distribution and customer service costs.
c.
Direct material plus direct labor equals
prime costs
.
d.
​Steel, tires,​ engines, upholstery,​ carpet, and dashboard instruments are used in the assembly of a car. Since the manufacturer can trace the cost of these materials​ (including freight-in and import​ duties) to specific units or batches of​ vehicles, they are considered
direct costs
of the vehicles.
e.
Costs that can be directly traced to​ a(n)
cost object
are called
direct costs
.
f.
Product costs
are initially treated as
assets
on the balance sheet.
g.
The allocation process results in a less precise cost figure being
assigned
to the
cost objects
.
h.
Indirect costs
cannot be directly traced to​ a(n)
cost object
.
i.
Total costs
include the costs of all resources used throughout the value chain.
j.
U.S. GAAP requires companies to use only
product costs
for inventory reported on external financial statements.
k.
​Company-paid
fringe benefits
may include health​ insurance, retirement plan​ contributions, payroll​ taxes, and paid vacations.
l.
When manufacturing companies sell their finished​ products, the costs of those finished products are removed from inventory and expensed as
cost of goods sold
.

Period cost
If product cost,


or product cost
DM, DL or MOH
1.
Television advertisements for Bailey’s products
Period cost


2.
Lubricants used in running bottling machines
Product cost
MOH

3.
Research and development related to elimination of anti-biotic residues in milk
Period cost


4.
Gasoline used to operate refrigerated trucks delivering finished dairy
products to grocery stores
Period cost


5.
Company president’s annual bonus
Period cost


6.
Depreciation on refrigerated trucks used to collect raw milk from local
dairy farmers
Product cost
MOH

7.
Plastic gallon containers in which milk is packaged
Product cost
DM

8.
Property insurance on dairy processing plant
Product cost
MOH

9.
Cost of milk purchased from local dairy farmers
Product cost
DM

10.
Depreciation on tablets used by sales staff
Period cost


11.
Wages and salaries paid to machine operators at dairy processing plant
Product cost
DL

a.
​A(n)
marginal cost
is the cost of making one more unit.
b.
Gasoline is one of many
variable costs
in the operation of a motor vehicle.
c.
A product's
fixed costs
and
variable costs
, not the product's
average cost
should be used to
forecast total costs at different production volumes.

d.
Within the relevant​ range,
fixed costs
do not change in total with changes in production volume.
e.
The
average cost
per unit declines as a production facility produces more units.
f.
Costs that differ between alternatives are called
differential costs
.
g.
In the long​ run, most costs are
controllable costs
​, meaning management is able to influence or change the amount of the cost.
h.
Sunk costs
are costs that have already been incurred.

a.
​A(n)
marginal cost
is the cost of making one more unit.
b.
Gasoline is one of many
variable costs
in the operation of a motor vehicle.
c.
A product's
fixed costs
and
variable costs
, not the product's
average cost
should be used to
forecast total costs at different production volumes.

d.
Within the relevant​ range,
fixed costs
do not change in total with changes in production volume.
e.
The
average cost
per unit declines as a production facility produces more units.
f.
Costs that differ between alternatives are called
differential costs
.
g.
In the long​ run, most costs are
controllable costs
​, meaning management is able to influence or change the amount of the cost.
h.
Sunk costs
are costs that have already been incurred.

Classify each of the following costs as relevant or irrelevant to the decision at hand and briefly explain your reason.
a.  The fair market value of old manufacturing equipment when deciding whether to replace it with new equipment​ (old equipment will be sold if new equipment is​ purchased)
Relevant
because
the fair market value is the amount of money the company would get by selling the old equipment
b.  Cost of purchasing packaging materials from an outside vendor when deciding whether to continue manufacturing the packaging materials​ in-house
Relevant
because
the cost is relevant if it differs between outsourcing and making the materials in-house
c.  Depreciation expense on old manufacturing equipment when deciding whether to replace it with newer equipment
Irrelevant
because
depreciation expense is simply a paper write-off (the expensing) of a sunk cost
d.  The total amount of the​ restaurant's fixed costs when deciding whether to add additional items to the menu
Irrelevant
because
facilities are unchanged, so the fixed cost will be the same
e.  The cost of land purchased three years ago when deciding whether to build on the land now or wait two more years
Irrelevant
because
the cost of land is a sunk cost whether the company builds on it now or in the future
f.  The interest rate received on invested funds when deciding how much inventory to keep on hand
Relevant
because
a higher interest rate will motivate the company to decrease inventory levels and invest the extra funds
g.  Cost of computers purchased six months ago when deciding whether to upgrade to computers with a faster processing speed
Irrelevant
because
the cost of computers, which were purchased in the past, is a sunk cost
h.  The property tax rates in different locales when deciding where to locate the​ company's headquarters
Relevant
because
the company will incur different property taxes depending on where they locate
i. The type of fuel​ (gas or​ diesel) used by delivery vans when deciding which make and model of van to purchase for the​ company's delivery van fleet
Relevant
because
the type of gas used by the delivery vans will affect the cost of operating the vans in the future
j.  Cost of operating automated production machinery versus the cost of direct labor when deciding whether to automate production
Relevant
because
the cost of employing labor vs. automating production will likely differ

For each of the following​ companies, specify whether each company would be more likely to use job costing or process costing.
a.
Janitorial services company
Job costing
b.
Soup manufacturer
Process costing
c.
Commercial plumbing contractor
Job costing
d.
Toothpaste manufacturer
Process costing
e.
Catering service
Job costing
f.
Shipbuilder
Job costing
g.
Company providing Web design services
Job costing
h.
Medical practice of six doctors and four physician assistants
Job costing
i.
Soft drink bottler
Process costing
j.
Movie studio
Job costing
k.
Plastic bottle manufacturer
Process costing

Requirement 1. What is ​'s predetermined manufacturing overhead rate based on direct labor​ (DL) cost?
Determine the formula to calculate ​'s predetermined overhead rate based on direct labor​ costs, then calculate the rate.

Estimated yearly overhead costs
/
Estimated yearly direct labor cost
=
Predetermined overhead rate


$530,400
/
$1,020,000
=
52
% of DL cost

Requirement 2. Calculate the manufacturing overhead to be allocated based on direct labor cost to Job 371.
Determine the formula to calculate the overhead to be allocated based on direct labor to Job​ 371, then calculate the manufacturing overhead allocated. ​(Round your answer to the nearest whole​ dollar.)






Manufacturing

Actual direct labor costs
x
Predetermined overhead rate

=
overhead allocated
$4,250
x
52
%
=
$2,210

Requirement 3. What is the total cost of Job​ 371?

Job 371
Direct materials
$15,500
Direct labor
4,250
Manufacturing overhead
2,210
Total job cost
$21,960

Requirement 1. Compute the predetermined manufacturing overhead rate.
Enter the formula for predetermined manufacturing overhead​ rate, then compute the rate.

Estimated yearly overhead costs
/
Estimated yearly machine hours
=
Predetermined overhead rate


$194,400
/
7,200
=
$27
per machine hour

Requirement 2. Calculate the allocated manufacturing overhead for the past year.






Manufacturing


Predetermined overhead rate
x
Actual machine hours

=
overhead allocated

27
x
$6300
=
$170,100

Requirement 3. Compute the underallocated or overallocated manufacturing overhead. How will this underallocated or overallocated manufacturing overhead be disposed​ of?
First calculate the preliminary manufacturing overhead balance using the​ T-account.
Manufacturing Overhead
Actual depreciation on plant and equipment
72,500


Manufacturing overhead allocated
170,100
Actual indirect manufacturing labor
42,000



Actual indirect materials
50,500



Actual plant utilities
38,400




End Bal
33,300




Close the​ under- or overallocated overhead to Cost of Goods Sold by journalizing the entry.​ (Record debits​ first, then credits. Exclude explanations from any journal​ entries.)
Journal Entry
Date
Accounts
Debit
Credit


Cost of Goods Sold
33,300



Manufacturing Overhead

33,300










Requirement 4. How can managers use accounting information to help control manufacturing overhead​ costs?
To help control manufacturing​ overhead, managers compare the actual line item amounts for
manufacturing overhead
with the budgeted amounts. Managers will also investigate only
large
differences between actual and budgeted amounts to identify the reasons why actual costs
differ from planned or budgeted costs
.

Listed below are several document terms. Match each term with the corresponding statement in the list provided. Some terms may be used more than once and other terms may not be used at all.
Terms
a. Bill of materials

b. Job cost record

c. Production schedule
d. Purchase orders
e. Raw materials record
f. Labor time record
g. Receiving report

h. Materials requisition

i. Invoice

Statement
1.
​ A(n)
job cost record
is used to accumulate all of the costs affiliated with each job.
2.
All direct laborers in the factory fill out​ a(n)
labor time record
.
3.
The accounting department will not pay​ a(n)
invoice
unless it agrees with the quantity of parts both ordered and received.
4.
Each item in the raw materials storeroom has its own
raw materials record
.
5.
The
raw materials record
is a control for the materials stored in the storeroom. In order to get direct​ materials, a(n)
materials requisition
must be presented.
6.
Before production​ begins, the​ manufacturer's purchasing department issues
purchase orders
to its supplier for needed direct materials.
7.
​A(n)
receiving report
is typically a duplicate of the purchase order but without the quantity​ pre-listed on the form.
8.
The
bill of materials
is like a list of ingredients in a​ recipe, stating the materials needed to produce a product.