Cost Accounting Part 1

A business entity that converts purchased raw materials into finished goods using labor, technology, and facilities is known as a manufacturer. This type of business is involved in the production process, transforming raw materials into tangible products that can be sold to customers. Manufacturers typically have their own production facilities and employ workers to carry out the manufacturing process. Unlike merchandisers who primarily buy and sell finished goods, manufacturers are involved in the entire production cycle, from sourcing raw materials to producing the final products. Service businesses, on the other hand, provide intangible services rather than tangible goods. Not-for-profit service agencies are organizations that provide services for the public good without a profit motive.

A business entity that purchases finished goods for resale is known as a merchandiser. Unlike a manufacturer, which produces goods, a merchandiser buys products from manufacturers or wholesalers and sells them to customers. This type of business focuses on the buying and selling of goods rather than the production process. A service business, on the other hand, offers services rather than physical products. The term "for-profit service business" is not applicable in this context as it does not accurately describe the business entity that purchases finished goods for resale.

Tom Jones, as a management accountant, should follow his organization's established policies on the resolution of ethical conflicts at the office. This is in line with the Institute of Management Accountants' Statement of Professional Practice, which emphasizes the importance of adhering to organizational guidelines and procedures in addressing such conflicts. By doing so, Tom can ensure that he acts in a manner that is consistent with his professional responsibilities and the ethical standards of his organization.

Work in Process refers to the goods that are in various stages of production but have not yet been completed. These goods are still being worked on and have incurred manufacturing costs up to the current date. Therefore, the correct answer is Work in Process.

Administrative expense is not a cost that is accumulated in Work in Process. Work in Process represents the costs of direct materials, direct labor, and factory overhead that are incurred in the production process. Administrative expenses, on the other hand, are costs associated with the general administration and management of the company, such as salaries of executives, office supplies, and legal fees. These expenses are not directly related to the production process and therefore not included in the Work in Process account.

The correct answer is Airlines, architects, and hair stylists. These examples are all service businesses because they provide services rather than tangible products. Airlines provide transportation services, architects offer design and planning services, and hair stylists provide grooming and styling services. These businesses rely on skilled professionals to deliver their services to customers.

In job order costing, the job cost sheet is the basic document used to accumulate the cost of each job. It contains all the details related to a specific job, including direct materials, direct labor, and overhead costs. This sheet helps in tracking and recording the costs incurred for each job, allowing for accurate cost calculation and analysis. The requisition sheet is used to request materials or services, the purchase order is used to initiate a purchase, and the invoice is a document sent to the customer for payment. However, none of these documents specifically serve the purpose of accumulating the cost of each job.

In financial statements, materials should be categorized as assets. This is because materials are tangible resources owned by a company that have future economic value. They are typically used in the production process to create goods or provide services. As assets, materials are recorded on the balance sheet and their value is reported based on their cost or fair market value. Categorizing materials as assets reflects their potential to contribute to the company's future cash flows and overall value.

The passage states that Witt Company maintains a continuous record of purchases, materials issued into production, and balances of all goods in stock. This indicates that the company keeps track of inventory in real-time, which is a characteristic of a perpetual inventory system. This system allows for accurate and up-to-date inventory valuation data to be available at any given time.

Glue is most likely to be considered an indirect material in the manufacture of a sofa because it is not a primary component of the final product, but rather a material used in the manufacturing process. While lumber, fabric, and foam rubber are all direct materials that directly contribute to the construction of the sofa, glue is used to join different parts together and is not typically visible in the finished product. Therefore, it is considered an indirect material.

Based on the given information, Taylor Logan's duties involve preparing reports that focus on both historical and estimated data for ongoing operations and long-range planning. This indicates that Taylor is involved in managing financial information and using it for decision-making purposes within the organization. Therefore, the correct answer is management accountant.

A typical factory overhead cost refers to the expenses incurred in the production process that cannot be directly attributed to a specific product. Among the given options, depreciation on machinery and equipment is the most fitting choice. Depreciation represents the gradual decrease in value of the machinery and equipment used in the factory over time due to wear and tear or obsolescence. It is a common factory overhead cost as it is necessary to allocate a portion of the machinery's value to each product produced, reflecting its usage in the production process.

The selling price per blanket should be $15.60. This can be calculated by adding the manufacturing costs (direct materials, direct labor, and factory overhead) and applying the mark-on percentage of 30%. The total manufacturing costs amount to $240,000 ($125,000 + $55,000 + $60,000). Adding the mark-on percentage of 30% to the manufacturing costs gives a total of $312,000 ($240,000 + 30% of $240,000). Dividing the total by the number of blankets produced (20,000) gives the selling price per blanket of $15.60.

In responsibility accounting, the supervisor of an assembly line is typically responsible for the performance of the line in terms of efficiency and productivity. The supervisor's salary is a fixed cost that is not directly related to the performance of the assembly line. Therefore, it would be least likely to appear on a performance report based on responsibility accounting. The other items, such as direct labor, materials, and repairs and maintenance, are directly related to the assembly line's performance and would be more relevant for inclusion in the report.

The cost of goods sold in April can be calculated by subtracting the ending finished goods inventory from the sum of the beginning finished goods inventory and the cost of goods manufactured. In this case, the beginning finished goods inventory is $50,000, the ending finished goods inventory is $60,000, and the cost of goods manufactured is $175,000. Therefore, the cost of goods sold in April is $165,000.

A periodic inventory system is a method of tracking inventory where the balances are estimated throughout the year for interim financial statements. At the end of the year, operations are shut down to physically count all inventory items. This system is different from a perpetual inventory system, which continuously updates inventory balances in real-time. The periodic inventory system is often used by smaller businesses or those with less complex inventory management needs. The inventory control account and inventory cost method are not directly related to the process of estimating inventory balances and shutting down operations for counting.

The correct answer is that uses predetermined costs to furnish a measurement that helps management make decisions regarding the efficiency of operations. This explanation is supported by the fact that a standard cost system uses predetermined costs, which are estimated costs based on historical data and industry standards, to measure the efficiency of operations. By comparing actual costs with standard costs, management can identify any inefficiencies or deviations from the expected performance and take appropriate actions to improve operations. This measurement helps management make informed decisions and improve the overall efficiency of the organization.

The correct answer is planning. Planning is the process of setting objectives or goals for the firm and determining the means to achieve them. It involves analyzing the current situation, identifying future opportunities and challenges, and developing strategies and action plans to achieve the desired outcomes. Planning is an essential management function that helps organizations to align their activities, allocate resources effectively, and make informed decisions. It provides a roadmap for the firm's future actions and helps to ensure that all employees are working towards common goals.

The term "prime cost" refers to the sum of direct material costs and direct labor costs. This means that the prime cost includes the cost of materials used in the production process and the wages paid to the workers directly involved in manufacturing the product. It does not include any factory overhead costs or any other costs associated with manufacturing. The prime cost is a key component in determining the total cost of producing a product and is often used in calculating the cost of goods sold.

The cost of goods sold in January can be calculated by subtracting the merchandise inventory on January 31 from the sum of the merchandise inventory on January 1 and purchases made during the month. In this case, the merchandise inventory on January 1 was $90,000 and the purchases made during the month were $560,000. Subtracting the merchandise inventory on January 31, which was $65,000, from the sum of the inventory on January 1 and purchases gives us $585,000. Therefore, the correct answer is $585,000.

Conversion costs refer to the sum of direct labor costs and all factory overhead costs. This includes the cost of labor required to transform raw materials into finished products, as well as the indirect costs associated with the production process such as utilities, maintenance, and depreciation of factory equipment. By calculating conversion costs, a company can determine the total expenses incurred in the manufacturing process, excluding the costs of direct materials.

The cost of all materials purchases and on hand to be used in the manufacturing process is referred to as "Materials." This includes the cost of raw materials, components, and any other supplies necessary for the production of goods. Merchandise Inventory refers to finished goods that are ready for sale, while Finished Goods are completed products awaiting delivery to customers. Work in Process represents goods that are currently being manufactured but are not yet finished. Therefore, the correct answer is Materials.

The Machining Department, being under the control and responsibility of Aaron Smith for manufacturing costs, is an example of a cost center. A cost center is a department or unit within a company that incurs costs but does not directly generate revenue. It is responsible for managing and controlling costs associated with its operations. In this case, Aaron Smith as the supervisor of the Machining Department is accountable for the costs incurred in the department's manufacturing activities, making it a cost center.

ISO 9000 is a set of international standards that focuses on quality management. These standards provide guidelines and criteria for organizations to ensure that their products and services consistently meet customer requirements and enhance customer satisfaction. ISO 9000 helps organizations establish and maintain effective quality management systems, which include processes for quality planning, quality control, quality assurance, and continual improvement. It does not specifically address determining selling prices, cost control, or planning, but rather emphasizes the importance of quality management throughout an organization.

The correct answer is Merchandise Inventory. This is because merchandise inventory refers to the inventory of goods that a retailer or wholesaler purchases for resale, rather than the inventory of materials and goods in various stages of production that a manufacturer would have. Therefore, merchandise inventory is not applicable to a manufacturer's inventory accounts.

The correct answer is Finished Goods. Finished goods refer to the products that have been fully manufactured but have not yet been sold or delivered to customers. These goods are ready to be sold and are waiting in inventory until they are shipped. Therefore, the total cost of manufactured goods completed but still on hand would be categorized as finished goods.

Control is the process of monitoring the company's operations and comparing the results with the objectives. It involves periodically measuring and comparing company results, as well as taking necessary corrective action when variances warrant doing so. However, constantly monitoring employees to ensure they do exactly as they are told is not an effective control measure. Effective control focuses on monitoring performance and results, rather than micromanaging employees.

The IMA Statement of Professional Practice includes standards such as confidentiality, integrity, and competence, which are essential for management accountants. However, commitment is not explicitly mentioned as one of the standards in the statement. While commitment may be implied within the other standards, it is not specifically listed as a separate standard in the IMA's statement.

Factory overhead refers to all the indirect costs incurred in the manufacturing process, excluding direct materials and direct labor. This includes expenses such as utilities, rent, depreciation of machinery, maintenance costs, and other miscellaneous expenses that are necessary for production but cannot be directly attributed to a specific product. By excluding direct materials and direct labor, the answer accurately captures the definition of factory overhead and distinguishes it from other types of costs involved in manufacturing.

A law firm wanting to track the costs of serving different clients would use a job order cost system. This system is specifically designed to track the costs associated with producing unique products or services, such as the legal services provided to different clients. It allows the firm to allocate costs to specific jobs or clients, providing a detailed breakdown of the expenses incurred for each client. This system is useful for businesses that have customized or individualized products or services, allowing them to accurately measure the costs associated with each job or client.

Financial accounting is primarily concerned with the preparation and presentation of financial statements for external users, such as investors, creditors, and regulatory bodies. It focuses on providing an accurate and reliable representation of a company's financial performance and position. In contrast, cost accounting is primarily concerned with internal reporting and decision-making. It involves the collection, analysis, and interpretation of cost information to assist management in planning, controlling, and decision-making processes within the organization. Therefore, the correct answer is that financial accounting is mostly concerned with external financial reporting.

A wholesaler is the type of merchandiser who purchases goods directly from the producer and sells them to stores who then sell to the consumer. Wholesalers typically buy goods in bulk and distribute them to retailers in smaller quantities, acting as a middleman between the producer and the retailer. They play a crucial role in the supply chain by providing a convenient and efficient way for producers to reach a wider market and for retailers to access a variety of products.

The beverage industry would most likely use process costing procedures because it involves the mass production of a standardized product. Process costing is a method used to allocate costs to each unit of production in a continuous production process. In the beverage industry, products such as soft drinks or bottled water are produced in large quantities using a continuous production process, making process costing an ideal method to determine the cost per unit. Home construction, printing, and shipbuilding involve more customized or unique products, making job costing or other costing methods more suitable.

The amount that would be included in factory overhead in November is $35,000. This is because factory overhead refers to the indirect costs incurred in the production process, such as rent, utilities, and equipment maintenance. The salaries and wages of the assembly workers, machine operators, and maintenance workers would be considered as part of the direct labor costs, not factory overhead. Therefore, the correct answer is $35,000.

The cost of goods manufactured can be calculated by adding the total manufacturing costs charged to production during the year to the beginning work in process inventory and subtracting the ending work in process inventory. In this case, the total manufacturing costs charged to production during the year is $680, the beginning work in process inventory is $50, and the ending work in process inventory is $65. Therefore, the cost of goods manufactured is $680 + $50 - $65 = $665.

The amount that would be included in direct labor in November is $60,000. Direct labor refers to the wages and salaries paid to employees who directly work on the production of goods or services. In this case, the assembly workers' wages, machine operators' wages, and maintenance workers' wages would all be considered direct labor costs. Adding these amounts together gives a total of $60,000.

Factory overhead refers to the indirect costs incurred in the manufacturing process that cannot be directly attributed to a specific product. It includes expenses such as utilities, rent, depreciation, and salaries of personnel involved in production supervision. While the wages of an office clerk, sales manager, and tax accountant are not directly related to the production process, the supervisor's salary is considered a part of factory overhead as they play a crucial role in overseeing and managing the production activities. Therefore, the correct answer is supervisor's salary.

Prime costs are the direct costs of manufacturing, which include direct materials and direct labor (the wages of employees directly involved in production).

In this case:

Direct materials used = $135,000

Machine operators’ wages (direct labor) = $200,000

Now, calculate the total prime costs by adding direct materials and direct labor:

$135,000 (direct materials) + $200,000 (direct labor) = $335,000

Therefore, the prime costs are $335,000.

In a job order system of cost accounting, the dollar amount to transfer inventory from Work in Process to Finished Goods is the sum of the costs charged to all jobs completed during the period. This means that only the costs of the jobs that have been finished and are ready to be sold are included in the transfer. The costs of jobs that are still in process, started during the period, or completed and sold during the period are not included in this transfer.

According to the IMA Statement of Ethical Professional Practice, one of the components of the standard of Competence is performing professional duties in accordance with relevant laws, regulations, and technical standards. This means that professionals should have the necessary knowledge, skills, and abilities to carry out their responsibilities in compliance with the applicable rules and standards. By adhering to this standard, professionals can ensure that they are competent in their roles and can effectively fulfill their duties.

Unit cost information is important for making marketing decisions related to determining the selling price of a product, bidding on contracts, and determining the amount of profit that each product earns. However, it is not directly relevant to determining the amount of advertising needed to promote the product. Advertising decisions are typically based on factors such as target audience, marketing objectives, and budget allocation, rather than the unit cost of the product.

The correct answer is $1,425,000. This can be calculated by subtracting the beginning inventory ($250,000) from the cost of goods sold ($1,350,000) and adding the ending inventory ($325,000). This will give us the total merchandise purchases for the month, which is $1,425,000.

The balance in the Finished Goods account at the end of November is determined by adding the cost of goods manufactured to the beginning balance and subtracting the cost of goods sold. In this case, the cost of goods manufactured is $2,350,000 and the cost of goods sold is $2,455,000. To find the beginning balance, we can rearrange the equation: Beginning balance = Ending balance - Cost of goods manufactured + Cost of goods sold. Plugging in the given values, we get: Beginning balance = $825,000 - $2,350,000 + $2,455,000 = $930,000. Therefore, the balance in Kayser's Finished Goods account at November 1 was $930,000.

Printing text books would be most likely to employ a job order system of cost accounting because each printing job is unique and requires specific materials, labor, and overhead costs. Job order costing is typically used when products are made to order or in small batches, allowing for the allocation of costs to specific jobs or orders. In the case of printing text books, each book would be considered a separate job, and the costs associated with printing, binding, and other production processes would be tracked and allocated to each specific book order.

The Sarbanes-Oxley Act of 2002 was written in response to accounting scandals and aimed to protect shareholders of public companies. One of the key aspects of the act is to improve corporate governance. Corporate governance refers to the system of rules, practices, and processes by which a company is directed and controlled. By enhancing corporate governance, the act aims to ensure that companies are managed in a way that is transparent, accountable, and in the best interest of shareholders. This helps to prevent fraudulent activities and unethical behavior, ultimately safeguarding the interests of shareholders.

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When payroll is recorded, the company debits the Payroll account to recognize the expense incurred for paying employees. At the same time, the company credits the Wages Payable account to reflect the liability it owes to its employees for the work performed. This transaction ensures that the payroll expense is properly recorded in the financial statements and that the amount owed to employees is accurately represented in the balance sheet.

The statement of costs of goods manufactured shows the depreciation of the factory building. This is because depreciation is a non-cash expense that reflects the wear and tear of the building over time. It is included in the cost of goods manufactured to allocate a portion of the building's cost to the products being produced. This helps in accurately determining the cost of each unit produced and ultimately the profitability of the manufacturing process. The other items mentioned, such as office supplies, salary of the sales manager, and rent on finished goods warehouse, are not typically included in the costs of goods manufactured.

The cost of goods sold during the year can be calculated by subtracting the ending inventory from the cost of goods available for sale. The cost of goods available for sale is the sum of the total manufacturing costs charged to production during the year and the beginning inventory. In this case, the total manufacturing costs charged to production during the year is $680 and the beginning inventory is $275 ($90 + $50 + $100). Therefore, the cost of goods available for sale is $680 + $275 = $765. Subtracting the ending inventory of $245 ($85 + $65 + $90) from the cost of goods available for sale gives us $765 - $245 = $520. Therefore, the cost of goods sold during the year is $520.

Selling expenses would be least likely to appear on a performance report based on responsibility accounting for the supervisor of an assembly line in a large manufacturing situation. This is because selling expenses are typically associated with the sales department, not the assembly line. The supervisor of the assembly line would be more focused on direct labor, indirect materials, and repairs and maintenance, as these costs directly relate to the production process. Selling expenses, such as advertising and sales commissions, would be more relevant to the sales department's performance report.