Handout/Knowledge Check: Chapter 161 Managerial Accounting What is the purpose of accounting?

To provide information for planning, evaluating, and rewarding performance. What is management accounting? Is the design and use of accounting information systems inside the company to achieve the company's objectives. (To provide information for planning, evaluating, and rewarding performance. What is the primary goal of a company? Draw a flow of costs diagram (T-accounts):

What are manufacturing costs? The cost of manufacturing the goods that will be sold to the customers. The basic types of manufacturing costs are direct materials, direct labor, and manufacturing overhead. Direct Materials (DM) are: Materials and component parts that become an integral part of the manufactured goods and can be traced directly to the finished products. (Materials that can be directly traced to the final product) Direct Labor (DL) is: Payroll costs for employees who work directly on the products being manufactured, either by hand or by machine. (Wages that you pay to employees- Wages that can be directly traced to the final product) Manufacturing Overhead (MOH) is: a catchall classification, which includes all manufacturing costs other than the costs of direct materials and direct labor. Examples include factory utilities, supervisor salaries, equipment repairs, and depreciation on production machinery. (Factory Utilities, Depreciation on the factory, Equipment Repairs, Supervisor Salaries, cannot be easily traced Factory or Product Prime Costs are: the direct materials and direct labor that are consumed in production (Direct Labor + Direct Materials) Conversion Costs are: The costs of converting raw materials into finished goods, specifically the direct labor and overhead costs. (Direct Labor + Overhead)

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Product Costs are: are those costs incurred to manufacture inventory. Period Costs are: Operating expenses associated with time periods, rather than with the production of inventory (Selling Expenses) What are the three inventories of a manufacturing business? a. Materials b. Work in Process c. Finished Goods What is Work in Process (WIP) inventory: partially completed goods on which production activities have been started but not yet completed What is Finished Goods (FG) inventory: unsold finished products available for sale to customers.
Knowledge Check 1: Beginning materials inventory = $15,000 Purchases of materials = $60,000 Ending material inventory = $8,000 Credits to direct labor = $75,000 Ending balance of direct labor = $5,000 Total manufacturing overhead = $90,000 Costs transferred to finished goods = $230,000 Beginning work in process inventory = $4,000

What was the ending balance of the Work in Process account? A) $10,000 B) $ 6,000 C) $ 2,000 D) $14,000 2: Manufacturing overhead costs are $450,000, direct labor is $120,000, and direct materials used were $80,000. The beginning and ending balances of the Work in Process Inventory account were zero. If 100,000 units of product were transferred to the Finished Goods Inventory account, what was the per-unit cost of the products? A) $4.50 B) $1.20 C) $6.50 D) $5.70 3: Direct materials used = $50,000 Direct labor applied = $80,000 Manufacturing overhead applied = $120,000 Ending work in process inventory = $10,000 Calculate Cost of Goods Sold A) $250,000 B) $240,000 C) $220,000 D) $200,000 4: Beginning work in process inventory = $20,000 Ending work in process inventory =$10,000 Total manufacturing costs = $250,000 Cost of finished goods manufactured = $260,000 Sales = $500,000 Beginning finished goods inventory = $40,000 Gross profit on sales = $220,000 Calculate the balance of the ending finished goods inventory. A) $10,000 B) $280,000 Ending finished goods inventory $20,000 Beginning balance in work in process Inventory = $0 Beginning balance in finished goods Inventory = $0

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C) $20,000 D) $30,000 5: Which of the following is a period cost? A) Direct materials B) Sales commissions C) Direct labor D) Factory rent 6: Which of the following is most likely to be classified as indirect labor in the manufacture of personal watercraft? A) The cost of forklift drivers B) The costs of maintaining a finished goods warehouse. C) The cost of labor to assemble the personal watercraft. D) Both (A) and (B).