Exam 4: Cost Management Systems and Activity-Based Costing

The Grinch Company has gathered the following information for the year ended December 31, 20X0: Sales \ 75,000 Direct materials used 12,900 Direct labor 5,200 Fixed: Factory overhead 6,400 Selling expenses 2,300 Administrative expenses 1,700 Variable: Factory overhead 3,300 Selling expenses 5,700 Administrative expenses 8,300 There were no beginning or ending inventories. Net income is:

An example of an unallocated cost is research and development.

Gunsmoke Manufacturing Company purchased $44,000 of direct materials and incurred $7,600 of direct labor costs during the year. Indirect labor amounted to $3,000 while indirect materials totaled $5,200. Factory depreciation totaled $18,800. Selling expenses were $15,400. The only inventory was $5,500 of finished goods at year end. Required: a. Compute the cost of goods manufactured. b. Compute the cost of goods sold.

Cost assignment is the tracing or allocating of costs to one or more cost objectives, such as activities and departments.

The first step in designing an ABC system is to determine the key components of the activity- based cost accounting system.

A value- added cost is the cost of an activity that a company cannot eliminate without affecting a product's value to the customer.

Anything for which a separate measurement of costs is desired. Examples include departments, products, activities, and territories

A merchandising company has direct materials inventory.

is the necessary cost of an activity that cannot be eliminated without affecting a product's value to the customer.

Examples of factory overhead costs include property taxes on the factory and factory depreciation.

Product costs appear on either the balance sheet and income statement, but not both.

One of the important differences between traditional and activity- based costing systems is:

A cost object is anything for which a separate measurement of costs is desired.

Forklift operators and factory security guards are examples of direct- labor costs.

Aloha Manufacturing Co. has two departments: Cooking and Bottling. For the period just ended, Aloha's costs were: direct materials, $140,000; direct labor, $80,000; and indirect manufacturing, $100,000. Costs assigned to the Cooking department were: direct materials, 50%; direct labor, 80%. Indirect costs are assigned in the same proportion as direct labor cost. The total cost incurred in the Cooking department is:

The equation for gross margin or profit

Finished goods inventory for a manufacturer is the same as merchandise inventory for a merchandiser.

Sometimes employee benefits are included in direct- labor costs.

Cost accounting is that part of the cost management system that measures costs for the sole purpose of financial reporting.

West, Inc., started the year with $80,000 in direct materials. During the year West, Inc., purchased $535,000 in direct materials, and used $515,000 in materials. The direct materials inventory on the balance sheet is: