Questions and Answers
What does prime cost consist of?
Direct materials combined with direct labor.
The cost of direct materials are classified as which of the following?
Within the relevant range, the variable cost per unit remains constant as activity changes.
True
Give an example of a period cost.
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What is the total expected maintenance cost of the activity level of 8700 machine hours?
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What is an example of a cost that is variable with respect to the number of units produced and sold?
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What is the total contribution margin for Tempos Inc if it sold and installed 500 furnaces last year?
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What do you get when you add direct labor and manufacturing overhead?
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In the linear equation Y=a+bX, what does the term b represent?
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In a job-order costing system, direct labor costs are initially recorded with a debit to which account?
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What year-end journal entry could Ivory make to dispose of $4,150 of over-applied manufacturing overhead cost?
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Study Notes
Direct Labor and Costs
- Direct Labor is part of prime cost alongside direct materials.
- Cost Classifications include conversion cost and manufacturing cost, but direct materials fall under prime cost.
Cost Behavior
- Variable Cost per Unit remains constant within the relevant range as activity levels change.
- An example of a Period Cost is rent for a headquarters building, which is not tied to production levels.
Fixed and Variable Costs
- Total expected maintenance cost at 8700 machine hours is $2000; calculated by fixing costs after accounting for any variable costs.
- Variable Costs are exemplified by power consumption required for running production equipment.
Contribution Margin Calculation
- Tempos Inc. sells furnaces for $3000 each, leading to a total contribution margin of $600,000 after selling 500 units, calculated from sales revenue and variable expenses.
Cost Formulas
- The linear equation Y = a + bX expresses cost, where b indicates the variable cost per unit of activity.
Job-Order Costing System
- In a job-order costing environment, Direct Labor Costs are first recorded with a debit entry to Work in Process.
- Over-Applied Manufacturing Overhead can be closed out by debiting the manufacturing overhead account and crediting cost of goods sold, effectively moving $4,150.
Conversion Cost
- Conversion costs combine direct labor and manufacturing overhead, significant in tracking costs incurred during production processes.
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Description
Test your knowledge on key accounting concepts with these flashcards. This quiz covers terms such as direct labor, conversion costs, and period costs, crucial for understanding cost behavior in managerial accounting. Perfect for students preparing for Acct 2302.
