Merchandising and Manufacturing Costs

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Questions and Answers

How do total fixed costs behave as production levels change?

They will increase as production decreases.

They will decrease as production decreases.

They will remain the same as production levels change. (correct)

They will decrease as production increases.

What happens to fixed costs per unit as production increases?

They will decrease as production decreases.

They will increase as production increases. (correct)

They will increase as production decreases.

They will remain the same as production levels change.

What is the first step in creating an Excel table from a data set?

Click on any cell in the data set. (correct)

Filter the data to extract specific subsets.

Open the data set in a new workbook.

Select the range of cells and format them.

Which action is used to extract a specific subset from large data sets?

Filtering the data. Signup and view all the answers

Which of the following describes a function of data analytic tools?

They help in sorting data by specific criteria. Signup and view all the answers

Which of the following is considered a direct cost for manufacturing a desk?

Wood for the desktop Signup and view all the answers

In the context of a grocery store's Produce Department, which of the following would be classified as an indirect cost?

Monthly lease payment for the store Signup and view all the answers

What determines whether a cost is considered direct or indirect?

The cost object it is associated with Signup and view all the answers

Which of the following items would typically be classified as a product cost?

Depreciation on factory equipment Signup and view all the answers

Which option best describes period costs?

They are costs that are expensed in the period incurred. Signup and view all the answers

When analyzing costs for a manufacturing firm, which category do sold goods typically fall under?

Inventoriable product costs Signup and view all the answers

What type of cost is associated with the oil used for machinery in desk production?

Indirect cost Signup and view all the answers

Which of the following represents a scenario where a cost can be classified differently based on the cost object?

Salaries of sales staff Signup and view all the answers

Which cost is considered irrelevant for decision making?

Costs incurred for a project that was abandoned. Signup and view all the answers

Which statement describes fixed costs?

They remain constant regardless of production levels. Signup and view all the answers

How do variable costs behave as production levels change?

They change in direct proportion to production volume. Signup and view all the answers

Which of the following is an example of a controllable cost?

Local advertising expenses. Signup and view all the answers

What characterizes an uncontrollable cost?

It is the same regardless of operational decisions. Signup and view all the answers

Which statement regarding total variable costs is correct?

They will increase with rising production levels. Signup and view all the answers

Which type of company primarily provides services rather than products?

Service company Signup and view all the answers

What are the three inventory accounts used by manufacturing companies?

Raw materials, work in process, finished goods Signup and view all the answers

Which of the following is a main characteristic of merchandising companies?

They buy products to sell them to customers. Signup and view all the answers

In the context of managerial accounting, which costs are considered relevant?

Future costs that will be incurred based on a decision Signup and view all the answers

Which type of company is likely to produce its own inventory?

Manufacturer Signup and view all the answers

What type of costs are typically classified as period costs?

Costs that are expensed in the period they are incurred Signup and view all the answers

Which of the following is an element of the value chain?

Research and development Signup and view all the answers

What distinguishes direct costs from indirect costs?

Direct costs can be traced directly to a product; indirect costs cannot. Signup and view all the answers

What is the total service revenue reported by the service company?

$110,000 Signup and view all the answers

What is the net operating income for the merchandising/manufacturing company?

$28,000 Signup and view all the answers

How much is the cost of goods sold for the merchandising/manufacturing company?

$40,000 Signup and view all the answers

What is the net income reported by the service company?

$69,000 Signup and view all the answers

What is the formula used to calculate the cost of goods sold?

Beginning Inventory + Purchases - Ending Inventory Signup and view all the answers

Which of the following is considered an operating expense for the merchandising/manufacturing company?

Utilities expense Signup and view all the answers

What total amount is deducted from sales revenue to calculate net sales for the merchandising/manufacturing company?

$10,000 Signup and view all the answers

How are gross income and net operating income related in the merchandising company?

Gross income is higher than net operating income. Signup and view all the answers

How would Honda classify materials like steel and glass before car manufacturing?

Raw materials inventory. Signup and view all the answers

What classification would Walmart use for its clothing held for sale?

Merchandise inventory. Signup and view all the answers

How does Honda categorize its partially completed vehicles during production?

Work in process. Signup and view all the answers

In the value chain, what does the term 'marketing' refer to?

The promotion of products and services. Signup and view all the answers

Which part of the value chain would depreciation on a factory be classified under?

Production. Signup and view all the answers

What role does a technical support hotline play in the value chain?

Customer service. Signup and view all the answers

What distinguishes a direct cost from an indirect cost?

A direct cost can be easily traced to a cost object, whereas an indirect cost cannot be directly attributed. Signup and view all the answers

Why might certain costs be categorized differently based on the cost object?

Because the purpose of the cost object determines the relevance of the cost classification. Signup and view all the answers

What happens to fixed costs per unit as production levels change?

Fixed costs per unit will increase as production increases. Signup and view all the answers

How can you sort data in Excel?

You can sort data in Excel by selecting the data set and then using the Sort option from the Data tab. Signup and view all the answers

Describe the process of filtering data in Excel.

To filter data in Excel, you must select the data range, then click on the Filter icon under the Data tab to display criteria options. Signup and view all the answers

What is the initial action required to convert a dataset into an Excel table?

Click on any cell in the dataset and then click the Insert tab followed by the Table icon. Signup and view all the answers

How do total fixed costs behave when production levels decrease?

Total fixed costs remain the same regardless of changes in production levels. Signup and view all the answers

What are the three main categories of product costs in manufacturing?

Direct materials, direct labor, and manufacturing overhead. Signup and view all the answers

Define prime costs and conversion costs in the context of manufacturing.

Prime costs include direct materials and direct labor, while conversion costs consist of direct labor and manufacturing overhead. Signup and view all the answers

What types of inventory accounts do manufacturers maintain?

Manufacturers maintain raw materials, work in process, and finished goods inventory accounts. Signup and view all the answers

How do total costs differ from inventoriable product costs?

Total costs may include all resources used throughout the value chain, whereas inventoriable product costs are specifically for external reporting. Signup and view all the answers

Which costs would you classify as manufacturing overhead?

Costs such as depreciation on production equipment and repairs on factory equipment are classified as manufacturing overhead. Signup and view all the answers

What is meant by period costs?

Period costs are expenses that are not tied to manufacturing and are incurred regardless of production levels. Signup and view all the answers

Identify an example of a cost that could be both a period cost and a product cost depending on context.

Property insurance is an example, as it could be attributed to manufacturing or administrative use. Signup and view all the answers

What distinguishes a service company from a merchandising company in terms of inventory?

A service company has no inventory, while a merchandising company maintains merchandise inventory. Signup and view all the answers

What is the sequence of inventory cost flow in a manufacturing company?

The sequence is raw materials, work in process, and finished goods. Signup and view all the answers

Which calculation follows the cost of goods manufactured in determining a manufacturer's operating income?

The cost of goods sold is calculated last before determining operating income. Signup and view all the answers

What distinguishes the balance sheets of manufacturing businesses from service businesses?

The main distinction lies in current assets, specifically the presence of inventories in manufacturing balance sheets. Signup and view all the answers

Which item would be included on the balance sheet of a service company?

Accounts receivable would be included in a service company's balance sheet. Signup and view all the answers

Given the cost of goods manufactured is $500,000, what does it imply about the production efficacy for Active Apparel Company?

It implies that the company successfully converted its raw materials and labor into finished goods worth $500,000. Signup and view all the answers

What are the main components used to calculate the cost of goods manufactured?

The components include direct materials, direct labor, and manufacturing overhead. Signup and view all the answers

What does the ending work in process inventory indicate for a manufacturing company?

It indicates the value of unsold goods that are still in production at the end of the period. Signup and view all the answers

How does ending finished goods inventory affect the calculation of cost of goods sold?

Ending finished goods inventory reduces the cost of goods sold since it represents unsold products. Signup and view all the answers

What are direct costs associated with manufacturing a desk?

Direct costs include materials like wood for the desktop and labor directly involved in making the desk. Signup and view all the answers

How would the grocery store manager identify direct costs in the Produce Department?

Direct costs would consist of costs directly linked to the Produce Department, such as baggies and wages for workers. Signup and view all the answers

Explain what is meant by 'cost object' in cost accounting.

A cost object is anything for which costs are measured and assigned, such as a product, department, or project. Signup and view all the answers

What examples represent indirect costs in manufacturing?

Indirect costs include items like oil for machines, factory manager's salary, and utilities. Signup and view all the answers

What distinguishes period costs from product costs?

Period costs are expenses that are incurred within a specific time period and are not tied to production, whereas product costs are directly associated with the manufacturing of goods. Signup and view all the answers

Can the same cost be classified as direct or indirect? Give an example.

Yes, for instance, the salary of a factory worker can be a direct cost if tied to production but an indirect cost if it’s for supervision. Signup and view all the answers

How are inventoriable product costs defined?

Inventoriable product costs include all costs incurred to manufacture a product up to the point of sale. Signup and view all the answers

In the context of a grocery store, which items generally represent product costs in the Produce Department?

Product costs in the Produce Department include the costs of purchasing fruits and vegetables and any preparation costs specific to those items. Signup and view all the answers

What happens to total fixed costs when production levels change?

They remain the same regardless of changes in production levels. Signup and view all the answers

How do fixed costs per unit behave as production levels increase?

Fixed costs per unit increase as production levels increase. Signup and view all the answers

What is the first step in creating a filter in Excel to analyze data?

Select any cell within the dataset and click the Filter button on the Data tab. Signup and view all the answers

What role does filtering play in data analysis using data analytic tools?

Filtering allows users to extract specific subsets from large datasets. Signup and view all the answers

How do you convert a dataset into an Excel table?

Click on any cell in the dataset, go to the Insert tab, and choose the Table option. Signup and view all the answers

What type of inventory would Honda classify partially completed vehicles as?

Work in process inventory. Signup and view all the answers

How are steel, glass, and plastic classified before their use in manufacturing cars?

Raw materials inventory. Signup and view all the answers

What inventory classification does Walmart assign to clothing held for sale?

Merchandise inventory. Signup and view all the answers

What is the sequence of inventory cost flow in a manufacturing company?

The sequence is raw materials, work in process, finished goods. Signup and view all the answers

In the context of the value chain, what does the term 'customer service' refer to?

Activities that support customer satisfaction. Signup and view all the answers

Which part of the value chain includes depreciation costs for a factory?

Production. Signup and view all the answers

Which calculation is made last when determining operating income for a manufacturer?

The cost of goods sold (COGS) is calculated last. Signup and view all the answers

What is the classification of costs associated with easily traceable expenses to a cost object?

Direct costs. Signup and view all the answers

What is a primary difference between manufacturing and service company balance sheets?

The primary difference lies in current assets, particularly inventory accounts. Signup and view all the answers

Which item would you expect to find on the balance sheet of a service company?

You would expect to find accounts receivable. Signup and view all the answers

How would you define 'indirect costs' in relation to cost objects?

Costs that cannot be directly traced to a cost object. Signup and view all the answers

What role does marketing play in the value chain?

It promotes products and services. Signup and view all the answers

What was the cost of goods manufactured reported by Active Apparel Company?

The cost of goods manufactured was $500,000. Signup and view all the answers

How much work in process inventory was reported at the end for Active Apparel Company?

The ending work in process inventory was $120,000. Signup and view all the answers

What does the term 'finished goods inventory' indicate in manufacturing?

Finished goods inventory refers to products that are completed and ready for sale. Signup and view all the answers

In the context of manufacturing, what do raw materials and direct labor contribute to?

They contribute to the cost of goods manufactured. Signup and view all the answers

What type of company is H & R Block classified as?

Service company Signup and view all the answers

How many inventory accounts do manufacturing companies typically have, and what are they?

Three: Raw materials, Work in process, and Finished goods. Signup and view all the answers

What distinguishes a manufacturing company from a merchandising company?

Manufacturing companies produce their own goods, while merchandising companies buy goods for resale. Signup and view all the answers

Which type of company would typically analyze its costs using the value chain framework?

Both manufacturing and merchandising companies. Signup and view all the answers

What are the two main types of costs incurred when manufacturing a desk?

Direct costs and indirect costs. Signup and view all the answers

What are period costs, and how do they differ from product costs?

Period costs are expenses not tied to the production of goods, while product costs are directly linked to production. Signup and view all the answers

What type of company is General Mills classified as?

Manufacturer Signup and view all the answers

How does the classification of a cost as direct or indirect depend on the cost object?

A cost can be classified as direct for one cost object and indirect for another, based on its relationship to the object being analyzed. Signup and view all the answers

What are direct costs, and how do they relate to manufacturing companies?

Direct costs are expenses that can be traced directly to a specific product or service, such as raw materials used in manufacturing. Signup and view all the answers

Provide an example of a direct cost in the context of a grocery store's Produce Department.

The cost of baggies used for produce. Signup and view all the answers

What are inventoriable product costs?

Costs that are associated with the production of goods and can be included in inventory until sold. Signup and view all the answers

In managing a manufacturing company, why is it important to distinguish between fixed and variable costs?

Fixed costs remain constant, while variable costs change with production volume, impacting pricing and budgeting decisions. Signup and view all the answers

What is a key characteristic of period costs?

Period costs are expenses that are incurred over a specific time period and are not tied to the production of goods. Signup and view all the answers

In manufacturing, how would one categorize the utility expenses of a factory?

Utility expenses are typically classified as indirect costs. Signup and view all the answers

Explain the distinction between direct materials and direct labor in a manufacturing context.

Direct materials are the raw materials used in production, while direct labor refers to the wages of workers who directly manufacture the product. Signup and view all the answers

What would be an example of an indirect cost in a furniture manufacturing company?

The salary of the factory manager. Signup and view all the answers

Study Notes

Distinguish between service, merchandising, and manufacturing companies

Service companies provide intangible services to customers.
Merchandising companies buy and resell finished goods without changing their form.
Manufacturing companies convert raw materials into finished goods.

Identify the inventoriable product costs and period costs of merchandising and manufacturing firms.

Inventoriable product costs: These are costs that are directly related to the production of goods and are included in inventory until the goods are sold.
Period costs: Non-production costs are expensed in the period they are incurred, even if they are incurred in the period when product costs are incurred.

Manufacturing Costs

Direct materials: The raw materials that are directly used in the production of goods.
Direct labor: The wages of employees that are directly involved in the production of goods.
Manufacturing overhead: Indirect costs related to the production of goods, including indirect materials, indirect labor, and other factory overhead.

Total Manufacturing Costs to Account For

The total manufacturing costs to account for are the sum of the direct materials, direct labor, and manufacturing overhead costs.

Cost of Goods Sold:

The cost of goods sold is the cost of the goods that were sold during a period.
For a manufacturing company, this is the cost of goods manufactured, minus ending inventory.

Identify the inventoriable product costs and period costs of merchandising and manufacturing firms.

Product costs: Costs that are directly related to the production of goods. These costs flow through the inventory accounts.
Period costs: Costs that are not directly related to the production of goods. They are expensed in the period incurred.

Relevant Costs

Relevant costs are future costs that differ between decision alternatives.
Irrelevant costs are past costs (sunk costs) or future costs that are the same regardless of the decisions made.

Fixed and Variable Costs:

Fixed Costs: Costs that stay the same in total over a wide range of volume levels.
Variable Costs: Costs that change in total in direct proportion to changes in volume.

Direct and Indirect Costs:

Direct costs can be traced directly to a specific cost object.
Indirect costs cannot be traced directly to a specific cost object.

Distinguish between Service, Merchandising, and Manufacturing Companies

Service Companies provide services instead of products.
Merchandising Companies purchase finished goods and resell them to customers.
Manufacturing Companies use raw materials to create products.
Honda classifies steel, glass, and plastic as raw materials inventory since they'll be used in manufacturing their cars.
Walmart classifies clothing it sells as merchandise inventory because they're ready for sale.
Honda classifies partially completed vehicles as work in process inventory because they're not finished products.

Value Chain and Its Elements

The value chain is a series of activities that add value to products and services and incur costs.
The value chain includes research and development, design, production, marketing, distribution, customer service.
Depreciation on factory equipment is part of the production stage of the value chain.
Technical support hotlines are part of the customer service aspect.

Direct & Indirect Costs

Direct Costs can be directly traced to a specific cost object.
Indirect Costs cannot be easily traced to a cost object and must be estimated.
A cost object can be something like products, departments, or customers.
For a furniture manufacturer, direct costs for a desk include the cost of the wood and wages for factory workers directly involved in production.
Indirect costs for a desk include indirect materials like oil, wages for factory managers, rent, and utilities.
Wages of workers in the Produce Department and the cost of fruits and vegetables are direct costs for the Produce Department.
Wages of checkout clerks and cost of advertising are indirect costs for the Produce Department.

Inventoriable Product Costs and Period Costs

Inventoriable Product Costs are included as part of inventory on the balance sheet.
Period Costs are expensed in the period they are incurred on the income statement.
Direct materials are the raw materials used in production.
Direct labor is the cost of labor directly related to production activities.
Manufacturing overhead includes all other costs related to production, excluding direct materials and labor.
Depreciation on production equipment is a manufacturing overhead cost.
Telephone bills related to customer service is a period cost.
Wages of assembly line workers are a direct labor cost.
Repairs and maintenance on factory equipment are a manufacturing overhead cost.
Lease payments on administrative headquarters are a period cost.
Salaries paid to quality control inspectors are a manufacturing overhead cost.
Property insurance for the manufacturing portion of the building is a manufacturing overhead cost.
Standard packaging materials are a manufacturing overhead cost.

Prime & Conversion Costs

Prime Costs include direct materials and direct labor.
Conversion Costs include direct labor and manufacturing overhead.
Conversion costs are the costs associated with transforming raw materials into finished goods.

Financial Statements

Service companies do not have inventory accounts on the balance sheet.
Merchandisers have Merchandise Inventory on the balance sheet.
Manufacturers have Raw materials, Work in Process, and Finished goods inventory on the balance sheet.
Cost of goods manufactured is calculated for manufacturers.
Cost of goods sold is calculated for both merchandisers and manufacturers.
Work in Process accounts for partially completed goods.
Cost of goods sold is one of the items on the income statement.
The main difference between the balance sheet of a manufacturer and a service business is the presence of inventory accounts.

Variable and Fixed Costs

Variable Costs are costs that change in direct proportion to the level of activity.
Fixed Costs are costs that remain constant regardless of the level of activity.
Variable costs per unit will remain constant.
Fixed costs per unit will decrease as the level of activity increases.

Data Analytics Tools

Data analytics tools are used to derive summary information from large data sets.
Sorting helps organize data by specific criteria (like date or location).
Filtering helps identify specific subsets of data.

Types of Companies

Service: Provides services rather than goods. Examples: H&R Block, hair salons
Merchandising: Buys and resells finished goods. Examples: Walmart, Amazon
Manufacturing: Converts raw materials into finished goods. Examples: General Mills (cereal company)
Manufacturing companies have three inventory accounts: Raw materials, Work in process, and Finished goods.

Value Chain

Activities that add value to products and services and cost money.
Value chain: Research and development, Design, Production, Marketing, Distribution, Customer Service

Cost Classification

Direct cost: Directly traceable to a specific cost object.
Indirect cost: Not directly traceable to a cost object and must be allocated. Examples: Rent, utilities, depreciation

Product vs Period Costs

Product costs: Become part of inventory until sold. Examples: Raw materials, direct labor, manufacturing overhead.
Period costs: Expensed in the period they are incurred. They are not part of inventory. Examples: Selling and administrative expenses, marketing costs.

Financial Statements

Cost of goods manufactured: The cost of goods that have been completed during the period and are available for sale. Only applies to manufacturing firms.
Cost of goods sold: The cost of goods that have been sold during the period.
Service firms do not have inventory.
Merchandising firms have one inventory account: Merchandise inventory.

Cost Behavior

Fixed costs: Remains constant in total, regardless of changes in activity volume. Examples: Rent, salaries, depreciation.
Variable costs: Changes in total in direct proportion to changes in activity volume. Examples: Direct materials, direct labor, sales commissions.
Total fixed cost remains the same regardless of production levels
Total variable cost changes with the level of direct labor used
Fixed costs per unit decrease as production increases
Variable costs per unit remain the same regardless of production levels

Data Analysis

Sorting data: Arranging data in a specific order
Filtering data: Selecting a subset of data to focus on
Data analytics tools help analyze revenue, cost, and inventory data

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Description

This quiz covers the distinctions between service, merchandising, and manufacturing companies. It also addresses inventoriable product costs and period costs specific to merchandising and manufacturing firms, while defining key components of manufacturing costs.