Accounting Final Examination Study Guide

The current cost system allocates overhead costs once a year, as a function of direct labor dollars. This allocation strategy results in:

Gabe's Auto produces and sells an auto part for $30.00 per unit. In 2010, 100,000 parts were

Accounting is commonly described as the language of business. It is very important for all business owners to have very good understanding of their finances. Having the knowledge of your business finance, you will know where the money is going. Every business owner should have a good understanding of finance. To have a good understanding business owners needs to understand basic accounting steeps, how does accounting play a role in their business, how to define a financial statement and how the omission of any of these steps would affect the success of a business. Once you have an understanding of accounting/finance and the how it plays

Brunton, N. M. (1988). Evaluation of overhead allocations. Management Accounting, 70(1), 22. Retrieved from http://search.proquest.com/docview/229737200?accountid=32521

3. For each of the individual overhead accounts at Bridgeton, do you believe the given cost is variable, fixed, or something else? Why? (Use information or evidence from the case to support your evaluation, if possible. For most of these costs, there is no single right answer from the case information, so the goal is to come up with a reasonable estimate.)

hours required to complete the job and (2) the application of single vs. multiple overhead rates. The

When dealing with overhead there are three ways that I understand that effectively reduce overhead spending percentages.

4) I touched upon this briefly in my previous discussion of question three that one main difference between the methods is the accuracy and complexity; the direct method is least accurate and simplest, stepdown method more accurate and more complex, and the reciprocal method is the most accurate and the most complex. The direct method excludes the cost effects associated with one service center’s use of another service center. The stepdown method includes the cost effects associated with one service center’s use of another service center and allocates service centers to other service centers/mission centers. A downside to the stepdown method is that a service center cannot receive an allocation once its costs have been allocated. The reciprocal method allows all service centers to both make and receive allocations to and from each other and mission centers. It is apparent through each method’s functions why one is more accurate and complex than the last.

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy 19. In a job-order cost system, which of the following events would trigger recording data on a job cost sheet? A) the purchase of direct materials B) the payment of fire insurance on the factory building C) the payment for product advertising D) none of

360-6, which has a cost of $360,000, a 6-year life, and aftertax cash flows of $98,300 per year. Assume both projects

The direct method is the most widely-used method. This method allocates each service department’s total costs directly to the production departments, and ignores the fact that service departments may also provide services to other service departments.

Cost allocation decisions are important. There are several ways to support allocation method decisions by documenting the activity that caused the costs to be incurred, identifying the benefits received as a result of incurring the cost, Justifying that the cost is reasonable or fair with the other party in a contract, and showing that the cost object has the ability to bear the cost. Some of the different allocation methods are joint costs, sunk costs, and opportunity costs. For example, a company might allocate or assign the cost of an expensive computer system to the three main areas of the company that use the system. A company with only one electric meter might allocate the electricity bill to several departments in the company.

When direct labor is used as an allocation base for overhead, it is implicitly assumed that overhead cost is

4. Not all expenses seem necessary, although each person will have his or her own definition of the term "necessary." Certainly it is questionable that payroll and salaries would be fixed to the same amount whether there are 120 students or 66, almost half the size of student body. Advertising, "technology enhancement", a $25,000 computer budget, grass removal and printing & copying expenses are all questionable as to their presence, or amount, on this budget.

The traditional budgeting model is built on an erroneous understanding of the overhead apportionments. Mostly, the companies use the labour hours, and the machines hours to allocate the overheads into different cost units. In reality, a single cost driver like the labour hours and the machine hours does not affect the incurrence of the overheads. The rate of consumption of the materials or the labour hours differs among the various product lines and the departments. Some products lines may consume a little amount of a given type of an overhead compared to another. When the absorptions rate used is not the real costs driver of the overhead used in a given product line, the costs will be either over or underestimated (Richards, 2011, p.78). The use of overall absorption rate produces information that is unreliable for use by the managers. They have to come up with strategies to control costs and compete effectively in the market.