Study4smart Quality review Materials

ch18 Key
1. RUE 2. ALSE 3. RUE 4. RUE 5. RUE 6. ALSE 7. RUE 8. RUE 9. RUE 10. FALSE 11. TRUE 12. TRUE 13. TRUE 14. TRUE 15. FALSE 16. FALSE 17. TRUE 18. FALSE 19. TRUE 20. FALSE 21. TRUE 22. FALSE 23. FALSE 24. TRUE 25. TRUE 26. FALSE 27. TRUE 28. FALSE 29. TRUE 30. TRUE 31. FALSE T F T T T F T T T

32. FALSE 33. TRUE 34. TRUE 35. FALSE 36. TRUE

37. TRUE 38. FALSE 39. TRUE 40. F AL S E 41. F AL S E 42. F AL S E 43. TR U E 44. F AL S E 45. TR U E 46. F AL S E 47. TR U E 48. TR U E 49. F AL S E 50. FALSE 51. FALSE 52. FALSE 53. TRUE 54. FALSE 55. B 56. C 57. D 58. E 59. E 60. D 61. C 62. A 63. B 64. C 65. E 66. E 67. B 68. B 69. D 70. B 71. A 72. E 73. D 74. B

75. C 76. A 77. B 78. A 79. C 80. D 81. A 82. D 83. A 84. D 85. B 86. B 87. C 88. D 89. C 90. A 91. E 133.B 134. C 135. A 136. Costs that have already been incurred and cannot be avoided or changed:: Sunk costs and Costs that are incurred for the benefit of more than one cost object :: Indirect costs and Expenditures necessary and integral to finished products :: Product costs and Expenditures directly associated with the manufacture of finished products; include direct materials and direct labor :: Prime costs and Costs that do not change in total with changes in the volume of activity :: Fixed costs and The potential benefit lost by choosing a specific action from two or more alternatives :: Opportunity costs and Costs that flow directly to the current income statement as expenses :: Period costs and Expenditures incurred in the process of converting raw materials to finished products; include direct labor and factory overhead:: Conversion costs and Manufacturing expenditures that cannot be separately or readily traced to finished goods :: Factory overhead and Costs that change in proportion to changes in volume of activity :: Variable costs 137. An activity that provides financial and nonfinancial information to an organization's managers and other internal decision makers :: Managerial accounting and An idea that rejects the notions of "good enough" and "acceptable" and challenges employees and managers to continually experiment with new and improved business practices :: Continuous improvement and Goods a company acquires to use in making products :: Raw materials inventory and An idea that means that employees understand the changing needs and wants of their customers and align their management and operating practices accordingly:: Customer orientation and A system that acquires inventory and produces only when needed :: Just-in-time manufacturing and Products in the process of being manufactured but not yet complete:: Goods in process inventory and A model whose goal is to eliminate waste while satisfying the customer and providing a positive return to the company :: Lean business model and An approach that aids continuous improvement by augmenting financial measures with information on the drivers or indicators of future financial performance along the four dimensions of (1) financial, (2) customer, (3) internal business processes; (4) learning and growth :: Balanced scorecard and Expenditures directly associated with the manufacture of finished goods; includes direct materials and direct labor :: Prime costs and The sum of process time, inspection time, move time and wait time :: Cycle time 138. M :: Users are generally managers, employees and decision makers internal to the organization. and M :: Used to assist managers in making planning and control decisions. and F :: Information is structured and controlled by GAAP. and M :: Information is available quickly without the need to wait for an audit. and F :: Information is mainly historical with some predictions. and F :: Emphasis of the information is on the whole organization. and M :: Information is mostly monetary, but includes nonmonetary information.

139. The three basic cost elements in accounting for manufactured goods are direct material costs, direct labor costs, and factory overhead costs.

140. Managerial accounting is an activity that provides financial and nonfinancial information to an organization's managers and other internal decision makers. Much of managerial accounting involves gathering information about costs for planning and control decisions. In addition, it helps managers plan and control business activities. In particular, it helps managers identify problems that require corrective actions. 141. (Students would need to choose any three of the seven differences described below.) The differences include: (1) Users and decision makers - Financial accounting focuses on external decision makers and managerial accounting focuses on internal decision makers. (2) Purpose of information - External users of financial accounting information must often decide whether to invest in, or lend to a company or whether to continue to own or carry the company's debt. Internal users of managerial accounting must plan a company's future, so the information must help them make planning and control decisions. (3) Flexibility of practice - Financial accounting relies on accepted principles that are enforced through an extensive set of rules and guidelines (GAAP); managerial accounting systems are flexible to meet the differing needs of managers in different situations. (4) Timeliness of information - Generally, financial information is not immediately available to external users because it must be audited; internal users can usually obtain managerial accounting information quickly because it does not need to be audited and estimates and projections are acceptable. (5) Time dimension - External financial reports deal primarily with the results of both past activities and current conditions and avoids predictions whenever possible; managerial accounting regularly includes prediction of conditions and events. (6) Focus of information - Financial accounting generally focuses on the entire organization; managerial accounting focuses on an organization's projects, processes, and subdivisions. (7) Nature of information - Both financial and managerial accounting report monetary information; managerial accounting also reports nonmonetary information. 142. The lean business model is a model whose main principle is the elimination of waste while satisfying the customer and providing a positive return to the company. It is based on the changes in the business environment - including an increased emphasis on customers and the expanding global economy. A primary force behind its adoption is competition, both domestic and international. 143. All fraud is done to provide direct or indirect benefit to the employee, violates the employee's duties to the employer, costs the employer money, and is done in secret. 144. An internal control system is the policies and procedures management used to a) encourage adherence to company policies, b) promote efficient operations, c) ensure reliable accounting, and d) protect assets. 145. While this particular incident resulted in a minor loss to this company, by ignoring the fraud, the company may be encouraging future incidents of fraud. The company should not overlook the fact that a number of small losses will add up to a significant loss to annual revenues. 146. The situation raises an opportunity cost, i.e., the impact of a lost benefit. It would be accounted for only in considering alternative decisions. It is not a financial cost. Still, good management procedures and information systems would want estimates of such costs and would need such data for effective business decision making. 147. Period costs are the costs that are charged to expense because they are more associated with a time period than with finished products. Product costs are costs that are first assigned to inventory. Period costs are expensed and reported on the current income statement. Product costs are assigned to inventory on the balance sheet until the product is sold; when sold, they are expensed as cost of goods sold on the income statement. 148. Manufacturers carry three types of inventories: raw materials inventory, goods in process inventory, and finished goods inventory. Raw materials inventory consists of goods a company acquires to use in making products. It can include both direct materials - those items that are used directly in a product and are clearly identified with a single unit or batch of product - and indirect materials - those items that cannot be clearly identified with specific units or batches of products. Goods in process, also called work in process, are products in the process of being manufactured, but are not yet complete. Finished goods are completed products ready for sale. 149. In the calculation of cost of goods sold, the merchandiser adds cost of goods purchased to beginning merchandise inventory, then subtracts the ending merchandise inventory to get cost of goods sold. Since a manufacturer has three types of inventories - raw materials, goods in process, and finished goods - the manufacturer replaces "merchandise inventory" with "finished goods" inventory. In addition, the manufacturer does not purchase its items for resale, but instead manufactures them, so replaces "cost of goods purchased" in the above calculation with "cost of goods manufactured." 150. Cycle time is defined as process time + inspection time + move time + wait time. Essentially, cycle time is a measure of how efficient the manufacturer's operations are. Process time is the only value-added component of cycle time. The other three elements are non-value-added in nature. Companies strive to reduce non-value-added time to improve their cycle efficiency. 151. Prime costs are expenditures directly associated with the manufacture of finished goods and include direct materials and direct labor. Conversion costs are expenditures incurred in the converting raw materials into finished goods, and include direct labor and factory overhead. 152. The components of the manufacturing statement are direct materials, direct labor, factory overhead, and computation of the cost of goods manufactured. Direct materials used is computed by taking beginning raw materials inventory, adding raw materials purchased, and subtracting the ending raw materials inventory (assuming all of the raw materials are direct materials). Direct labor is the cost of the workers whose efforts

can be traced to individual units or batches of products. Factory overhead lists all of the indirect manufacturing costs. Finally, the direct materials, direct labor, and factory overhead are added to determine total manufacturing costs. Beginning goods in process is added to total manufacturing costs; ending goods in process are subtracted to determine the cost of goods manufactured.

Feedback: 157. Answers will vary

(b) Current Assets - Rockland Industries: Feedback: (a) Rockland Industries is the manufacturer. It has three types of inventories: raw materials, goods in process, and finished goods. It converts materials to finished goods. 158. Answers will vary

Feedback: 159. Answers will vary

Feedback: 161. Answers will vary

Feedback: 162. Answers will vary

Feedback: 164. Answers will vary

Feedback: 167. Answers will vary

Feedback: 169. Answers will vary

170. 171. 172. 173. 174.

Managerial accounting Planning Control Internal; External Just-In-Time (JIT) or Just-In-Time-Manufacturing

175. 176. 177. 178. 179. 180. 181. 182. 183. 184. 185. 186. 187. 188. 189. 190. 191. 192. 193. 194. 195. 196. 197. 198. 199. 200.

Lean business model Continuous improvement Balanced scorecard Fraud Internal Control Ethics Traceability Opportunity Cost Variable Fixed Mixed Sunk Out-of-pocket Product Period R a w ma t e r i a l s Goods in process or work in process Finis he d goo ds Goods in Process Cost of goods manufactured Wait ti me Cycle efficiency Conversion Costs Prime $12,500 ($2,000 + $11,500 - $1,000) Cost of Goods Manufactured

ch18 Summary
Category AACSB: Analytic AACSB: Communications AACSB: Ethics AICPA BB: Critical Thinking AICPA BB: Industry AICPA BB: Legal AICPA BB: Resource Management AICPA FN: Decision Making AICPA FN: Measurement AICPA FN: Measurement, Decision Making AICPA FN: Reporting AICPA FN: Risk Analysis Blooms: Analyze Blooms: Apply Blooms: Remember Blooms: Understand Difficulty: Easy Difficulty: Hard Difficulty: Medium Fundamental - Chapter 18 Learning Objective: A1 Compute cycle time and cycle efficiency; and explain their importance to production management Learning Objective: C1 Explain the purpose and nature of; and the role of ethics in; managerial accounting. Learning Objective: C2 Describe accounting concepts useful in classifying costs. Learning Objective: C3 Define product and period costs and explain how they impact financial Learning Objective: C4 Explain how balance sheets and income statements for manufacturing and merchandising companies differ . Learning Objective: C5 Explain manufacturing activities and the flow of manufacturing costs. Learning Objective: C6 Describe trends in managerial accounting. Learning Objective: P1 Compute cost of goods sold for a manufacturer. 3 25 37 # of Questions 115 75 10 2 126 8 64 39 121 3 23 14 4 33 100 63 99 37 64 200 9 34 30 20 18

Learning Objective: P2 Prepare a manufacturing statement and explain its purpose and links to financial statements.

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