D196 Principles of Financial and Managerial Accounting - Set 2 - Part 2

Correct Answer: Inventory budget

The inventory budget helps a company plan how much inventory it needs to maintain based on projected sales and production requirements.

Correct Answer: Inventory

Inventory is classified as a current asset because it is expected to be sold or used within one year.

Correct Answer: Production of custom-made goods

Job order costing is used when products are custom-made or produced in small batches, allowing costs to be traced to specific jobs.

Correct Answer: Factory rent

Factory rent is typically a fixed cost and not controllable by a department manager, whereas direct labor and office supplies may be managed.

Correct Answer: A large electronics manufacturer

Large manufacturers with complex operations, like an electronics manufacturer, are more likely to use ABC to allocate overhead accurately.

Correct Answer: Fixed costs / contribution margin ratio

To calculate the break-even point in sales dollars, divide fixed costs by the contribution margin ratio, which expresses the contribution margin as a percentage of sales.

Correct Answer: Borrowing money from a bank

Borrowing money from a bank is considered a financing activity because it involves raising funds for business operations.

Correct Answer: $30

The contribution margin per unit is calculated by subtracting the variable cost per unit from the sales price per unit. ($70 - $40 = $30).

Correct Answer: Estimated overhead costs divided by an estimated level of activity

The predetermined overhead rate is used to allocate overhead costs based on an estimated level of activity, such as direct labor hours or machine hours.

Correct Answer: Notes payable

Notes payable represents amounts the company owes and is considered a liability on the balance sheet.

Correct Answer: Fixed costs remain constant regardless of production levels

Fixed costs, such as rent, remain the same regardless of production levels within the relevant range.

Correct Answer: To help managers make informed business decisions

Managerial accounting focuses on providing internal information to managers to aid in planning, controlling, and decision-making processes.

Correct Answer: Projected sales revenue and units sold

A sales budget forecasts the amount of sales in both revenue and units sold for a specific period.

Correct Answer: Utility bills with a fixed charge and a variable charge based on usage

A mixed cost contains both fixed and variable components, such as utility bills that have a base charge plus an additional charge based on usage.

Correct Answer: Wages paid to factory supervisors

Indirect labor costs, like factory supervisors' wages, are part of manufacturing overhead because they cannot be traced directly to specific products.

Correct Answer: By department or process

In a process costing system, costs are accumulated by department or process, especially in industries where similar products are mass-produced.

Correct Answer: Advertising expenses

Period costs, like advertising expenses, are not directly tied to production and are expensed in the period they are incurred.

Correct Answer: Fixed cost

Fixed costs remain constant in total but vary on a per-unit basis depending on the level of production.

Correct Answer: Income statement

The income statement shows the company's total revenues and expenses over a specific period and calculates net income.

Correct Answer: A custom home builder

Job order costing is used for custom jobs or products, like those produced by a custom home builder, where each job has unique costs.