Accounting Midterm Study Guide

MIDTERM STUDY GUIDE

CHAPTER 2

1. What is Direct Labor?

a. Direct labor is the cost of compensating employees who transform direct material into a finished product

2. What are the items that appear under Direct Labor?

b. The cost of fringe benefits for direct labor personnel, such as employer paid health insurance premiums, workers’ comp, and the pension contribution are part of D.L.

c. Salary of supervisor supervising at the factory? NO

d. Any Overtime Premiums? NO

e. Idle times? NO – This is all a part of Manufacturing OverHead (MOH)

3. Differences among Unit Level, Batch Level, Product Level, Customer Level, and Facility Level Costs.

f. Unit Level tends to be on Variable and Facility Level is Fixed, while in between them is “Semi-Variable and Semi-Fixed” –Professor

g. Unit Level Costs – Costs for direct material, such as fabric; electricity to run prod equipm

h. Batch Level Costs – Setup costs for production runs; material-handling costs incurred to deliver batch quantities of raw material to the production area.

i. Product Level Costs – Design costs for a line of backpacks (size, color, # of pockets, etc.)

j. Customer Level Costs – Costs of obtaining licenses of logos that a co. sews on to product

k. Facility Level Costs – Production manger’s salary, depreciation on the plant, insurance on facility and equipment.

4. Difference between Product and Period Cost.

l. Product Cost is any cost assigned to goods that were either purchased or manufactured for resale; it is used to value the inventory of manufactured goods or merchandise until the goods are sold.

i. In the period of the sale, the product costs are recognized as an expense called Costs of Goods Sold.

ii. Product Cost (to manufacture goods) = manufacturing cost of DM, DL, and MOH

iii. Product costs are stored as the cost of inventory until the goods are sold, also known as...