Cost Accounting Flashcards

2
Q

What is Cost Accounting?

A
Cost Accounting is a component of GAAP that records Ending Inventory on the Balance Sheet for
o Direct Materials
o Direct Labor
o Work in Process
o Finished Goods

Cost Accounting also records for the Income Statement

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3
Q

What is the difference between Cost Accounting and Managerial Accounting?

A

Cost Accounting - External Focus- GAAP

Managerial Accounting - Internal Focus- Not GAAP

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4
Q

What are Product Costs (aka Inventory Costs)?

A

Prime Costs

Conversion Costs

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5
Q

What are included in Prime Costs?

A

Direct Material USED - Have become part of the product or had a direct impact on the product

Direct Labor Used - Employees who worked on product and had direct impact

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6
Q

What is Factory Overhead?

A

All factory costs except for DM and DL used in production- including Spoilage (except for abnormal spoilage- which is a period cost and not included in OH).

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7
Q

What is included in Fixed Factory Overhead?

A

FFO = Estimated Costs / Normal Capacity

Uses Normal Activity

Examples of Fixed Factory OH: Depreciation (SL)- Utilities- Taxes

Under/Over-applied Fixed OH always goes to COGS

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8
Q

What is included in Variable Overhead?

A

VO = Estimated Activity / Actual Activity

Uses Actual Activity

Examples of Variable Factory OH: Deprecation (Units of Prod)- Indirect materials (supplies & insignificant items)- Indirect labor (factory foreman- janitors- machine maintenance)

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9
Q

Where is Under/Over-applied Variable OH recorded?

A

If Immaterial – Goes to COGS

If Material – Goes to WIP- Finished Goods- or COGS- based on their Ending Balance

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10
Q

Where is Under/Over-applied Fixed OH recorded?

A

It always goes to COGS

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11
Q

What is indicated by a Debit balance in Actual Factory Overhead? How is it corrected?

A

Under-applied overhead.

If it’s Fixed OH- under-applied goes to COGS.

If it’s Variable OH- under-applied goes to COGS if immaterial- but is allocated to WIP- FG or COGS based on ending balances.

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12
Q

What is indicated by a Credit balance in Applied Factory Overhead? How is it corrected?

A

A credit balance indicates over-applied overhead.

If Fixed overhead- it is corrected from COGS.

If Variable overhead- it is corrected through COGS if immaterial- but if material overage is allocated to WIP- FG or COGS based on ending balances.

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13
Q

Which variables are used to calculate Direct Material balances?

A

Beginning Balance
DR Net purchases (plus freight-in)
CR Direct Materials Used
= Ending balance (goes to BS)

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14
Q

What variables are used to calculated Work in Process (WIP)?

A

Beginning Balance (End Bal of Previous WIP)
DR Direct Materials Used
DR Direct Labor Used (Conversion Cost)
CR COGM
DR Factory Overhead Applied (Conversion Cost)
= Ending Balance (Goes to BS)

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15
Q

What variables are included in Finished Goods calculations?

A
Beginning Balance
DR COGM
= COGAS (Cost of Goods Avail for Sale)
CR COGS
= Ending Balance (Goes to BS)
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16
Q

How does Freight In affect Cost Accounting calculations?

A

Inventory (Product) Cost

Part of DM Purchases

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17
Q

How does Freight Out affect Cost Accounting?

A

Selling (Period) Cost

Not part of inventory

18
Q

When is Job-Order Costing used?

A

Used when costs are easily connected to a specific product or product line

Can also be applied to services

Calculation is the same as normal cost accounting – just use your T Accounts
o DM to WIP to FG to COGS
o You’re likely going to be solving for the last job in the queue

19
Q

What is the Direct Method for allocating service department costs?

A

No services allocated between service departments- even if they serve each other. Only allocate to product(s)

20
Q

What is the Step Method for allocating service department costs?

A

Services can be allocated to both other service departments and the product(s)

21
Q

Under process costing- how are the units shipped calculated?

A

Beginning Inventory
+ Units Started
- Ending Inventory
= No. Units Shipped

22
Q

Which two inventory methods are used under Process Costing?

A

FIFO

Weighted Average

23
Q

What is another name for Process Costing?

A

Equivalent Units of Production

24
Q

How will Equivalent Finished Units under FIFO compare to EFU under the Weighted Average method?

A

EFU FIFO will always be LESS than EFU Weighted Avg (unless Beginning Inventory is Zero)

25
Q

How are Direct Materials calculated under the Weighted Average Method?

A

Beginning Inventory + Current Costs / EFU WA

26
Q

How are Conversion Costs calculated under Weighted Average Method?

A

Beginning Inventory + Current Costs / EFU WA

27
Q

How are Equivalent Finished Units calculated for Direct Materials?

A

Units Shipped
+ EI x % Complete DM
= EFU (Weighted Average Method)

  • Beginning Inventory x % Complete
    = EFU (FIFO)
28
Q

How are Equivalent Finished Units calculated for Conversion Costs?

A

Units Shipped
+ EI x % Complete CC
= EFU (Weighted Average)

  • Beginning Inventory x % Complete
    = EFU (FIFO)
29
Q

How are Direct Materials calculated under the FIFO method?

A

Current Costs / EFU FIFO

Note: FIFO method uses Current Period costs only and ignores Beginning Inventory

30
Q

How are Conversion Costs calculated under the FIFO method?

A

Current Costs / EFU FIFO

FIFO method uses Current Period costs only and ignores Beginning Inventory

31
Q

How is WIP calculated?

A
Beginning balance (DM- DL- OH)
\+ Current Costs (DM- DL- OH)
- COGM (Goes to Finished Goods)
\+ DM EFU x Cost per DM EFU
\+ CC EFU x Cost per CC EFU
= Ending WIP
32
Q

How do period costs and product costs relate to net sales- gross margin and operating income?

A
Net Sales 
- Product Costs
= Gross Margin
- Period Costs
= Operating Income
33
Q

What is the focus of Activity Based Costing (ABC)?

A

Focuses on eliminating non-value-added activities for poor quality and inventory and things customers don’t want or don’t care about

Inventory is expensive to store and storing something is not a value-added expenditure

Uses Cost Pools - Different departments can have different OH rates

Uses Several OH rates based on Activity - Cost Pool / Cost Driver

34
Q

How do Cost Pools and Allocations compare under ABC versus traditional costing system?

A

Cost Pools and Allocations increase compared to a traditional costing system

35
Q

What is Backflush Costing?

A

Connected to Just-in-Time Production- which is part of Activity-Based Costing and Total Quality Management (TQM)

o Works backward to “flush out” COGS
o ‘Mostly’ GAAP

36
Q

What are the characteristics of By-Products?

A

Usually immaterial and common costs aren’t allocated to them
o Low Market Value
o Can be valued at NRV
o Can be treated as a contra expense and netted against COGS
o Can be treated as a contra sale and netted against Sales
o Recognition rules are very flexible with valuing and classifying by-products

37
Q

What are Cost Functions?

A

Measure how costs change relative to activity levels

High-Low Method

Change in Cost (High-Low pts) / Change in Activity (High-Low pts)