4-Cost Accounting and Performance Management

Question 1

Product Costs

Answer 1

All Costs related to manufacture of product.

Question 2

Period Costs

Answer 2

Selling, general, and administrative expenses. Expensed in period incurred.

Question 3

Manufacturing Costs

Answer 3

Included all costs associated with manufacturing of a product.

Question 4

Direct Costs

Answer 4

Costs easily traced to a cost pool or object.

Question 5

Direct Raw Materials

Answer 5

Costs of materials purchased to be used in production.

Question 6

Direct Labor

Answer 6

Cost of labor is directly to production of a product.

Question 7

Indirect costs

Answer 7

Cost not easily traceable to a cost pool or cost object.

Question 8

Indirect Labor

Answer 8

Cost of Labor not easily to a product or service.

Question 9

Application of Overhead

Answer 9

Step 1: Overhead rate=Budgeted Overhead Costs-Estimated Cost Drive

Step 2: Applied overhead=Actual Cost driver*Overhead rate

Question 10

Behavior of Variable Cost

Answer 10

Changes proportionally with a cost driver.

Question 11

Behavior of Fixed Costs

Answer 11

Short Term and within a relevant range, fixed cost does not change when the cost driver changes

Question 12

Cost of Goods Manufactured

Answer 12

Work in Process+Direct Materials Used+Direct Labor+Manufacturing Overhead-Work in Progress ending=Cost of Goods Manufactured

Question 13

Cost of Goods Sold

Answer 13

Finished goods inventory+cost of goods manufactured+Costs of Goods available for sale-Less Finished Goods=COGS

Question 14

Job Order Costing

Answer 14

Method of product cost that identifies the job as the cost objective. Allocated to a specific job as it moves through the manufacturing process.

Question 15

Process Cost Defined

Answer 15

Method of product cost that averages costs and applies them to a large of homogenous items

Question 16

Process Cost Steps

Answer 16

1) Summarize the flow of physical units
2) Calculate the equivlalent Unit
3) Accumulate the total costs to be account for
4) Calculate the average unit costs based on total costs
5) Apply the average costs to the units completed and the units remaining in ending work in process.

Question 17

Raw Materials

Answer 17

Beginning Inventory of raw materials+purchases-used materials=ending raw materials

Question 18

Work in process

Answer 18

Beginning WIP+ Raw Materials used+Plus Direct Labor+overhead used-inventory transferred to finished goods=ending inventory

Question 19

Finished Goods

Answer 19

Beginning inventory of finshed goods+ Inventory transferred from WIP-COGS sold=ending inventory

Question 20

Equivalent Units

Answer 20

Unit of direct material, direct labor or conversion costs equal to the amount of direct material, direct labor or conversion costs necessary to complete one unit of production.

Question 21

Process Cost Assumptions

Answer 21

1) Transfers in from other departments are always considered 100% complete
2) Timing of Addition of Direct Material-may be 100 percent complete or partially complete. Material added at the very end of a process will not be in work-in-process inventory at month end.

Question 22

Calculation of Average Unit Costs Complications

Answer 22

1) Average of costs from various months

2) A well accounted, well labeled account analysis format for each unit.

Question 23

FIFO

Answer 23

Ending inventory is priced at the cost of manufacturing during the period, assuming that the beginning inventory was completed during the period.

Question 24

Equivalent Unit Components-Weighted Average

Answer 24

1) Completion of units on hand at the beginning of the period.
2) Units started and completed during the period.
3) Units partially completed at the end of the period

Question 25

Equivalent Unit Components-FIFO

Answer 25

1) Units completed during the month | 2) Units partially completed at the end of the month

Question 26

Spoilage

Answer 26

General taken of care automatically because the equivalent units added for the month are generally less than the actual units added during the month due to problems with the production process. Occurs under regular operating conditions and is included in the standard cost of the product.

Question 27

Volume Based Costing

Answer 27

Costing system assigning overhead as a single cost pool with a single-plant wide overhead application rate using a single allocation base, usually a volume based cost driver.

Question 28

Actvity Based Costing

Answer 28

Costing method that assumes that resource consuming activities with specific purposes cause costs.

Question 29

Terminology of ABC Costing-Part 1

Answer 29

Activity-Any work performed inside a firm Resource-An element used to perform an activity Cost drivers-activity bases that are closely correlated with the incurrance of manufacturing overhead costs in activity center.

Question 30

Terminology of ABC Costing-Part 2

Answer 30

Resource Cost Driver- Amount of resources that will be used by an activity. Activity Cost Driver- Amount of activity that a cost object will use Activity Centers-Operation necessary to produce a product Cost Pool-Group of costs or a specifically identified cost center.

Question 31

Characteristics of a ABC

Answer 31

1) Can be part of a job order system or process cost system. 2) Can be used for manufacturing or service businesses 3) Takes a long-term viewpoint and treats production costs as variable 4) Cost driver is often a nonfinancial variable. 5) May be used for internal but not external purposes.

Question 32

Basic Operation of ABC

Answer 32

1) Identify the cost drivers 2) Accumulate costs in cost pools 3) Trace indirect costs to activity centers 4) Allocate Remaining Indirect Cost Pools 5) Divide Assigned Costs by Level of Activity for the cost center. 6) Cost the product

Question 33

Effects of ABC

Answer 33

1) Will apply high amounts of overhead to a product that places high demands on expensive resources.

Question 34

Standard Cost Systems

Answer 34

1) Normal and abnormal scrap or spoilage is estimated for activity levels 2) Standards may be difficult to set on a per unit basis 3) Per unit costs are often inversely proportional to volume. 4) Assumption of a relevant range may be necessary to set a per unit standard.

Question 35

Service Costs Using ABC-Direct Method

Answer 35

Widely used. Each service department's total costs are directly allocated to the production departments without recognizing that service department themselves may use the services from other departments.

Question 36

Service Costs Using ABC-Step-Down Method

Answer 36

Service costs are also allocated to service departments as well as production departments. Assumes that once a service department's costs have been allocated to another service department, there can be no subsequent costs allocated to the other service departments.

Question 37

Joint Products

Answer 37

Two or more products that are generated from a common input.

Question 38

By Products

Answer 38

Minor Products of relatively small value.

Question 39

Split-off point

Answer 39

Point in the production process at which the joint products can be recognized as individual products.

Question 40

Joint Product Costs

Answer 40

Costs incurred in producing products up to the split-off point.

Question 41

Separable Costs

Answer 41

Costs incurred on a product after the split-off point.

Question 42

Net Realizable Value at Split-off Point

Answer 42

NRV=Sales value-cost of completion and disposal

Question 43

Sales Value not Available at Split-off

Answer 43

Sales value at split-off=Final Selling Price-Identifiable costs incurred after split-off

Question 44

Total Factor Productivity Ratios

Answer 44

Quantity Output/All inputs

Question 45

Partial Productivity inputs

Answer 45

Quantity output/Specific inputs

Question 46

Pareto Diagram

Answer 46

Used to determine the quality control issues that are most frequent and often demand the greatest attention.

Question 47

Cause and Effect Diagram

Answer 47

Provide a framework for managers to analyze the problems that contribute to the occurrence of defects.

Question 48

Strategic Business Units

Answer 48

Broken out into Cost, Revenue, Profit and Investment SBU

Question 49

Contribution Margin

Answer 49

Measures the excess of revenues over variable costs for a company or division.

Question 50

Balanced Scorecard Factors

Answer 50

1) Financial 2) Internal business processes 3) Customer satisfaction 4) Advancement of innovation and human resource development.

Question 51

Prevention Costs

Answer 51

Incurred to prevent the production of defective items. Includes: 1) Employee training 2) Inspection expenses 3) Preventive maintenance 4) Redesign of product 5) Redesign of processes 6) Search for higher-quality suppliers

Question 52

Appraisal Costs

Answer 52

Incurred to discover and remove defective parts before they are moved to next department or customer. Includes: 1) Quality checks 2) Testing 3) Inspection 4) Maintenance of the lab

Question 53

Internal Failure Costs

Answer 53

Costs incurred to cure a defect discovered before the product is sent to the customer. Includes: 1) Rework costs 2) Scrap 3) Tooling Changes 4) Costs to dispose 5) Cost of the lost unit 6) Downtime

Question 54

External Failure Costs

Answer 54

Costs to cure a defect discovered after the product is sent to customer. Includes: 1) Warranty Costs 2) Costs of returning the good 3) Liability claims 4) Lost customers 5) Reengineering an external failure.