Cost Accounting

Question 1

What is the difference between Cost Accounting and Managerial Accounting?

Answer 1

Cost Accounting - External Focus- GAAP

Managerial Accounting - Internal Focus- Not GAAP

Question 2

What is included in Fixed Factory Overhead?

Answer 2

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

Question 3

Which two inventory methods are used under Process Costing?

Answer 3

FIFO

Weighted Average

Question 4

What are Cost Functions?

Answer 4

Measure how costs change relative to activity levels

High-Low Method

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

Question 5

Which variables are used to calculate Direct Material balances?

Answer 5

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

Question 6

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

Answer 6

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

Question 7

What are the characteristics of By-Products?

Answer 7

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

Question 8

Under process costing- how are the units shipped calculated?

Answer 8

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

Question 9

Where is Under/Over-applied Variable OH recorded?

Answer 9

If Immaterial - Goes to COGS

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

Question 10

What are Product Costs (aka Inventory Costs)?

Answer 10

Prime Costs

Conversion Costs

Question 11

What is the Step Method for allocating service department costs?

Answer 11

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

Question 12

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

Answer 12

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.

Question 13

When is Job-Order Costing used?

Answer 13

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
- DM to WIP to FG to COGS
- You’re likely going to be solving for the last job in the queue

Question 14

How are Conversion Costs calculated under Weighted Average Method?

Answer 14

Beginning Inventory + Current Costs / EFU WA

Question 15

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

Answer 15

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

Question 16

How are Direct Materials calculated under the FIFO method?

Answer 16

Current Costs / EFU FIFO

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

Question 17

What variables are included in Finished Goods calculations?

Answer 17

Beginning BalanceDR COGM
: COGAS (Cost of Goods Avail for Sale)
CR COGS
: Ending Balance (Goes to BS)

Question 18

How are Direct Materials calculated under the Weighted Average Method?

Answer 18

Beginning Inventory + Current Costs / EFU WA

Question 19

What is Cost Accounting?

Answer 19

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

Question 20

Where is Under/Over-applied Fixed OH recorded?

Answer 20

It always goes to COGS

Question 21

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

Answer 21

Cost Pools and Allocations increase compared to a traditional costing system

Question 22

How are Conversion Costs calculated under the FIFO method?

Answer 22

Current Costs / EFU FIFO

FIFO method uses Current Period costs only and ignores Beginning Inventory

Question 23

How are Equivalent Finished Units calculated for Direct Materials?

Answer 23

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

• Beginning Inventory x % Complete
  : EFU (FIFO)

Question 24

How does Freight Out affect Cost Accounting?

Answer 24

Selling (Period) Cost

Not part of inventory

Question 25

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

Answer 25

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

Question 26

What is Factory Overhead?

Answer 26

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).

Question 27

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

Answer 27

Net Sales - Product Costs : Gross Margin - Period Costs : Operating Income

Question 28

What is another name for Process Costing?

Answer 28

Equivalent Units of Production

Question 29

How does Freight In affect Cost Accounting calculations?

Answer 29

Inventory (Product) Cost Part of DM Purchases

Question 30

What is Backflush Costing?

Answer 30

Connected to Just-in-Time Production- which is part of Activity-Based Costing and Total Quality Management (TQM) - Works backward to flush out COGS - Mostly GAAP

Question 31

How is WIP calculated?

Answer 31

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

Question 32

What is the Direct Method for allocating service department costs?

Answer 32

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

Question 33

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

Answer 33

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.

Question 34

What are included in Prime Costs?

Answer 34

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

Question 35

How are Equivalent Finished Units calculated for Conversion Costs?

Answer 35

Units Shipped + EI x % Complete CC : EFU (Weighted Average) - Beginning Inventory x % Complete : EFU (FIFO)

Question 36

What is included in Variable Overhead?

Answer 36

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)