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Flashcards in Cost Accounting Deck (36)
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1
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
2
Q
What is the difference between Cost Accounting and Managerial Accounting?
A
Cost Accounting - External Focus- GAAP

Managerial Accounting - Internal Focus- Not GAAP
3
Q
What are Product Costs (aka Inventory Costs)?
A
Prime Costs

Conversion Costs
4
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
5
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).
6
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
7
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)
8
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
9
Q
Where is Under/Over-applied Fixed OH recorded?
A
It always goes to COGS
10
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.
11
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.
12
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)
13
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)
14
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)
15
Q
How does Freight In affect Cost Accounting calculations?
A
Inventory (Product) Cost

Part of DM Purchases
16
Q
How does Freight Out affect Cost Accounting?
A
Selling (Period) Cost

Not part of inventory
17
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
- DM to WIP to FG to COGS
- You're likely going to be solving for the last job in the queue
18
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)
19
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)
20
Q
Under process costing- how are the units shipped calculated?
A
Beginning Inventory
+ Units Started
- Ending Inventory
: No. Units Shipped
21
Q
Which two inventory methods are used under Process Costing?
A
FIFO

Weighted Average
22
Q
What is another name for Process Costing?
A
Equivalent Units of Production
23
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)
24
Q
How are Direct Materials calculated under the Weighted Average Method?
A
Beginning Inventory + Current Costs / EFU WA
25
Q
How are Conversion Costs calculated under Weighted Average Method?
A
Beginning Inventory + Current Costs / EFU WA
26
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)
27
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)
28
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
29
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
30
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
31
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
32
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
33
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
34
Q
What is Backflush Costing?
A
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
35
Q
What are the characteristics of By-Products?
A
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
36
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)