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Flashcards in Cost Accounting Deck (36):
1

What is Cost Accounting?

Cost Accounting is a component of GAAP that

records Ending Inventory on the Balance Sheet for Direct Materials, Direct Labor, Work in Process, Finished Goods

Cost Accounting also records for the Income Statement

2

What is the difference between

Cost Accounting and

Managerial Accounting?

Cost Accounting - External Focus- GAAP

Managerial Accounting - Internal Focus- Not GAAP

3

What are Product Costs

(aka Inventory Costs)?

Prime Costs

Conversion Costs

4

What are included in Prime Costs?

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

What is Factory Overhead?

All factory costs (except for DM and DL) used in production

including Spoilage (except for Abnormal spoilage = period cost)

6

What is included in Fixed Factory Overhead?

FFO =   Estimated Costs

    Normal Capacity

Uses Normal Activity

Ex: Depreciation (SL), Utilities, Taxes Under/Over-applied

Fixed OH always goes to COGS

7

What is included in Variable Overhead?

VO = Estimated Activity

Actual Activity

Uses Actual Activity

Ex:    Deprecation (Units of Prod)

Indirect materials (supplies & insignificant items)

Indirect labor (factory foreman, janitors, machine maintenance)

8

Where is

Under/Over-applied Variable OH

recorded?

If Immaterial => COGS

If Material =>    WIP,            based on their Ending Balance

Finished Goods,

or COGS 

9

Where is

Under/Over-applied Fixed OH

recorded?

It always goes to COGS

10

What is indicated by a Debit balance

in Actual Factory OH?

How is it corrected?

Under-applied OH

If it's Fixed OH, under-applied => COGS.

If it's Variable OH, under-applied => COGS

If immaterial => allocated to WIP, FG, or COGS

based on ending balances

11

What is indicated by a Credit balance

in Applied Factory OH?

How is it corrected?

Over-applied OH

If Fixed OH, it is corrected from COGS

If Variable OH, it is corrected through COGS if immaterial 

If material, overage => allocated to WIP- FG or COGS

    based on ending balances.

12

Which variables are used to calculate Direct Material balances?

Beginning Balance DR

Net purchases (+ freight-in) CR

Direct Materials Used= Ending balance (goes to BS)

13

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

Beginning Balance (End Bal of Previous WIP)DR

Direct Materials Used DR

Direct Labor Used (Conversion Cost)CR

COGM DR

Factory OH Applied (Conversion Cost)= Ending Balance (Goes to BS)

14

What variables are included in Finished Goods calculations?

Beginning BalanceDR

COGM= COGAS (Cost of Goods Avail for Sale)CR

COGS= Ending Balance (Goes to BS)

15

How does Freight In affect Cost Accounting calculations?

Inventory (Product) Cost

Part of DM Purchases

16

How does Freight Out affect Cost Accounting?

Selling (Period) Cost

Not part of inventory

17

When is Job-Order Costing used?

Used when costs are easily connected to a specific product / product line / services

Calculation is the same as normal cost accounting

Use T Accounts

DM => WIP => FG => COGS

Likely going to be solving for the last job in the queue

18

What is the Direct Method

for allocating svc dept costs?

No services allocated between departments

even if they serve each other.

Only allocate to product(s)

19

What is the Step Method

for allocating service department costs?

Services can be allocated to both

other service departments and the product(s)

20

Under process costing

how are the units shipped calculated?

Beginning Inventory

+ Units Started

-   Ending Inventory

# Units Shipped

21

Which two inventory methods are used

under Process Costing?

FIFO

Weighted Average

22

What is another name for Process Costing?

Equivalent Units of Production

23

How will Equivalent Finished Units under FIFO

compare to EFU under the Weighted Avg method?

EFU FIFO will

always be LESS than

EFU Weighted Avg

unless Beginning Inventory = 0

24

How are Direct Materials calculated

under the Weighted Avg Method?

Beginning Inventory + Current Costs

EFU WA

25

How are Conversion Costs calculated

under Weighted Average Method?

Beginning Inventory + Current Costs

EFU WA

26

How are Equivalent Finished Units calculated

for Direct Materials?

Units Shipped + EI x % Complete DM

= EFU (Weighted Average Method) - Beginning Inventory x % Complete= EFU (FIFO)

27

How are Equivalent Finished Units calculated for Conversion Costs?

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

28

How are Direct Materials calculated

under the FIFO method?

Current Costs

EFU FIFO

Note: FIFO method uses Current Period costs only

and ignores Beginning Inventory

29

How are Conversion Costs calculated

under the FIFO method?

Current Costs

EFU FIFO

FIFO method uses Current Period costs only

and ignores Beginning Inventory

30

How is WIP calculated?

Beginning balance (DM- DL- OH)

+ Current Costs (DM- DL- OH)

- COGM (Goes to FG)

+ DM EFU x Cost per DM EFU

+ CC EFU x Cost per CC EFU

Ending WIP           

31

How do period costs and product costs

relate to net sales, gross margin and operating income?

         Net Sales                Gross Margin  

-     Product Costs      =       -       Period Costs

             Operating Income         Operating Income

32

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

Focuses on eliminating non-value-added activities for poor quality/inventory/things customers don't want/care about

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

Uses Cost Pools - Diff depts can have diff OH rates

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

33

How do Cost Pools and Allocations compare

under ABC vs. traditional costing system?

Cost Pools and Allocations increase

compared to a traditional costing system

34

What is Backflush Costing?

  • Connected to Just-in-Time Production
  • part of ABC and Total Quality Mgmt (TQM)
  • Works backward to flush out COGS
  • Mostly GAAP

35

What are the characteristics of By-Products?

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

36

What are Cost Functions?

  • Measure how costs change relative to activity levels
  • High-Low Method

  Change in Cost (High-Low pts)  

Change in Activity (High-Low pts)