Cost Accounting Part 2_M2

Question 1

What is the Gross Profit Formula?

Answer 1

Sales - COGS - OPER Expense= Gross Profit.

Question 2

What are the different types of costing?

Answer 2

• Process Costing is a method of allocating production costs to
  products and services by averaging the cost over the total units produced. Costs are usually accumulated by department rather than by job.
• Job Order Costing is a method of allocating production costs to products and services that are identifiable as separate units and require greater or lesser amounts of work to complete.
• Activity-based Costing is a system that accumulates all costs of overhead for each of the activities of the organization and then allocates those activity costs to the cost objects that caused the activity. ABC requires determining the cost drivers (cause) and cost (effect).
• Operation Costing is a hybrid system that allows the company to use job order costing for some costs of production and process costing for other costs.

Question 3

What is Job Order Costing vs. Process Order Costing?

Answer 3

Industries that use JOB ORDER COSTING:

• Furniture manufacturing
• Special order printing,
• Shipbuilding,
• Many types of service organizations.
• CPA Firms
• Work ordered will be customer specific

Industries that use PROCESS COSTING

• Manufacture homogeneous products, such as soda or paper, on a continuous basis.
• Refinery’s

Question 4

What is the physical flow of units?

Answer 4

A production report is normally formatted to prove units at the beginning of the period plus units transferred in are equal to the units transferred out plus ending inventory as follows:

Sample Production Report

Units in process, beginning
Units transferred in
Total units charged to department

Units transferred out
Units in process, ending
Total units to be accounted for

Question 5

What are the 2 types of spoilage and how are they treated differently?

Answer 5

Normal Spoilage

• Product cost expensed only after the sell
• Also known as inventoriable cost
• COGS affect

Abnormal Spoilage

• Period cost expensed right away

Question 6

How does FOH-Applied affects the books?

Answer 6

• If FOH- Applied is greater than actual OH you have an over-applied credit balance.
• If FOH- Applied is less than actual OH you have an under-applied and a debit balance.

Question 7

Which department has control of the indirect materials as it flows through each department?

Answer 7

• Store control is increased before indirect materials are issued to production.
• As indirect materials are actually used it increases factory overhead control.
• Factory overhead applied is the allocated amount of factory overhead that is applied to work-in-process based on estimates of production and costs, which increases work-in-process control.