Module 2

Question 1

How does Cost-type accounting link financial accounting and cost accounting?

Answer 1

1. Cost-type accounting takes information from financial reports and uses it to then give information to decision makers in the company

Question 2

Important cost types

Answer 2

1. Material costs
2. Personnel costs
3. Machine costs
4. Other cost types

Question 3

Important types of materials

Answer 3

1. Raw materials e.g. wood, water (Atrributability: direct costs)
2. Auxiliary materials e.g. paints, adhesives (Attributability: artificial indirect costs)
3. Operating materials e.g. oils, greases (Attributability: Indirect costs)

Question 4

Material costs

Answer 4

= quantity*price

Question 5

Methods for recording material consumption

Answer 5

1. Inventory method
2. Carrying-on method
3. Retroactive accounting method

Question 6

Methods for valuing material consumption

Answer 6

1. First In First Out (FIFO)
2. Last In First Out (LIFO)
3. Ex-post average prices
4. Moving average prices

Question 7

Inventory method

Answer 7

Consumption = beginning inventory + acquisitions - ending inventory
Very accurate but…
- requires regular stocktaking
- reasons for consumption cannot be identified (theft)
- not possible to determine for which cost center or cost object the materials are consumed

Question 8

Carrying-on method

Answer 8

Consumption directly recorded (consumption slip)

Question 9

Retroactive accounting method

Answer 9

Consumption calculated based on the bills of materials for each product
e.g. Bill of material for one wind turbine: 1 tower, 3 rotor blades –> 10 wind turbines –> consumption (May): 10 tower,, 30 rotor blades

Question 10

FIFO method

Answer 10

Assumes that material delivered first is consumed first

Question 11

LIFO method

Answer 11

Assumes that materials delivered last is consumed first

Question 12

Ex-post average price method

Answer 12

Uses average purchase price for all the consumed material at the end of an accounting period

Question 13

Moving average price method

Answer 13

Uses the average price after each material consumption based on total inventory at that time

Question 14

Components of personnel costs

Answer 14

1. Salaries
2. Time wages (Hourly wages)
3. Piece-rate wages (Based on how much was produced)
4. Premium wages (include a basic wage and a premium that is granted based on performance)
5. Fringe benefits (e.g. corporate car)

Question 15

Types of machine costs

Answer 15

1. Depreciation
2. Interest costs
3. Leasing or rental payments
4. Acquisition-related costs
5. Maintenance costs

Question 16

Depreciation

Answer 16

Spreads the purchase price over the years of use of the asset

Question 17

Depreciation methods

Answer 17

Time dependent:
- Straight line depreciation
- Declining balance depreciation
- Arithmetic-degressive depreciation
Output dependent:
- Units of production depreciation

Question 18

Straight line depreciation

Answer 18

• Most important time-dependent method
• Constant amount of periodic depreciation
  a = (I-L)/T
  a - amount of period depreciation
  I - acquisition value (purchase price)
  L - residual value
  T - useful life

Question 19

Declining balance depreciation

Answer 19

• Time-dependent method
• Depreciation amounts decrease gradually over time
  p = 1-(L/I)^(1/T)
  p - depreciation percentage rate
  I - acquisition value
  L - residual value
  T - useful life

Question 20

Arithmetic-degressive depreciation

Answer 20

• Time-dependent method
• Depreciation amounts decrease each year by a constant value
  d = (I-L)/(1+2+…+T) or d = 2(I-L)/T(T+1)
  d - depreciation percentage rate
  I - acquisition value
  L - residual value
  T - useful life

Question 21

Units of production depreciation

Answer 21

• Output dependent
• Based on the utlization of the asset
  Depreciation amount per unit:
  (I-L)/Total units of production
  I - acquisition value
  L - residual value

Question 22

Interest costs

Answer 22

Capital required for operations*interest rate

Question 23

Four steps of determining interest costs

Answer 23

1. Determine the assets necessary for operations
   - check the operational necessity for each position on the asset side
2. Value the assets necessary for operations
   - decision: valuation based on replacement costs or acquisition and production costs
   - estimate average values of assets over the accounting year (use the current year and the previous years value and find the average)
3. Determine the capital required for operations
   - deduct non-interest-nearing-liabilites (NIBL) from the operating assets
   - valuation based on average values
4. Determine the interest rate

Question 24

1. Determine the assets necessary for operations

Answer 24

check the operational necessity for each position on the asset side

Question 25

2. Value the assets necessary for operations

Answer 25

- decision: valuation based on replacement costs or acquisition and production costs - estimate average values of assets over the accounting year (use the current year and the previous years value and find the average)

Question 26

3. Determine the capital required for operations

Answer 26

- deduct non-interest-nearing-liabilites (NIBL) from the operating assets - valuation based on average values

Question 27

4. Determine the interest rate - Weighted Average Cost of Capital (WACC) - Capital Asset Pricing Model (CAPM)

Answer 27

Weighted Average Cost of Capital (WACC): WACC= rE(E/(E+D)) + rD(D/(E+D))(1-T) E - Equity D - Debt rE - Cost of equity rD - Cost of debt t - Tax rate Capital Asset Pricing Model (CAPM): rE = rf + ß(rm - rf) rf - Risk-free interest rate (rm - rf) - Market-risk premium ß - Beta-factor; company risk factor