Test 1

Question 1

What are the 3 KEY POINTS related to designing a new cost accounting system for managerial services?

Answer 1

1. Cost systems should have a DECISION FOCUS
2. Different cost information is used for DIFFERENT PURPOSES
3. Cost information for managerial purposes MUST MEET the COST-BENEFIT TEST

Question 2

What is the purpose of calculating individual product (and service) costs?

Answer 2

-Computing the inventory values and COGS for financial statements
-Helping product manager decision making regarding pricing, production, promotion, add/drop product, outsource product/service, etc.

Question 3

What is the Basic Cost Flow Model?

Answer 3

Beg. Bal. + Transfers In - Transfers Out = End. Bal.

BB + TI - TO = EB

Question 4

What are the 3 Types of Inventory Accounts?

Answer 4

1. Raw Materials
2. WIP
3. F/Gs

Question 5

What is it when there are TRANSFERS IN for Raw Materials?

Answer 5

Purchased

Question 6

What is it when there are TRANSFERS OUT for Raw Materials?

Answer 6

Requisitioned into production

Question 7

What is it when there are TRANSFERS IN for WIP?

Answer 7

Raw materials requisitioned into production

Question 8

What is it when there are TRANSFERS OUT for WIP?

Answer 8

Cost of Goods manufactured (jobs completed during the period)

Question 9

What is it when there are TRANSFERS IN for F/Gs?

Answer 9

Cost of Goods manufactured

Question 10

What is it when there are TRANSFERS OUT for F/Gs?

Answer 10

Cost of Goods Sold

Question 11

What are Direct Costs?

Answer 11

DIRECT materials and labor ASSIGNED to a product

Question 12

What are Indirect Costs?

Answer 12

Manufacturing Overhead (indirect) costs
-indirect materials
-indirect labor
-other (utilities, prepaids, depreciation, etc.)

Question 13

MOH costs are ALLOCATED based on some measure of activity.

What are the 3 common estimated Allocation Bases?

Answer 13

1. Direct Labor Hours
2. Direct Labor Costs
3. Machine Hours

Question 14

What is a Predetermined Overhead Rate (for MOH)?

Answer 14

Estimated Overhead $ / Estimated Allocation Base

Question 15

What are Equivalent Units?

Answer 15

Number of physical units x % of completion

Question 16

What is a Predetermined Overhead Rate (for ending WIP)?

Answer 16

Estimated Overhead $ / (Equivalent units + Completed units)

Question 17

TRUE/FALSE: When ending Work-in-Process Inventory is present, you MUST calculate equivalent units

Answer 17

TRUE

of physical units x % of completion

Question 18

What are the 3 Basic Types of Product Costing Systems?

Answer 18

1. Job Costing
2. Process Costing
3. Operations Costing

Question 19

What is Job Costing, and an example?

Answer 19

“Job Shop”
-customized
-traces costs to individual units or specific jobs
-contracts or batches of goods

e.g., car shop, law firms, hospital, construction

Question 20

What is Process Costing, and an example?

Answer 20

“Continuous Flow Process”
-identical items
-no need to trace costs to the individual unit level

e.g., ice cream, paint, cereal, petroleum

Question 21

What is Operations Costing, and an example?

Answer 21

“Batch Production”
-different batches of products
-homogenous within the batch
-hybrid costing system

e.g., automobile manufacturing, clothing, furniture

Question 22

When computing the cost of a job, which are ASSIGNED and which are ALLOCATED?

Answer 22

ASSIGNED:
-Direct Materials
-Direct Labor

ALLOCATED:
-MOH (indirect costs)

Question 23

What do DEBITS to the MOH account reflect?

Answer 23

ACTUAL indirect materials, indirect labor, or other

Question 24

What do CREDITS to the MOH account reflect?

Answer 24

APPLIED overhead based on the predetermined overhead rate

Question 25

When the actual overhead costs incurred (debits) are in excess of the applied overhead costs (credits), what has happened?

Answer 25

UNDERAPPLIED overhead

Question 26

When the applied overhead costs (credits) are in excess of the actual overhead costs incurred (debits), what has happened?

Answer 26

OVERAPPLIED overhead

Question 27

You have UNDERAPPLIED overhead. What is the journal entry when writing-off to COGS?

Answer 27

Dr. COGS Cr. MOH

Question 28

You have UNDERAPPLIED overhead. What is the journal entry when writing-off to WIP, F/Gs, and COGS?

Answer 28

Dr. WIP Inventory Dr. F/G Inventory Dr. COGS Cr. MOH

Question 29

You have OVERAPPLIED overhead. What is the journal entry when writing-off to COGS?

Answer 29

Dr. MOH Cr. COGS NOTE: opposite of underapplied overhead

Question 30

You have OVERAPPLIED overhead. What is the journal entry when writing-off to WIP, F/Gs, and COGS?

Answer 30

Dr. MOH Cr. WIP Cr. F/Gs Inventory Cr. COGS NOTE: opposite of underapplied overhead

Question 31

What is a Normal Cost?

Answer 31

cost of a job is determined by ACTUAL direct material and labor costs plus overhead applied using a PREDETERMINED rate and an ACTUAL allocation base

Question 32

What is an Actual Cost?

Answer 32

cost of a job is determined by ACTUAL direct material and labor costs plus overhead applied using an ACTUAL overhead rate and an ACTUAL allocation base

Question 33

What is a Standard Cost?

Answer 33

cost of a job is determined by STANDARD (budgeted) direct material and labor costs plus overhead applied using a PREDETERMINED overhead rate and a STANDARD (budgeted) allocation base