Topic: 3: Cost accounting

Question 1

What is cost accounting?

Answer 1

The measuring, analysising, recording and reporting on cost if a productor service, useful for both financial and managerial accounting

Question 2

What is cost accounting useful for?

Answer 2

Control of asset
Planning
Inventory valuation
setting of selling price
Determining profitability

Question 3

Control of assets

Answer 3

Comparing budgeted with actual product cost

Question 4

What is inventory valuation?

Answer 4

Calculating product value (finished or unfinished inventory to include in the financial statements

Question 5

What is planning

Answer 5

Estimating future product cost based on past cost

Question 6

What is a cost?

Answer 6

An economic sacrifice of resources for a particular response, such as making a product o providing a service

Question 7

Cost classification?

Answer 7

• Relationship cost object (direct or indirect)
• Fixed or variable cost
• Product or period costs

Question 8

What is Cost object?

Answer 8

any object for which we require a value for which costs are measured and assigned

Question 9

What are direct costs?

Answer 9

Costs that are able to be easily traced to a product or service witb a high degree of accuracy

Question 10

Examples of direct cost

Answer 10

Raw material, wages, parts

Question 11

What are indirect costs?

Answer 11

Costs that are not easily traced to a product or service and are not incorporated in the product to make worth tracing

Question 12

Examples of indirect costs

Answer 12

Managers salary, glue, machine oil

Question 13

What are direct materials?

Answer 13

Materials and part directly used to manufacture.
E.g. wood, metal

Question 14

What are indirect materials?

Answer 14

Usually materials that relate to manufacturing in general, not specific products

Question 15

What is direct labour?

Answer 15

Wages that employees directly work to manufacture the product

Question 16

What is indirect labour?

Answer 16

Cost associated with manger, supervisors, and office staff

Question 17

What are overheads?

Answer 17

All costs that are generally indirectly related to manufacturing of products. Includes indirect costs
E.g. Depreciation, rent

Question 18

Cost behaviours

Answer 18

Fixed, variable, mixed

Question 19

What are Fixed costs?

Answer 19

Fixed costs do not change as business activity changes and are constant over accounting period

Question 19

What are Variable costs?

Answer 19

Variable costs are determined by levels of business activity

Question 20

What are Mixed costs?

Answer 20

Combination of fixed and variabel costs

Question 21

Treatment of costs?

Answer 21

Product
Period

Question 22

What are period costs?

Answer 22

An expense shown in the income statement in the period they are incurred and are not prodict costs

Question 23

Whata are product costs (Inventorial costs)?

Answer 23

Any cost incurred in manufacturing of a product

Question 24

Costs classified by time

Answer 24

Past costs: Costs that already incurred and cannot be managed Future costs: Costs that will be consumed in the future and can be manage in relation to production. Can be made certain by planning and budgeting

Question 25

What is unit price?

Answer 25

Price that is set to cover cost of manufacturing the product or service when selling

Question 26

What is markup

Answer 26

Amount that is added to unit cost of a product to calculate the price charged tot eh customer

Question 27

What is job order costing?

Answer 27

- Assigns direct and indirect costs to specific jobs - It is used when there is definable jobs - Used when business manufactures a small number of identical products or when each is unique

Question 28

What is a batch?

Answer 28

Quantity of differe t unique products

Question 28

What is a Job?

Answer 28

- Product that is being manufactured for a customer or service provided - Each requires different amounts of raw materials and labour

Question 29

Examples of business that use job order costing

Answer 29

Printer, Motor vehicle repairs, legal firms

Question 30

What is process order costing

Answer 30

When a business makes a very large quantoty of identical products over a long period of time

Question 31

What is actual costing system?

Answer 31

Calculates the cost of a product using actual DM, actual DL and OH costs But most businesses cannot wait to end of period to determine cost

Question 32

What is normal costing system?

Answer 32

Calculates cost of a job using actual DM, DL and predetermined OH rate

Question 33

What is standard cost?

Answer 33

The projected cost of manufacturing a single product or number of products during an accounting period under current conditions and anticipated operating conditions.

Question 34

What is variance?

Answer 34

When there is a significant difference between standard cost and actual result. It is analysised by managers to find cause and take action

Question 35

4 types of variances

Answer 35

DM price Dzm usage DL rate Dzl efficiency

Question 36

Advantages of standard costing

Answer 36

- Allows business to establish expected cost for DM, DL and factory OH - Standards set are a benchmark against which the business can compare actual performance - efficiencies can be eliminated

Question 37

What is DM price variance?

Answer 37

Occurs when there is a difference between actual and standard purchase price

Question 38

What is job order costing sheet?

Answer 38

Records all DM, DL, OH costs associated with the cost for each job, each job has a unique number

Question 39

What is DM Usage variance?

Answer 39

Occurs when there is a difference between actual and standard quantity of DM

Question 40

What is DL rate variance?

Answer 40

Occurs when there is a difference between actual and standard DL rate per hour

Question 41

What is DL efficiency variance?

Answer 41

Occurs when there is a difference between actual and standard Direct labour hours that should have been worked for the nmber of products made