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BEC V > 2-3. Cost Accounting > Flashcards

2-3. Cost Accounting Flashcards

1
Q

Joint and By-product costing: what are they? Issue they face?

A

The result of a single manufacturing process that yields multiple products.
*Accounting problem of allocation of the shared costs of production

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2
Q

Joint products: When are 2 or more products of significant sales value are said to be joint products?

A
  • Produced from the same set of raw materials

* Not separately identifiable until a split-off point

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3
Q

Joint and By-product costing: what is split-off?

A

The point at which products manufactured through a common process are differentiated and processed separately.

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4
Q

Joint and By-product costing: what are separable costs?

A

Additional processing costs incurred beyond the split-off point - can be assigned to individual products directly.

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5
Q

Joint and By-product costing: what are 3 ways that joint costs may be allocated to the joint products?

A
  1. Relative physical volume
  2. Relative sales value at split-off
  3. Net realizable value
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6
Q

Joint and By-product costing: how does relative physical value work?

A

Costs allocated based on the qty of products produced at split-off.

  1. Total volume determined
  2. Proportion of each product / Total volume = %
  3. Total joint cost x % = each product cost
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7
Q

Joint and By-product costing: how does relative sales value at split-off work?

A

Costs allocated based on the sales value at split-off.

  1. Total sales value determined
  2. Proportion of each product / Total value = %
  3. Total joint cost x % = each product cost
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8
Q

Joint and By-product costing: how does net realizable value work? When is this used?

A

Often used when there is no market at split-off.

  1. Compute net realizable value (Ultimate sales value for all units produced - Additional costs beyond split-off) for each
  2. Get proportion of net realizable value for each
  3. Total joint costs x %
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9
Q

By Products: what are differences compared to joint products?

A

Relatively insignificant sales value when compared to the main product.

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10
Q

By Products: Treatment of cost?

A
  • Not allocated a share of the joint cost (because of relatively insignificant value)
  • When processed beyond split-off, the additional costs are assigned - reduce proceeds from the sale
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11
Q

By Products: Treatment of net proceeds?

A

Sometimes used to reduce the cost of the main products.

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12
Q

By Products: when can proceeds be recognized?

A
  • When produced: ultimate sales value (less costs of sale) is deducted from the joint cost of the main products produced
  • preferable because it adjust COGS and inv
  • When sold: the value from sale is recorded as other revenue, other income, or as a reduction in COGS
  • used when revenue insignificant
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13
Q

Scrap: Treatment of net proceeds?

A
  • Reduce OH (credit to OH control)

* Recorded as revenue if amount is significant

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14
Q

By-product: When by-product NRV reduces COGS for the main product, what must be noted when doing so?

A

As it reduces COGS, one must note that this is reducing the cost for the main product SOLD. Therefore, any ending inventory of the main product must be deducted from the computation of the cost reduction.

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15
Q

Sales and direct cost variance analysis: what are “standards”?

A

Predetermined or targeted cost.

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16
Q

Sales and direct cost variance analysis: what is the difference between standards and budgeted amount?

A

Standards appears in general ledger accounts, but budgeted amounts do not.

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17
Q

Sales and direct cost variance analysis: which factors of production are standards developed?

A

For each factor: materials, labor, OH.

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18
Q

Sales and direct cost variance analysis: what are 2 types of standards? For what purpose are they used for?

A
  1. Ideal/theoretical standards: presume perfect efficiency and 100% capacity
    - Not useful for control purpose: not attainable
  2. Current attainable standards: based on higher than average levels of efficiency, but clearly achievable
    - Used for employee motivation, product costing and budgeting
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19
Q

Sales and direct cost variance analysis: are standards based on historical performance?

A

Yes, but does not ONLY based on that because it may incorporate past periods’ inefficiencies.

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20
Q

Sales and direct cost variance analysis: What types of jobs and costing systems can standards be used?

A

Both service organizations and manufacturing.

Both process costing and job-order costing.

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21
Q

Sales and direct cost variance analysis: when can standards used to value inventories (raw materials, WIP, FG) and COGS?

A
  • When they are based on currently attainable performance

* When they do not result in significant variances

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22
Q

Sales and direct cost variance analysis: when variances are calculated for sales, what is it based on?

A

Based on the budgeted or planned sales price.

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23
Q

Sales and direct cost variance analysis: what does variance analysis analyze?

A

The difference between std cost and actual costs.

24
Q

Sales and direct cost variance analysis: Treatment of variance when std costs used to value inv?

A

Must be written off.

  1. Non-significant variances - Written off to CGS
  2. Significant variances - Allocate to ending WIP, FG, COGS
25
Q

Sales and direct cost variance analysis: what are two parts in variances?

A
  1. Differences due to the cost of resources: price per unit, labor rate per hr, etc
  2. Difference due to the qty used: gallons, pounds, feel, labor hr, etc
26
Q

Sales and direct cost variance analysis: what are terms for differences in cost under materials and labor?

A

Materials: Price variance
Labor: Rate variance

27
Q

Sales and direct cost variance analysis: what are terms for difference in qty for materials and labor?

A

M: Usage variance
L: Efficiency variance

28
Q

Sales and direct cost variance analysis: Price variance: whose responsibility and treatment?

A

Purchasing dept.

Separated from the goods before they enter the production process.

29
Q

Sales and direct cost variance analysis: What are 2 steps of computing variances?

A
  1. Calculate the differences in rate, qty, total costs (rate x qty)
  2. Use the differences in rates and qty to compute variances
30
Q

Sales and direct cost variance analysis: Format for step 1? Interpretation of negative/positive number?

A

Standard amount - Actual amount = Difference/Variance.
Negative: unfavorable variances
Positive: favorable variances

31
Q

Sales and direct cost variance analysis: what is the exact term for “standard qty”?

A

Standard qty allowed for actual production.

32
Q

Sales and direct cost variance analysis: Std qty allowed for actual production: How is it computed?

A

Standard qty per unit x Actual produced units.

33
Q

Sales and direct cost variance analysis: what are formulas to compute price/rate variance and usage/efficiency variance? Total variance?

A
  • Price/rate variance = Difference in rates x Actual qty.
  • Usage/Effi variance = Difference in qty x Standard rate.
  • Total variance = Price/rate variance + Usage/effi variance
34
Q

Sales and direct cost variance analysis: Variance computation: how can it be verified?

A

Should be;

Total standards cost - Total actual cost) = (Price/rate variance + Usage/Effi variance

35
Q

Sales and direct cost variance analysis: Show the picture to help remember actual and std relationship.

A

Actual Qty Actual Qty Standard Qty
Actual Price Standard Price Standard Price

   Price/rate variance              Usage/Effi variance
                            Total Variance
36
Q

Sales and direct cost variance analysis: Sales variance: What is it based on?

A

Budgeted or planned sale.

37
Q

Sales and direct cost variance analysis: Sales variance: Results are compared to other analysis?

A

BE CAREFUL!!! Backward:
Actual price > Budgeted price = Favorable
Actual qty sold > Budgeted qty sold = Favorable

38
Q

Sales and direct cost variance analysis: Sales variance: Formula for Sales price variance and Sales qty variance?

A
  • Sales price variance: Difference in price x Actual qty sold
  • Sales qty variance: Difference in units x Planned unit price
39
Q

Overhead Variance Analysis: How is it computed and why?

A

Variable OH variance and fixed OH variance must be computed separately.
Because some varies with production volume and others don’t.

40
Q

OH Variance Analysis: how is fixed OH variance is applied to production? Resulting?

A

Based on a specified cost driver.

Result: Applied OH cost will change solely as a result of changes in cost driver consumption.

41
Q

OH Variance Analysis: what are 2 types of OH costs?

A

Controllable and Uncontrollable (e.g. depreciation on building etc).

42
Q

OH Variance Analysis: how is OH application rate computed?

A

(Budgeted variable OH + Budgeted fixed OH) / (Budgeted units of the allocation base).

43
Q

OH Variance Analysis: what is the cost driver traditionally?

A

Allocation base that is under the control of the production manager (i.e. direct labor, hours, etc).

44
Q

OH Variance Analysis: when cost driver that is not under the control of the production manager?

A

He can’t be responsible for OH variable due solely to the choice of allocation base.

45
Q

OH Variance Analysis: what do variable OH include?

A

Indirect costs: machine supplies, electricity needed for production, incidental manufacturing costs etc.

46
Q

OH Variance Analysis: Show graphical representation of variable OH variance.

A

Actual Qty Actual Qty @ Standard Qty allowed
@ Actual Rate Standard Rate @ Standard Price

      Spending variance         Efficiency variance
47
Q

OH Variance Analysis: Show graphical representation of fixed OH variance.

A

Actual Budgeted Standard Qty Allowed
Fixed costs Fixed costs for actual production
@ Standard Price

     Budgeted variance      Volume variance
     (cost incurred)                (units produced)
48
Q

OH Variance Analysis: what does spending variance measure? Is it controllable/uncontrollable?

A

Measures variance due to changes in both rates and quantities of overhead items.
Controllable.

49
Q

OH Variance Analysis: what does volume variance measure? Is it controllable/uncontrollable?

A

Measures variance due to variations in the efficiency of the base used to allocate overhead (i.e., direct labor hours, machine hours, etc.).
Controllable (as long as the underlying allocation base is under the control of the production manager).

50
Q

OH Variance Analysis: Formula to compute fixed OH volume variance?

A

Budgeted fixed OH - (Std fixed OH rate x Std Qty allowed for actual production).

51
Q

OH Variance Analysis: Is fixed OH volume variance controllable/uncontrollable?

A

Uncontrollable since it is an artifact of the way we assign fixed OH to production.

52
Q

OH Variance Analysis: How is fixed OH budget variance computed?

A

Actual fixed OH - Budgeted fixed OH.

53
Q

OH Variance Analysis: what are 3 methods used to interpret OH variance?

A
  • Two-way analysis
  • Three-way analysis
  • Four-way analysis
54
Q

OH Variance Analysis: Explain four-way analysis.

A

Combine all results of spending variance, efficiency variance, budget variance, volume variance.

  • Most detailed
  • Less used
55
Q

OH Variance Analysis: Explain three-way analysis.

A

Combine:
*Variable OH spending variance
*Fixed OH budget (spending) variance
Called “Total spending variance”

56
Q

OH Variance Analysis: Explain two-way analysis.

A

Separate OH variances into a controllable and uncontrollable variance.

  • Controllable: Both variable OH variances + Fixed OH budget (spending) variance
  • Called “Flexible budget variance”
  • Uncontrollable: Fixed OH volume variance

BEC V (7 decks)

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