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BEC > B1/B2 Cost Accounting > Flashcards

B1/B2 Cost Accounting Flashcards

1
Q

What is Cost Accounting?

A

Cost Accounting is a component of GAAP that records Ending Inventory on the Balance Sheet for

  • Direct Materials
  • Direct Labor
  • Work in Process
  • Finished Goods

Cost Accounting also records for the Income Statement

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2
Q

What is the difference between Cost Accounting and Managerial Accounting?

A

Cost Accounting - External Focus- GAAP

Managerial Accounting - Internal Focus- Not GAAP

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3
Q

What are Product Costs (aka Inventory Costs)?

A

Prime Costs (DM+DL)

Conversion Costs (DL+MOH applied)

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4
Q

What are included in Prime Costs?

A

Direct Material USED - Have become part of the product or had a direct impact on the product

Direct Labor Used - Employees who worked on product and had direct impact

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5
Q

What is Factory Overhead?

A

All factory costs except for DM and DL used in production- including Spoilage (except for abnormal spoilage- which is a period cost and not included in OH).

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6
Q

What is included in Fixed Factory Overhead?

A

FFO : Estimated Costs / Normal Capacity

Uses Normal Activity

Examples of Fixed Factory OH: Depreciation (SL)- Utilities- Taxes

Under/Over-applied Fixed OH always goes to COGS

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7
Q

What is included in Variable Overhead?

A

VO : Estimated Activity / Actual Activity

Uses Actual Activity

Examples of Variable Factory OH: Deprecation (Units of Prod)- Indirect materials (supplies & insignificant items)- Indirect labor (factory foreman- janitors- machine maintenance)

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8
Q

Where is Under/Over-applied Variable OH recorded?

A

If Immaterial - Goes to COGS

If Material - Goes to WIP- Finished Goods- or COGS- based on their Ending Balance

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9
Q

Where is Under/Over-applied Fixed OH recorded?

A

It always goes to COGS

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10
Q

What is indicated by a Debit balance in Actual Factory Overhead? How is it corrected?

A

Under-applied overhead.

If it’s Fixed OH- under-applied goes to COGS.

If it’s Variable OH- under-applied goes to COGS if immaterial- but is allocated to WIP- FG or COGS based on ending balances.

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11
Q

What is indicated by a Credit balance in Applied Factory Overhead? How is it corrected?

A

A credit balance indicates over-applied overhead.

If Fixed overhead- it is corrected from COGS.

If Variable overhead- it is corrected through COGS if immaterial- but if material overage is allocated to WIP- FG or COGS based on ending balances.

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12
Q

Which variables are used to calculate Direct Material balances?

A

Beginning Balance DR Net purchases (plus freight-in)CR Direct Materials Used
: Ending balance (goes to BS)

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13
Q

What variables are used to calculated Work in Process (WIP)?

A

Beginning Balance (End Bal of Previous WIP)DR Direct Materials UsedDR Direct Labor Used (Conversion Cost)CR COGMDR Factory Overhead Applied (Conversion Cost)
: Ending Balance (Goes to BS)

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14
Q

What variables are included in Finished Goods calculations?

A 
Beginning Balance
DR COGM
= CGAS (Cost of Goods Avail for Sale)
CR COGS
= Ending Balance (Goes to BS)
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15
Q

How does Freight In affect Cost Accounting calculations?

A

Inventory (Product) Cost

Part of DM Purchases

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16
Q

How does Freight Out affect Cost Accounting?

A

Selling (Period) Cost

Not part of inventory

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17
Q

When is Job-Order Costing used?

A

Used when costs are easily connected to a specific product or product line

Can also be applied to services

Calculation is the same as normal cost accounting - just use your T Accounts
- DM to WIP to FG to COGS
- You’re likely going to be solving for the last job in the queue

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18
Q

What is the Direct Method for allocating service department costs?

A

No services allocated between service departments- even if they serve each other. Only allocate to product(s)

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19
Q

What is the Step Method for allocating service department costs?

A

Services can be allocated to both other service departments and the product(s)

20
Q

Under process costing- how are the units shipped calculated?

A

Beginning Inventory
+ Units Started
- Ending Inventory
= No. Units Shipped

21
Q

Which two inventory methods are used under Process Costing?

A

FIFO

Weighted Average

22
Q

What is another name for Process Costing?

A

Equivalent Units of Production

23
Q

How will Equivalent Finished Units under FIFO compare to EFU under the Weighted Average method?

A

EFU FIFO will always be LESS than EFU Weighted Avg (unless Beginning Inventory is Zero)

24
Q

How are Direct Materials calculated under the Weighted Average Method?

A

(Beginning Inventory + Current Costs) / EFU WA

25
Q

How are Conversion Costs calculated under Weighted Average Method?

A

(Beginning Inventory + Current Costs) / EFU WA

26
Q

How are Equivalent Finished Units calculated for Direct Materials?

A

Units Shipped
+ EI x % Complete DM
= EFU (Weighted Average Method)

  • Beginning Inventory x % Complete
    = EFU (FIFO)
27
Q

How are Equivalent Finished Units calculated for Conversion Costs?

A

Units Shipped
+ EI x % Complete CC
= EFU (Weighted Average)

  • Beginning Inventory x % Complete
    = EFU (FIFO)
28
Q

How are Direct Materials calculated under the FIFO method?

A

Current Costs / EFU FIFO

Note: FIFO method uses Current Period costs only and ignores Beginning Inventory

29
Q

How are Conversion Costs calculated under the FIFO method?

A

Current Costs / EFU FIFO

FIFO method uses Current Period costs only and ignores Beginning Inventory

30
Q

How is EU WIP calculated?

A 
Beginning balance (DM- DL- OH)
\+ Current Costs (DM- DL- OH)
- COGM (Goes to FG)
\+ DM EFU x Cost per DM EFU
\+ CC EFU x Cost per CC EFU
= Ending WIP
31
Q

How do period costs and product costs relate to net sales- gross margin and operating income?

A 
Net Sales 
- Product Costs
= Gross Margin
- Period Costs
= Operating Income
32
Q

What is the focus of Activity Based Costing (ABC)?

A

Focuses on eliminating non-value-added activities for poor quality and inventory and things customers don’t want or don’t care about

Inventory is expensive to store and storing something is not a value-added expenditure

Uses Cost Pools - Different departments can have different OH rates

Uses Several OH rates based on Activity - Cost Pool / Cost Driver

33
Q

How do Cost Pools and Allocations compare under ABC versus traditional costing system?

A

Cost Pools and Allocations increase compared to a traditional costing system

34
Q

What is Backflush Costing?

A

Connected to Just-in-Time Production- which is part of Activity-Based Costing and Total Quality Management (TQM)

  • Works backward to flush out COGS
  • Mostly GAAP
35
Q

What are the characteristics of By-Products?

A

Usually immaterial and common costs aren’t allocated to them
Low Market Value
Can be valued at NRV
Can be treated as a contra expense and netted against COGS - Can be treated as a contra sale and netted against Sales
Recognition rules are very flexible with valuing and classifying by-products

36
Q

What are Cost Functions?

A

Measure how costs change relative to activity levels

High-Low Method

Change in Cost (High-Low pts) / Change in Activity (High-Low pts)

37
Q

What are Period Costs?

A

SG&A + Interest/Financing

“Expense when incurred”

NOT INVENTORIABLE!

38
Q

COGM (formula)

A 
BWIP
\+DM used
\+DL
\+MOH applied
-EWIP
=COGM
39
Q

COGS (formula)

A

BFG
+COGM
-EFG
=COGS

40
Q

What effect does production > sales have on net income?

A

Net income is higher with absorption costing

41
Q

What effect does sales > production have on net income?

A

Net income is higher with variable costing

42
Q

Target Profit Formula: Before Taxes

A

TPBT=TP after tax/(1-TR)

43
Q

Margin of Safety (In Sales $)

A

Total Sales $ - BE Sales

44
Q

Margin of Safety (%)

A

MOS $/Total Sales $

45
Q

Opportunity Cost Formula @ Full Capacity

A

CM forgone/size of special order = opp. cost/unit

ONLY RELEVANT @ FULL CAPACITY

46
Q

How are EU calculated under the weighted avg. method?

A

units completed
+ (Ending WIP X % completed)
= weighted avg. EU

47
Q

How are EU calculated under the FIFO method?

A

(BWIP x % to be completed)
+ (# units completed - BWIP)
+ (EWIP x % completed)
= FIFO EU

BEC (9 decks)

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