B1 - Cost Accounting

Question 1

Prime Costs are what?

Answer 1

Direct Materials + Direct Labor

Question 2

Conversion Costs are what?

Answer 2

Direct Labor + Factory Overhead

Question 3

What are Product costs?

Answer 3

are all costs related to the manufacturing of the product.

- they are inventoriable

Question 4

what are Period Costs?

Answer 4

are expensed in the period in which they are incurred

- Not inventoriable

Question 5

What are Direct Costs?

Answer 5

Easily traced

• Direct Raw Materials
• Direct Labor

Question 6

What are Indirect cost?

Answer 6

overhead, not easily traceable

Question 7

Calculated overhead rate =

Answer 7

=budgeted overhead costs divided by Estimated cost drivers

Question 8

Applied overhead =

Answer 8

Actual cost driver X overhead rate (from calculated overhead rate)

Question 9

an example of a Semi-variable costs is?

Answer 9

paying utilities. typically a flat fee and then a usage fee on top.

Question 10

For purposes of allocating joint costs to joint products, the sales price at point of sale, reduced by cost to complete after split-off, is assumed to be equal to the:
	a.	
Net sales value at split-off.
	b.	
Sales price less a normal profit margin at point of sale.
	c.	
Total costs.
	d.	
Joint costs.

Answer 10

Net Sales Value at Split off

Sales price less the cost to complete is defined as the net sales value at split-off. In other words, this is the additional contribution to income generated by completing the product.
Choice “d” is incorrect. Sales price at point of sale reduced by cost to complete is the additional contribution to income generated by completing the product. It is not equal to joint costs. (If it were, this would be a zero profit situation.)
Choice “c” is incorrect. Sales price at point of sale reduced by cost to complete is the additional contribution to income generated by completing the product. It is not equal to total costs.
Choice “b” is incorrect. Selling price less a normal profit margin is generally a cost figure. It is not equal to sales price less the cost to complete, which is the additional contribution to income generated by completing the product. (If it were, this would be a zero profit situation.)

Question 11

Kode Co. manufactures a major product that gives rise to a by-product called May. May’s only separable cost is a $1 selling cost when a unit is sold for $4. Kode accounts for May’s sales by deducting the $3 net amount from the cost of goods sold of the major product. There are no inventories. If Kode were to change its method of accounting for May from a by-product to a joint product, what would be the effect on Kode’s overall gross margin?
a.
No effect.
b.
Gross margin increases by $3 for each unit of May sold.
c.
Gross margin increases by $4 for each unit of May sold.
d.
Gross margin increases by $1 for each unit of May sold.

Answer 11

Gross margin increases by $1 for each unit of May sold.
hanging the accounting from by-product to joint product changes the computation of gross margin because the $1 selling cost is treated differently under each method. Using the by-product method, the $1 selling expense is netted against the $4 selling price to arrive at a $3 deduction from cost of goods sold. Since gross margin is calculated as sales less cost of goods sold, the $1 does flow into the gross margin amount using this method. Using the joint product method, the $1 cost would be a selling expense, which is not included in the calculation of gross margin. Instead, selling expenses are deducted from gross margin (after it is computed) to arrive at net income. Although the total net income is the same under both methods, the joint product method results in an increased gross margin of $1 per unit of May sold.
Choice “a” is incorrect. The $1 selling expense would be deducted from gross margin using the joint product method.
Choice “b” is incorrect. The $4 sales price is included in the calculation of gross margin under both methods.
Choice “c” is incorrect. The $4 sales price is included in calculation of gross margin under both methods.

Question 12

For purposes of allocating joint costs to joint products, the sales price at point of sale, reduced by cost to complete after split-off, is assumed to be equal to the:
	a.	
Total costs.
	b.	
Relative sales value at split-off.
	c.	
Sales price less a normal profit margin at point of sale.
	d.	
Joint costs.

Answer 12

Relative sales value at split-off.
-Sales price less the cost to complete is defined as the relative sales value at split-off. In other words, this is the additional contribution to income generated by completing the product.
Choice “a” is incorrect. Sales price at point of sale reduced by cost to complete is the additional contribution to income generated by completing the product. It is not equal to total costs.
Choice “d” is incorrect. Sales price at point of sale reduced by cost to complete is the additional contribution to income generated by completing the product. It is not equal to joint costs. (If it were, this would be a zero profit situation.)
Choice “c” is incorrect. Selling price less a normal profit margin is generally a cost figure. It is not equal to sales price less the cost to complete, which is the additional contribution to income generated by completing the product. (If it were, this would be a zero profit situation.)

Question 13

Fab Co. manufactures textiles. Among Fab's Year 1 manufacturing costs were the following salaries and wages:
Loom operators
$ 120,000
Factory foremen
45,000
Machine mechanics
30,000
What was the amount of Fab's Year 1 direct labor?
	a.	
$120,000
	b.	
$165,000
	c.	
$195,000
	d.	
$150,000

Answer 13

$120,000
Direct labor represents the cost of labor directly associated with the manufacturing of the finished product. The loom operators would qualify as direct labor, while the factory foremen and the machine mechanics would qualify as indirect labor, or overhead. Total direct labor is $120,000.
Choices “c”, “b”, and “d” are incorrect based on the above explanation.