BAR: Managerial and Cost Accounting

Question 1

Cost characteristics

Answer 1

a primary purpose of cost measurement is to allocate the costs of production (direct materials, direct manufacturing labor, and manufacturing overhead) to the units produced.

Question 2

y = A +Bx

Answer 2

y -total costs and is referred to as the dependent variable since its amount is dependent on the other factors

x - volume and is referred to as the independent variable since it can be increased or decreased at the company’s discretion. Often referred to as the cost driver as the amount of costs incurred will be largely dependent on the volume of this variable

A - fixed costs; remains constant at any volume as long as the company is operating within a given range of volume

B - variable cost per unit

Question 3

Relevant range

Answer 3

the normal range of operations

Question 4

Mixed costs

Answer 4

a combination of fixed and variable costs (example: an electric bill has a set monthly charge, regardless of usage, and then an additional charge, based on usage)

Question 5

Variable cost per unit formula

Answer 5

(Highest activity cost - Lowest activity cost) / (Highest activity unit- Lowest activity unit)

Question 6

Fixed cost

Answer 6

Highest activity cost - (variable cost per unit * Highest activity units)

Question 7

Cost accounting

Answer 7

refers to the calculation of the cost of manufactured inventory

Question 8

3 types of product costs

Answer 8

Direct material, direct labor, manufacturing overhead (indirect)

Question 9

Direct material

Answer 9

total cost of materials physically included in final product, including freight

Question 10

Direct labor

Answer 10

all wage/tax costs for employees working directly with production

Question 11

Manufacturing overhead (indirect)

Answer 11

all other costs to manufacturing. Includes indirect material (eg, sandpaper, nuts and bolts), indirect labor (eg, supervisor salary), and other factory costs (eg, depreciation on factory assets, factory utilities)

Question 12

Prime costs

Answer 12

direct materials and labor

Question 13

Conversion costs

Answer 13

direct labor and manufacturing overhead

Question 14

What product cost is in both prime and conversion costs?

Answer 14

Direct labor

Question 15

Nonmanufacturing costs

Answer 15

period costs (SGA costs, marketing costs, freight out, rehandling costs, abnormal spoilage, an expense in the period)

Question 16

Relevant costs

Answer 16

an anticipated future cost that differs among alternative plans

Question 17

Avoidable costs

Answer 17

costs that will not be incurred if a planned activity is changed or discontinued

Question 18

Marginal costs

Answer 18

additional costs incurred owing to one more output unit

Question 19

Normal spoilage

Answer 19

occurs under normal operating conditions, inherent to the production process, charged to product cost

Question 20

Abnormal spoilage

Answer 20

should not occur under normal operating conditions, avoidable and controllable, expense as period cost to separate loss account

Question 21

Applied overhead

Answer 21

(Estimated overhead costs)/ estimated DL $/hr = Predetermined overhead rate * actual production = applied overhead

Question 22

Cost of goods sold formula (Merchandising company)

Answer 22

(Beginning inventory + purchases) - ending inventory

Question 23

Direct Materials Used Formula

Answer 23

Beginning DM Inventory + DM purchased - Ending DM inventory

Question 24

Cost of Goods Manufactured Formula

Answer 24

(DM Used + DL incurred + Overhead applied) + Beginning WIP inventory - Ending WIP inventory

Question 25

Cost of Goods Sold (Manufacturing Formula)

Answer 25

(Beginning FG inventory + Cost of goods manufactured) - ending FG inventory 

Question 26

What are the inventoriable/products costs in Absorption costing?

Answer 26

DM, DL, Variable overhead, and fixed overhead

Question 27

What are the inventoriable/products costs in Variable costing?

Answer 27

DM, DL, Variable overhead

Question 28

Absorption Costing

Answer 28

GAAP income statement; external use; Sales - minus variable and fixed COGS = Gross margin - Variable and Fixed SGA = Operating income

Question 29

Variable Costing

Answer 29

Internal use; Sales - variable COGS and SGA = contribution margin - fixed COGS and SGA = Operating income

Question 30

Production > Sales then

Answer 30

Profit is greater under Absorption Costing

Question 31

Production < Sales then

Answer 31

Profit is greater under Variable Costing

Question 32

Activity-based costing (ABC)

Answer 32

allocates overhead to cost pools with different cost drivers

Question 33

Cost pool

Answer 33

includes costs that have common elements (particular activity will result in an increase in the costs in one cost pool)

Question 34

Cost driver

Answer 34

activity that drives the cost pool

Question 35

Things to consider when selecting a cost driver 

Answer 35

behavioral effects on employees, cost of measurement, degree of correlation

Question 36

Behavioral effects on employees

Answer 36

basing a cost driver on the amount of preventive maintenance performed might discourage employees from performing that maintenance at the risk of incurring additional expense

Question 37

Cost of measurement

Answer 37

if the cost of measuring a driver is excessive, it is generally better to select another cost driver

Question 38

Degree of correlation

Answer 38

uses driver with a high correlation to the cost

Question 39

Value-adding costs

Answer 39

those that make the product itself or make it better for customers; activity that a customer is willing to pay for that contributes to the end product they expect

Question 40

Nonvalue-adding costs

Answer 40

increase the cost of a product but that customers do not specifically value

Question 41

Pure waste

Answer 41

activities that the customer would not pay for; eliminate these

Question 42

Business required

Answer 42

activities that must be performed for legal or regulatory/compliance reasons

Question 43

Two methods of allocating production costs

Answer 43

job order costing and process costing

Question 44

Job order costing

Answer 44

allocates manufacturing costs directly to unique products (eg, custom-built furniture) and is generally used when costs can be directly traced to specific units

Question 45

Process costing

Answer 45

is used for a continuous production process of the same or similar goods (eg, cans of red paint) and is generally used when it is difficult to trace costs directly to specific unites

Question 46

Job order systems balance sheet accounts

Answer 46

multiple WIP accounts

Question 47

Job order systems level of cost allocation

Answer 47

directly to each job (WIP Account)

Question 48

Job order systems calculation of retail cost

Answer 48

total cost/total units

Question 49

Job order systems documentation

Answer 49

job cost sheets

Question 50

Process costing systems balance sheet accounts

Answer 50

one WIP account

Question 51

Process costing systems level of cost allocation

Answer 51

directly to each job (WIP account)

Question 52

Process costing systems calculation of retail cost

Answer 52

total cost/equivalent units

Question 53

Process costing systems documentation

Answer 53

production cost reports

Question 54

Equivalent units

Answer 54

a theoretical number that represents the total number of units that could have been completed, given the amount of prdocution costs incurred