Cost Accounting Flashcards
What is Cost Accounting?
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
What is the difference between Cost Accounting and Managerial Accounting?
Cost Accounting - External Focus- GAAP
Managerial Accounting - Internal Focus- Not GAAP
What are Product Costs (aka Inventory Costs)?
Prime Costs
Conversion Costs
What are included in Prime Costs?
DM USED - Have become part of the product or had a direct impact on the product
DL Used - Employees who worked on product and had direct impact
What is Factory Overhead?
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).
What is included in Fixed Factory Overhead?
FFO = Est Costs / Normal Capacity
Uses Normal Activity
Ex: Depreciation (SL), Utilities, Taxes
Under/Over-applied Fixed OH always goes to COGS
What is included in Variable Overhead?
VO = Est Activity / Actual Activity
Uses Actual Activity
Examples of VOH: Depr (Units of Prod), Ind materials (supplies), Indirect labor (foreman, janitors, maintenance)
Where is Under/Over-applied VARIABLE OH recorded?
Immaterial - COGS
Material - WIP, F Goods, or COGS
- based on their Ending Balance
Where is Under/Over-applied FIXED OH recorded?
It always goes to COGS
What is indicated by a Debit balance in Actual Factory Overhead?
How is it corrected?
Under-applied overhead.
Fixed OH - COGS.
Var OH - allocated to WIP- FG or COGS
based on ending balances if material.
What is indicated by a Credit balance in Applied Factory Overhead?
How is it corrected?
A credit balance indicates over-applied overhead.
Fixed overhead- it is corrected from COGS.
Var overhead- allocated to WIP- FG or COGS based on ending balances if material
Which variables are used to calculate Direct Material balances?
db Beginning Balance
db Net purchases (plus freight-in)
cr DM Used
Ending balance (goes to BS)
What variables are used to calculated Work in Process (WIP)?
db Beginning Balance
db Direct Materials Used (prime)
db Direct Labor Used (prime/conversion)
db Factory Overhead Applied (conversion)
cr COGM
Ending Balance (Goes to BS)
What variables are included in Finished Goods calculations?
db Beginning Balance
db COGM
= COGAS (Cost of Goods Avail for Sale)
cr COGS
How does Freight In affect Cost Accounting calculations?
Inventory (Product) Cost
Part of DM Purchases
How does Freight Out affect Cost Accounting?
Selling - Period Cost
Not part of inventory
When is Job-Order Costing used?
Costs are easily connected to a specific product or product line
Can be applied to services
Calculation is the same as normal cost accounting – just use your T Accounts
You’re likely going to be solving for the last job in the queue
What is the Direct Method for allocating service department costs?
No services allocated between service departments- even if they serve each other.
Only allocate to product(s)
What is the Step Method for allocating service department costs?
Services can be allocated to
Other service departments
and Product(s)
Under process costing
How are the units shipped calculated?
Beginning Units Inventory
+ Units Started
- Ending Inventory
= No. Units Shipped
Which two inventory methods are used under Process Costing?
FIFO
Weighted Average
What is another name for Process Costing?
Equivalent Units of Production
How will Equivalent Finished Units under FIFO
compare to EFU under the Weighted Average method?
EFU FIFO will always be LESS than
EFU Weighted Avg (unless Beginning Inventory is Zero)
How are Direct Materials calculated under the Weighted Average Method?
(Beg Inv + Current Costs) / (EFU WA)
How are Conversion Costs calculated under Weighted Average Method?
(Beg Inv + Current Costs) / (EFU WA)
How are Equivalent Finished Units calculated for Direct Materials?
(Units Shipped)
+ End Inv x (% Complete DM)
= EFU (Weighted Average Method)
- (Beg Inv x % Complete)
= EFU (FIFO)
How are Equivalent Finished Units calculated for Conversion Costs?
(Units Shipped)
+ EI x % Complete CC
= EFU (Weighted Average)
- Beg Inv x % Complete
= EFU (FIFO)
How are Direct Materials calculated under the FIFO method?
(Current Costs) / EFU
FIFO Note: FIFO method uses Current Period costs only and ignores Beginning Inventory
How are Conversion Costs calculated under the FIFO method?
Current Costs / EFU FIFO
FIFO method uses Current Period costs only and ignores Beginning Inventory
How is WIP calculated?
Beginning balance (DM- DL- OH)
+ Current Costs (DM- DL- OH)
- COGM (Goes to Finished Goods)
+ DM EFU x Cost per DM EFU
+ CC EFU x Cost per CC EFU
= Ending WIP
How do period costs and product costs relate to net sales- gross margin and operating income?
Net Sales
- Product Costs
= Gross Margin
- Period Costs
= Operating Income
What is the focus of Activity Based Costing (ABC)?
- 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
How do Cost Pools and Allocations compare under ABC versus traditional costing system?
Cost Pools and Allocations increase compared to a traditional costing system
What is Backflush Costing?
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
What are the characteristics of By-Products?
- 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 o Recognition rules are very flexible with valuing and classifying by-products
What are Cost Functions?
Measure how costs change relative to activity levels
High-Low Method (activity)
Change in Cost (High-Low pts) / Change in Activity (High-Low pts)
