Cost Accounting

Question 1

Cost Accounting is a component of GAAP that records Ending Inventory on the Balance Sheet for
o Direct Materials
o Direct Labor
o Work in Process
o Finished Goods

Cost Accounting also records for the Income Statement

Answer 1

Cost Accounting

Question 2

Cost Accounting - External Focus- GAAP

Managerial Accounting - Internal Focus- Not GAAP

Answer 2

Cost Accounting

Question 3

Prime Costs

Conversion Costs

Answer 3

Cost Accounting

Question 4

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

Answer 4

Cost Accounting

Question 5

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).

Answer 5

Cost Accounting

Question 6

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

Answer 6

Cost Accounting

Question 7

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)

Answer 7

Cost Accounting

Question 8

If Immaterial - Goes to COGS

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

Answer 8

Cost Accounting

Question 9

It always goes to COGS

Answer 9

Cost Accounting

Question 10

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.

Answer 10

Cost Accounting

Question 11

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.

Answer 11

Cost Accounting

Question 12

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

Answer 12

Cost Accounting

Question 13

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)

Answer 13

Cost Accounting

Question 14

Beginning BalanceDR COGM
: COGAS (Cost of Goods Avail for Sale)
CR COGS
: Ending Balance (Goes to BS)

Answer 14

Cost Accounting

Question 15

Inventory (Product) Cost

Part of DM Purchases

Answer 15

Cost Accounting

Question 16

Selling (Period) Cost

Not part of inventory

Answer 16

Cost Accounting

Question 17

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

Answer 17

Cost Accounting

Question 18

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

Answer 18

Cost Accounting

Question 19

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

Answer 19

Cost Accounting

Question 20

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

Answer 20

Cost Accounting

Question 21

FIFO

Weighted Average

Answer 21

Cost Accounting

Question 22

Equivalent Units of Production

Answer 22

Cost Accounting

Question 23

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

Answer 23

Cost Accounting

Question 24

Beginning Inventory + Current Costs / EFU WA

Answer 24

Cost Accounting

Question 25

Beginning Inventory + Current Costs / EFU WA

Answer 25

Cost Accounting

Question 26

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

• Beginning Inventory x % Complete
  : EFU (FIFO)

Answer 26

Cost Accounting

Question 27

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

• Beginning Inventory x % Complete
  : EFU (FIFO)

Answer 27

Cost Accounting

Question 28

Current Costs / EFU FIFO

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

Answer 28

Cost Accounting

Question 29

Current Costs / EFU FIFO

FIFO method uses Current Period costs only and ignores Beginning Inventory

Answer 29

Cost Accounting

Question 30

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

Answer 30

Cost Accounting

Question 31

Net Sales - Product Costs
: Gross Margin
- Period Costs
: Operating Income

Answer 31

Cost Accounting

Question 32

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

Answer 32

Cost Accounting

Question 33

Cost Pools and Allocations increase compared to a traditional costing system

Answer 33

Cost Accounting

Question 34

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

Answer 34

Cost Accounting

Question 35

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

Answer 35

Cost Accounting

Question 36

Measure how costs change relative to activity levels

High-Low Method

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

Answer 36

Cost Accounting