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)?
Product Costs are:
- Prime Costs - Conversion Costs
What is included in Prime Costs?
Prime Costs include:
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 a direct
impact.
What is Factory Overhead?
Factory Overhead refers to all factory costs except for DM and DL used in production.
This includes Spoilage, except for abnormal spoilage, which is a period cost and not included in OH).
What is included in Fixed Factory Overhead?
FFO: Estimated Costs / Normal Capacity
FFO uses normal activity.
Examples of Fixed Factory OH: Depreciation (SL) - Utilities - Taxes
Under/Over-applied Fixed OH always goes to COGS.
What is included in Variable Overhead?
VO: Estimated Activity / Actual Activity
VO uses actual activity.
Examples of Variable Factory OH:
-Depreciation (Units of Prod) -Indirect materials (supplies & insignificant items) -Indirect labor (factory foreman, janitors, machine maintenance)
Where is Under/Over-applied Variable OH recorded?
If Immaterial - Goes to COGS
If Material - Goes to WIP - Finished 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?
A debit balance indicates 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
What is indicated by a credit balance in Applied Factory Overhead? How is it corrected?
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.
Which variables are used to calculate Direct Material balances?
The following variables are used to calculate Direct Material balances:
Beginning Balance
+ Net purchases (plus freight-in)
- Direct Materials Used
= Ending balance (goes to BS)
What variables are used to calculated Work in Process (WIP)?
Beginning Balance (End Bal of Previous WIP)
+ Direct Materials Used
+ Direct Labor Used (Conversion Cost)
- COGM
+ Factory Overhead Applied (Conversion Cost)
= Ending Balance (Goes to BS)
What variables are included in Finished Goods calculations?
Beginning Balance \+ COGM = COGAS (Cost of Goods Avail for Sale) - COGS = Ending Balance (Goes to BS)
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?
Job-Order Costing is used when costs are easily connected to a specific product or product line. It can also be applied to services.
The 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.
What is the Direct Method for allocating service department costs?
NO services allocated between service departments even if they serve each other.
They are only allocated to product(s).
What is the Step Method for allocating service department costs?
Services can be allocated to both other service departments and the product(s).
Under process costing, how are the number of units shipped calculated?
Beginning Inventory
+ Units Started
- Ending Inventory
= Number of Units Shipped
Which two inventory methods are used under Process Costing?
The inventory methods used under Process Costing are:
- FIFO - Weighted Average
What is another name for Process Costing?
Process Costing is also called 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 Average (unless Beginning Inventory is Zero).
How are Direct Materials calculated under the Weighted Average Method?
(Beginning Inventory + Current Costs) / EFU WA
How are Conversion Costs calculated under the
Weighted Average Method?
(Beginning Inventory + Current Costs) / EFU WA
How are Equivalent Finished Units calculated for Direct Materials?
Units Shipped + EI x % Complete DM = EFU (Weighted Average Method)
Beginning Inventory x % Complete = EFU (FIFO)
How are Equivalent Finished Units calculated for Conversion Costs?
Units Shipped+ EI x % Complete CC : EFU (Weighted Average)
Beginning Inventory 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 )?
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
What is Backflush Costing?
Cost Pools and Allocations increase compared to a traditional costing system.
How do Cost Pools and Allocations compare under ABC versus traditional costing system?
- 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 - 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
- Change in Cost (High-Low pts) / Change in Activity
(High-Low pts)
