Cost Accounting Flashcards
What is job order costing?
Allocating costs according to particular job orders (i.e. when a customer orders a job to be done) – as distinct from process costing
Used for building construction, airplane manufacturing, service industries, etc.
How are manufacturing costs ordinarily assigned in job order costing?
Direct materials and direct labor are allocated specifically to the jobs in which they occur, and costs that aren’t traceable to such jobs (e.g. fixed MOH) are applied according to a particular % rate
What are different ways that non-traceable costs might be applied in job process costing?
According to some common base
E.g. the rate might be (direct labor hours for job) / (total direct labor hours)
-can also be machine hours used, direct labor cost, or other things
What causes a complication for job process costing?
The rate to allocate fixed costs to different jobs must be based on estimates
Due to this, the difference between overhead applied to fix costs and actual overhead incurred has to be reconciled at the end of the period – practically speaking, it is often closed to COGS
What is process costing?
Allocating costs according to the phase of production (process) in which goods are manufactured
Used for manufacturers of homogeneous goods, e.g. foods, chemicals, textiles
How does process costing assign unit costs?
The total cost of a given process is divided by that cost center’s output in units
What is a cost of production report (CPR)?
A report showing all the costs charged to a particular cost center, including how it is distributed among ending WIP, FG, or completed units transferred to the next stage of production
What are equivalent units, and how do they relate to process costing?
Since process costing involves assigning costs to processes, it can assign costs for units that are not yet complete – thus, to measure total units completed, partial units need to be added up to determine total equivalent units
E.g. 500 20%-completed units would be 100 equivalent units
When costs are calculated for a particular cost center, to what must they be applied?
To
(a) transferred-out units (i.e. all units that have exited the cost center) – which is not necessarily finished goods
(b) ending WIP (i.e. all units that have not yet exited the cost center)
Which cost flow assumption is ordinarily used for process costing?
Either (1) FIFO or (2) weighted average
What is spoilage?
Any stuff produced in the manufacturing process besides finished goods
What are different kinds of spoilage?
(i) waste – material lost in the process; has no salvage value
(ii) scrap – residual material from the process; has salvage value
(iii) defective goods – can be sold at a discount or reworked
(iv) spoiled goods – can be disposed or sold at salvage value; no reworking available
What is the difference between normal and abnormal spoilage?
Normal = expected as part of the manufacturing process and unavoidable (in the short run) – leads to management’s determining an acceptable rate for normal spoilage
Abnormal = spoilage that could have been avoided if not for inefficiency or errors – in practice, this is any spoilage beyond the determined normal spoilage rate
How are normal and abnormal spoilage accounted for differently?
Normal = treated as an ordinary cost of production, included in the cost of inventory
Abnormal = treated as a loss for the period in which it was incurred
How is the salvage value from scrap material accounted for?
Generally applied against manufacturing overhead, though it can also be applied against particular jobs (under job order accounting)
How is the cost for reworking goods accounted for?
Ordinarily charged to manufacturing overhead
What is the difference between joint products and byproducts?
Joint products = created from the same process used to make another unit
Byproducts = also created from the same process used to make another unit, but far less significant in sales value; also can be unintended
What is a split-off point?
A point in the production process where joint products or byproducts no longer undergo the same processes, but become separately identifiable units
Costs prior to this point are joint costs; costs after it are separable costs
What are different ways to apportion products’ joint costs?
(1) relative market value method (also called relative sales value method)
(2) net realizable value method
(3) physical measures method
What is the relative market value method for allocating joint costs?
Apportions joint costs according to the products’ relative market value at the split-off point
What is the net realizable value method for allocating joint costs?
Often applies when joint products have zero market value at the split-off point – thus allocates joint costs according to the products’ NRV, where NRV = later sales value minus additional processing costs
Generally, this uses the first point of additional processing at which a product acquires sales value, not necessarily the very end of the chain of production
What is the physical measures method?
Any method which uses the physical characteristics of a product (e.g. volume or weight) to apportion joint costs
Inferior to the other methods, which better relate the joint costs to revenues
How are the revenues from byproducts accounted for?
Two ways:
(1) the net revenue from byproducts sold is deducted from the cost for the main products sold
(2) the NRV from byproducts produced is deducted from the cost for the main products produced
How should service department costs for manufacturers be allocated?
They must be allocated to the applicable production departments (which then allocate the costs to inventory) using some objective method
As regards the allocation of service department costs to production departments, what is the direct method?
Assigns the costs of each service department to all production departments
This can occur either (ideally) by taking each individual service and charging it to that production department, or (more practically) by allocating them according to some objective measure
-e.g., a cafeteria’s costs can be allocated according to the number of workers from each production dep’t that eats there
As regards the allocation of service department costs to production departments, what is the step method?
A method which allocates costs from the most-used service department down to all other production departments AND service departments, then allocates costs from the second-most-used service department, and so on, until costs are allocated only to production departments
This method would not take into account any reciprocal services offered back to the more commonly used service departments, which would make the calculations much more complicated
