Cost Accounting Flashcards
Describe how three types of Fixed Costs impact decision-making.
Direct Fixed Costs are directly attributable to a product line (product-specific), Common Fixed Costs are incurred in support of the manufacturing facility and continue to be incurred until we stop manufacturing entirely, & Allocated Fixed Costs are incurred by the head office, or another part of the company, and simply allocated to one or more parts of the company.
Outline four common types of management decisions within the context of Relevant Costing.
Make versus buy, keep versus drop, product mix, special orders.
What are the two interpretations of Zero-Based budgets?
Creating it from scratch (or “zero”) with each number requiring justification for its inclusion, OR rather than just starting with zero in each spending category, allocating every dollar that is received into a category.
Which employees create a Participative Budget and what are some of the benefits?
The managers throughout the organization who are the most knowledgeable about the factors impacting their immediate operations create them, which gives them a sense of control over their immediate outcomes and a sense of ownership of personal and team success, thereby providing motivation and satisfaction.
Describe the two most common controls for budgeting.
“Budgetary slack” (or “padding the budget”) is intentionally overstating budgeted expenses or understating budgeted revenues to achieve targets more easily, and “use it or lose it” is spending all the funds allocated in a budget to avoid being granted fewer funds the next year.
What are the intended outputs of the Master Budget process?
The pro forma (budgeted) income statement, pro forma statement of cash flows, and pro forma balance sheet.
Which output of the Master Budget is created first & what is its first step?
The operating budget (aka the budgeted income statement) is the first part of the master budget created, the first step of which is to produce the sales forecast.
When creating the Master Budget, what is prepared after the Sales Forecast and the account(s) it impacts?
The production budget is prepared after the sales forecast and impacts the Cost of Goods Sold & Finished Goods Inventory accounts.
Which two budgets use the outputs produced from the Manufacturing Overhead Budget?
The Cost of Goods Manufactured Budget and the Cash Budget.
When is a Flexible Budget used and how is it calculated?
A Flexible Budget is used to help identify variances when actual sales volumes (or quantities) differ from master budget sales volumes and is found by multiplying the actual volume by the budgeted price.
How does one calculate the Flexible Budget Variance and Sales Activity Variance, and what do they combine to create?
Flexible Budget Variance = (Actual Volume x Actual Price) - (Actual Volume x Budgeted Price), Sales Activity Variance = (Actual Volume x Budgeted Price) - (Budgeted Volume x Budgeted Price), which both combine to create the amount of Master Budget Variance.
What is the purpose of standard costing & its relationship with variance analysis?
Standard costing creates budgets at the unit level and creates expectations for unit costs. Once variances have been determined, management can update standards if it decides that the ones in use were not the most appropriate.
What is the term for the difference between the actual price & the standard price of the actual direct materials quantity purchased? If it was favorable at the time of purchase, which accounts would be affected in the ensuing journal entry, and in what way?
DM Price Variance. Debit to DM Inventory, Credit to A/P & DM Price Variance.
What is the term for the difference between the actual quantity & the standard quantity of the direct materials used at standard pricing? If it was unfavorable at the time of purchase, which accounts would be affected in the ensuing journal entry, and in what way?
DM Efficiency Variance. Debit to WIP Inventory & DM Efficiency Variance, Credit to DM Inventory.
How is Variable-Manufacturing Overhead Price Variance calculated, and what do the different variances mean regarding costs?
Subtract the company’s standard (or budgeted) variable-MOH rate as determined before the year begins times the actual quantity of the cost driver used from the real cost incurred for variable-MOH resources. A favorable variance means less was paid than expected, and an unfavorable variance means the opposite.
How is Fixed-Manufacturing Overhead Volume Variance calculated, and what are some of the patterns that these variances could indicate are occurring?
Subtract the company’s Applied Fixed-Manufacturing Overhead at Standard Cost (SQ x SP) from the quantity/volume in the Master Budget. The patterns are centered around how well facilities & their related fixed costs were used in production, subject to the plan. When fewer units are made than planned for, leaving some capacity idle so fewer units can cover static fixed costs (unfavorable).
When would it be more applicable to use Process Costing over Job or Operation Costing?
To determine a physical quantity of units and their costs (whether completed or still in process at year-end) when units are homogeneous or cannot be distinguished from one another.
How is the degree of completion determined when using the FIFO method versus the weighted-average method?
The FIFO method is based on actual costs added this period, out of total costs to complete the units (for direct materials and conversion costs), whereas the weighted-average method is based on all costs added to date for direct materials and conversion costs.
What are the total costs to be assigned to equivalent units when using the FIFO method versus the weighted-average method?
The FIFO method costs will only include costs added during this period, whereas the weighted-average method will include any beginning inventory costs plus costs added during this period.
When would it be more applicable to use Operation Costing over Job or Process Costing?
When the consumer can select from a variety of materials, but conversion costs follow common processes.
