Cost Accounting

Question 1

Prime Costs - Formula

Answer 1

DL + DM

Question 2

Conversion Costs - Formula

Answer 2

DL + OH Applied

Question 3

Product Costs

Answer 3

All costs related to the manufacturing of the product

**Not expensed until the product is sold

Question 4

Period Costs

Answer 4

Expensed in the period in which they are incurred and are not inventoriable.

Question 5

Cost Objectives

Mnemonic: PIE

Answer 5

P - Product costing (inventory and cost of goods mfd and sold)
I - Income determination (profitability)
E - Efficiency measurements (comparison to standards)

Question 6

Split-Off Point

Definition

Answer 6

Point in the production process where the joint products can be recognized as individual products

Question 7

Allocation of Overhead

2 Steps

Answer 7

Step 1: Calculate OH Rate
Budg OH Costs/Est Cost Driver

Step 2: Apply OH
Act Cost Driver*OH Rate (step1)

Question 8

Inventory: Raw Materials

Formula: BASE

Answer 8

B - Beginning RM
A - Add: RM Purchases
S - Subtract: RM Used
E - Ending RM

Question 9

Inventory: WIP
Formula: BASE

Answer 9

B - Beginning WIP
A - RM Used + DL & OH Used
S - Inventory xferred to FG
E - Ending WIP

Question 10

Inventory: FG
Formula: BASE

Answer 10

B - Beginning FG
A - Inventory xferred from WIP
S - COGS
E - Ending FG

Question 11

Equivalent Units Formulas

1. Weighted Average
2. FIFO

Answer 11

Weighted Average

• Two Steps
  1. Units Completed
  2. Ending WIP * % Complete

FIFO

• Three Steps
  1. Beg WIP * to be Complete
  2. Units completed - Beg WIP
  3. End WIP * % Completed

Question 12

Cost per EU

Weighted Avg vs FIFO

Answer 12

Weighted Average:
(Beg. Costs + Current Costs)/ Equivalent Units

FIFO”
(Current Costs ONLY)/ Equivalent Units

Question 13

Quality Reporting

A-P-I-E

Answer 13

A - Appraisal includes costs incurred to identify defective products/services
P - Prevention includes costs incurred to prevent defective products/services
I - Internal Failure - cost of defective products or lost production time
E - External failure is cost of returns and lost customer loyalty due to defective products/services

A&P = Conforming: Cost of Quality
I&E = Non-conforming: Cost of Failure

Question 14

Six Sigma: Existing Product & Business Process Development

D-M-A-I-C

Answer 14

D - Define the problem
M - Measure key aspects of current processes
A - Analyze data
I - Improve/optimize current processes
C - Control

Question 15

Six Sigma: New Product & Business Process Development

D-M-A-D-V

Answer 15

D - Define design goals
M - Measure critical to quality issues
A - Analyze design alternatives
D - Design optimization
V - Verify the design

Question 16

Project Management

Name the 5 Major Processes

Answer 16

1. Budget
2. Risk
3. Time
4. Quality
5. Resources

Question 17

Quality of Deliverables

S-M-A-R-T

Answer 17

S - Specific
M - Measurable
A - Attainable
R - Relevant
T - Time-based

Question 18

Central Costing Issue

5 Steps to Resolve

Answer 18

1. Summarize the flow of physical units
2. Calculate “equivalent units” output
3. Accumulate total costs to be accounted for
4. Calculate the unit costs based on total costs and equivalent units
5. Apply the average costs to the units completed and units remaining ending WIP

Question 19

Absorption Costing

Answer 19

1. Direct materials
2. Direct labor
3. Mfg OH, both variable and fixed

Question 20

Variable (Direct) Costing

Answer 20

1. DM
2. DL
3. Variable mfg OH variable and fixed - all fixed mfg treated as period costs

Question 21

When does the break even point occur?

Answer 21

When sales equal total cost (variable plus fixed costs)

Question 22

High-Low Method

Answer 22

A simple technique used to estimate the fixed and variable portions of costs, usually production costs

Question 23

Contribution Approach

Answer 23

NOT GAAP

• Expense immediately
• AKA Variable Costing
• All fixed factory OH is treated as a period cost and expensed in the period incurred

Question 24

Absorption Approach

Answer 24

USES GAAP

• Product Cost
• Expense when sold
• All FIXED factory OH is treated as a product cost and included in the inventory value

COGS includes both FC & VC

Question 25

Costs included in Absorption Costing

Answer 25

1. DM
2. DL
3. Manufacturing OH, both variable and fixed

Question 26

Variable (Direct) Costing

Answer 26

1. DM
2. DL
3. Variable mfg OH variable and fixed - all fixed mfg costs are treated as period costs

Question 27

Capacity Issues (Accept/Reject special orders) - 2

Answer 27

1. Presumed Excess Capacity:
   Accept if SP > VC (i.e. relevant costs)
2. Presumed Full Capacity
   Accept if SP > VC + Opportunity Costs