Cost Accounting

Question 1

Prime Costs

Answer 1

In a manufacturing company these are the direct materials and direct labor.

These make up 8090% of total manufacturing costs

Question 2

conversion Costs

Answer 2

In manufacturing companies, the sum of direct labor and manufacturing overhead. Purpose: convert direct materials into final product.

Some managers focus on conversion costs because they say “ you can manage conversion costs. Direct material costs are mostly outside our control)

Question 3

Product costs

Answer 3

In manufacturing companies, costs assigned to units of production and recognized (expensed when product is sold. They follow the product through inventory. They consist of direct and indirect costs.

Question 4

Period Costs

Answer 4

In manufacturing companies, these are the Nonmanufacturing Costs and are expensed as incurred.

Question 5

Direct Materials

Answer 5

Feasibly identified directly at a relatively low cost

Question 6

Direct labor

Answer 6

workers who can be identified directly, at a reasonable cost with the product

Question 7

Manufacturing overhead (factory burden, burden, factory expense, overhead)

Answer 7

Indirect labor (supervisors, maintenance workers, and inventory storekeepers)
Indirect materials (lubricants for machinery, repair parts, and light bulbs, those that are not a part of finished product but are necessary to manufacture it)
Other--Depreciation, taxes on factory assets, incurance on factory building and equipment, heat, light, power, and similar expenses)

Question 8

Marketing Costs

Answer 8

A period cost. Costs required to obtain customer orders and provide customers with finish products.

Advertising, sales commissions, shipping costs, and marketing departments’ building occupancy costs.

Question 9

Administrative costs

Answer 9

Costs required to manage the organization and provide staff support

executive and clerical salaries (secretary); costs for legal, financial data processing and accounting services; building space for administrative personnel.

Question 10

Cost allocation

Answer 10

Assigning indirect costs to products, services, people, business units

Question 11

Cost object

Answer 11

any end to which a cost is assigned

Question 12

Cost pool

Answer 12

Collection of costs to be assigned to the cost objects. Costs we want to assign to cost objects.

Question 13

Cost of Goods Manufactured and Sold Statement

Answer 13

Does not show up in external reporting but necessary for managers.

Beginning WIP
\+Direct material costs* (See other card)
\+Direct Labor
\+Manufacturing Overhead
=Total Manufacturing costs incurred
-Ending WIP
= COGM
\+Beginning Finished Goods inventory
=Finished goods available for sale
-Ending finished goods inventory
=COGS

Question 14

COGM and Sold Statement: Direct Materials

Answer 14

Beginning inventory
\+ Purchases
=Direct materials available
-Ending inventory
=Direct material put into production

Question 15

Variable Costs

Answer 15

Costs that change within their relative range (to a certain point). Remain constant per unit and vary in total.

Cost of the product
Marketing and Administrative
Product Costs

Question 16

Fixed costs

Answer 16

Costs that do not change within their relative range (to a certain point). Remain constant in total but vary per unit as activity changes.

Question 17

Semivariable costs (mixed costs)

Answer 17

Fixed and variable components

Question 18

Step Costs (semi-fixed costs)

Answer 18

Costs that increase with volume in “steps”

Ex: one supervisor for 4 firefighters, 2 for 5-8, and so forth as number of firefighters increase. Salaries expense will increase in steps.`

Question 19

Full Cost

Answer 19

Sum of all costs of manufacturing and selling a unit of product (includes both fixed and variable costs)

Question 20

Full absorption cost (traditional income statement)

Answer 20

All variable and fixed manufacturing costs are product costs. (used to compute a product’s inventory value under GAAP). This excludes nonmanufacturing costs like marketing and administrative costs.

Question 21

Cost driver

Answer 21

Anything that forces, or causes, a cost.

Question 22

Contribution margin

Answer 22

Sales price-Variable costs per unit

Allows them to asses the profitability of products before factoring in fixed costs (which are more difficult to change in the short run).

Question 23

Common approaches for determination of product costs

Answer 23

Full absorption costing (GAAP)–traditional income statement. Fixed and variable manufacturing costs are product costs. All others are period costs.

Variable costing–contribution margin income statement) – only variable manufacturing costs are product costs. all others are period.

Managerial costing–managements determines which costs are associated with the product and should be considered product costs.

Question 24

Value Added income statement

Answer 24

outlines costs linked to three segments of value chain: production, marketing ,and distribution. Determining value is added to the product in each business function. Goal: maximize value added activities and minimize nonvalue-added activities.

Question 25

Cost

Answer 25

sacrifice of resources: opportunity costs and outlay costs.

Question 26

Expense

Answer 26

Cost that is charged against a revenue in an accounting period.