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CPA Business > Cost Accounting > Flashcards

Cost Accounting Flashcards

1
Q

What is Cost Accounting?

A

Cost Accounting is a component of GAAP that records Ending Inventory on the Balance Sheet for
o Direct Materials
o Direct Labor
o Work in Process
o Finished Goods

Cost Accounting also records for the Income Statement

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2
Q

What is the difference between Cost Accounting and Managerial Accounting?

A

Cost Accounting - External Focus- GAAP

Managerial Accounting - Internal Focus- Not GAAP

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3
Q

What are Product Costs (aka Inventory Costs)?

A

Prime Costs

Conversion Costs

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4
Q

What are included in Prime Costs?

A

Direct Material USED - Have become part of the product or had a direct impact on the product.+ Freight IN + normal scrap
Direct Labor Used - Employees who worked on product and had direct impact. +reasonable amt of downtime(breaks, setup, training, etc)

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5
Q

What is Factory Overhead?

A

All factory costs except for DM and DL used in production- including Spoilage (except for abnormal spoilage- which is a period cost and not included in OH).

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6
Q

What is included in Fixed Factory Overhead?

A

FFO : Estimated Costs / Normal Capacity

Uses Normal Activity

Examples of Fixed Factory OH: Depreciation (SL)- Utilities- Taxes

Under/Over-applied Fixed OH always goes to COGS

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7
Q

What is included in Variable Overhead?

A

VO : Estimated Activity / Actual Activity

Uses Actual Activity

Examples of Variable Factory OH: Deprecation (Units of Prod)- Indirect materials (supplies & insignificant items)- Indirect labor (factory foreman- janitors- machine maintenance)

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8
Q

Where is Under/Over-applied Variable OH recorded?

A

If Immaterial - Goes to COGS

If Material - Goes to WIP- Finished Goods- or COGS- based on their Ending Balance

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9
Q

Where is Under/Over-applied Fixed OH recorded?

A

It always goes to COGS

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10
Q

What is indicated by a Debit balance in Actual Factory Overhead? How is it corrected?

A

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.

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11
Q

What is indicated by a Credit balance in Applied Factory Overhead? How is it corrected?

A

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.

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12
Q

Which variables are used to calculate Direct Material balances?

A

Beginning Balance DR Net purchases (plus freight-in)CR Direct Materials Used
: Ending balance (goes to BS)

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13
Q

What variables are used to calculated Work in Process (WIP)?

A

Beginning Balance (End Bal of Previous WIP)DR Direct Materials UsedDR Direct Labor Used (Conversion Cost)CR COGMDR Factory Overhead Applied (Conversion Cost)
: Ending Balance (Goes to BS)

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14
Q

What variables are included in Finished Goods calculations?

A

Beginning BalanceDR COGM
: COGAS (Cost of Goods Avail for Sale)
CR COGS
: Ending Balance (Goes to BS)

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15
Q

How does Freight In affect Cost Accounting calculations?

A

Inventory (Product) Cost

Part of DM Purchases

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16
Q

How does Freight Out affect Cost Accounting?

A

Selling (Period) Cost

Not part of inventory

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17
Q

When is Job-Order Costing used?

A

Used when costs are easily connected to a specific product or product line

Can also be applied to services

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

18
Q

What is the Direct Method for allocating service department costs?

A

No services allocated between service departments- even if they serve each other. Only allocate to product(s)

19
Q

What is the Step Method for allocating service department costs?

A

Services can be allocated to both other service departments and the product(s)
STEPS
1) Select svc dpt serving the most other svc dpts or the one with the highest costs.
2) Allocate selected svc dpt (above) to other svc dpts and production dpts by % of total
3) Select next svc dpt (like step 1)
4) Allocate selected svc dpt (above) to other svc dpts and production dpts by % of total (of % remaining)

20
Q

Under process costing- how are the units shipped calculated?

A

Beginning Inventory+ Units Started- Ending Inventory
: No. Units Shipped

21
Q

Which two inventory methods are used under Process Costing?

A

FIFO

Weighted Average

22
Q

What is another name for Process Costing?

A

Equivalent Units of Production

23
Q

How will Equivalent Finished Units under FIFO compare to EFU under the Weighted Average method?

A

EFU FIFO will always be LESS than EFU Weighted Avg (unless Beginning Inventory is Zero)

24
Q

How are Direct Materials calculated under the Weighted Average Method?

A

Beginning Inventory + Current Costs / EFU WA

25
Q

How are Conversion Costs calculated under Weighted Average Method?

A

Beginning Inventory + Current Costs / EFU WA

26
Q

How are Equivalent Finished Units calculated for Direct Materials?

A

Units Shipped + EI x % Complete DM
: EFU (Weighted Average Method)

  • Beginning Inventory x % Complete
    : EFU (FIFO)
27
Q

How are Equivalent Finished Units calculated for Conversion Costs?

A

Units Shipped+ EI x % Complete CC
: EFU (Weighted Average)

  • Beginning Inventory x % Complete
    : EFU (FIFO)
28
Q

How are Direct Materials calculated under the FIFO method?

A

Current Costs / EFU FIFO

Note: FIFO method uses Current Period costs only and ignores Beginning Inventory

29
Q

How are Conversion Costs calculated under the FIFO method?

A

Current Costs / EFU FIFO

FIFO method uses Current Period costs only and ignores Beginning Inventory

30
Q

How is WIP calculated?

A

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

31
Q

How do period costs and product costs relate to net sales- gross margin and operating income?

A

Net Sales - Product Costs
: Gross Margin
- Period Costs
: Operating Income

32
Q

What is the focus of Activity Based Costing (ABC)?

A

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

33
Q

How do Cost Pools and Allocations compare under ABC versus traditional costing system?

A

Cost Pools and Allocations increase compared to a traditional costing system

34
Q

What is Backflush Costing?

A

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
35
Q

What are the characteristics of By-Products?

A

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

36
Q

What are Cost Functions?

A

Measure how costs change relative to activity levels

High-Low Method

Change in Cost (High-Low pts) / Change in Activity (High-Low pts)

37
Q

What is Peanut-Butter Costing?

A

It is the inaccurate averaging or spreading of indirect costs over products or service units that use different amounts of resources, resulting in product-cost cross-subsidization, the condition in which the miscosting of one product causes the miscosting of other products.

38
Q

What is the ABC costing system - Volume Based system?

A

The volume based systems are appropriate when most manufacturing costs are homogeneously consumed. In these cases, a single volume-based cost driver can be used to allocate the overhead costs.

However, overhead costs do not always fluctuate with volume.

39
Q

What is Variable Costing?

A

aka direct costing, contribution costing.
The product cost (COGS) only includes variable manufacturing costs. This method is preferred for internal purposes. Sales - Variables cost = Contribution Margin (not Gross Profit)

Variable costing net income varies directly with sales and is not affected by changes in inventory costs.

40
Q

What is Absorption Costing?

A

aka full costing.
Here the fixed portion of manufacturing overhead is included in the cost of each product.

This method is required under GAAP for external reporting and TAX purposes.

41
Q

Variable vs Absorption: When Prod > Sales ?

A

When Prod > Sales = Higher Ending Inventory

Resulting in higher operating income under the Absorption Costing bc FC are still in BS (ending inventory)

CPA Business (10 decks)

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