Cost Accounting Chapter 1 Flashcards
The function of cost accounting
is to provide the detailed cost data essential to management in controlling current operations and planning for the future. Cost accounting systems show what costs were incurred and how they were used.
Unit costs
A) The cost procedures must be designed to permit the determination of unit costs as well as total product costs. B) Unit costs are also useful in making a variety of marketing decisions, such as determining the selling price of a product, deciding how to meet competition, arriving at a contract bid price, and analyzing profitability.
Planning
is the process of establishing goals and objectives and determining the means by which they will be met.
Cost accounting information
aids planning by providing historical costs that can be used to estimate future costs and operating results and to decide whether to acquire additional facilities, change marketing strategies and obtain capital.
Control
is the process of monitoring the company’s operations and determining whether the objectives identified in the planning process are being accomplished.
Effective control is achieved by
Periodically measuring actual operating results and comparing them to the plan; and taking necessary corrective action when the operating results deviate from the plan.
Responsibility accounting
assigning responsibility for costs or production results to individuals who have the authority to influence them
Performance reports
compare planned or budgeted amounts to actual operating results and identify the difference, or variance, as favorable or unfavorable.
The Institute of Management Accountants (IMA)
is the largest organization of accountants in industry in the world. It awards the Certified Management Accountant (CMA) certificate and issued a Statement of Ethical Professional Practice (appearing in the Appendix to Chapter 1 in the text) that must be adhered to by its members. These standards address a member’s responsibility in areas such as maintaining appropriate levels of professional competence, refraining from discussing confidential information, avoiding conflicts of interest and communicating information fairly and objectively. The second part of the document provides guidance for resolving ethical conflicts.
Sarbanes-Oxley Act of 2002
was written to protect shareholders and other stakeholders of companies whose stock is publicly traded by improving corporate governance
Corporate governance
The means by which a company is directed and controlled
Sarbanes Oxley Act Elements
- certification of the financial statements by the chief executive and financial officers
- establishment of the Public Company Accounting Oversight Board (PCAOB)
- severely limiting non-auditing services that an accounting firm provides to a company it audits,
- requiring companies to include a report on the effectiveness of its internal controls in its annual report
- making the Audit Committee of the Board of Directors responsible for decisions involving the company’s relationship with its audit firm
- severe criminal penalties for alteration of business documents and for retaliation against whistleblowers.
Financial accounting
focuses on the gathering of information for use in the preparation of financial statements for external users.
Management accounting
focuses on both historical and estimated data that management needs to conduct ongoing operations and do long-range planning.
Cost accounting
includes those parts of both financial and managerial accounting that collect and analyze cost information. It provides the product cost data required for special reports to management (managerial accounting) and for inventory costing in the financial statements (financial accounting).
Cost of goods merchandiser
a company that purchases merchandise for resale, computes cost of goods sold by adding the amount of merchandise it purchased to beginning merchandise inventory, then subtracting the amount of ending inventory.
Cost of goods Manufacturer
a company that uses labor and technology to convert raw materials into goods, computes cost of goods sold by adding cost of goods manufactured to beginning finished goods inventory and then subtracting ending finished goods inventory.
Manufacturer balance sheet
The balance sheet for a manufacturer includes the following three inventory accounts: 1) Finished goods 2) Work in process 3) Materials
Finished goods
Its balance represents the cost to manufacture goods completed but still on hand.
Work in process
its balance includes the manufacturing costs to date for unfinished goods.
Materials
Its balance contains the cost of all materials purchased and still on hand.
Perpetual inventory system
Provides a continuous record of purchases and issues. Inventory balances are available at any time. Generally, these balances are verified by periodic counts of selected items throughout the yea
periodic inventory system
requires estimating inventory balances during the year and counting all inventory items at the end of the year.
The three elements of manufacturing cost include:
1) direct materials, 2) direct labor, and 3) factory overhead.
Direct materials
become part of and can be readily identified with the item being manufactured
Indirect materials
are those that cannot be readily identified with the finished product or are insignificant in cost.
Direct labor
Is the cost of labor for those employees who work directly on converting the raw materials to finished goods.
Indirect labor
includes those who are essential to the manufacturing process, but who do not work directly on the units being produced.
Factory overhead
includes indirect materials, indirect labor, and all other manufacturing costs incurred in production but not identifiable directly with a specific product.
Prime cost
equals the combined cost of direct materials and direct labor
conversion cost
equals the sum of direct labor plus factory overhead.
Purchased materials on account.
Debit: Materials Credit: Accounts Payable
Issued direct and indirect materials into production
Debit: Work in process, & Factory overhead Credit: Materials
Recorded and paid payroll
1) Debit: Payroll Credit: wages payable 2) Debit: Wages payable Credit: Cash
Distributed payroll to appropriate accounts
Debit: Work in Process (Direct Labor), Factory Overhead (Indirect Labor) Selling and Administrative Expenses Credit: Payroll
Recognized various factory overhead expenses for the period.
Debit: Factory Overhead Credit: Accounts Payable Accumulated Depreciation Prepaid Insurance
Transferred balance in factory overhead to work in process
Debit: Work in Process Credit: Factory Overhead
Transferred cost of goods completed.
Debit: Finished Goods Credit: Work in Process
Recorded sales and transferred cost of goods sold
1) Debit: Accounts receivable Credit: Sales 2) Debit: Cost of goods sold Credit: Finished goods
process cost system
generally is used when a manufacturer maintains a continuous output of homogeneous products for stock, such as cement and chemicals
job order cost system
is used when the output consists of special or custom-made products, such as books or furniture. In a process cost system, costs are accumulated by department or process, whereas in a job order cost system they are accumulated by job or lot. Some companies’ costing systems utilize elements of both job order and process costing
standard cost system
may be used with either a job order or process cost system and focuses on standard costs that would be incurred under the most efficient operating conditions
Variances
represent differences between actual costs and standard costs and aid management in identifying and eliminating inefficient operating conditions.
schedule from raw materials through cost of goods sold
