Cost Accounting test 1 (chapter 6-7)

Question 1

Three key points related to designing a new cost accounting system for managerial purposes:

Answer 1

1. Cost systems should have a decision focus
2. Different cost information is used for different purposes
3. Cost information for managerial purposes must meet the cost-benefit test

Question 2

The purpose of calculating individual product (and service) cost include:

Answer 2

1. Computing the inventory values and cost of goods sold for financial statements
2. Helping various product managers make decisions regarding pricing, production, promotion, adding, or dropping a product, whether to outsource selected products or services, etc.

Question 3

Basic Cost Flow Model:

Answer 3

Beginning balance + transfers in - transfers out = Ending Balance

Question 4

Inventories: Raw Materials, WIP, F/G’s

Answer 4

• Raw Materials TI = purchases
• Raw Materials TO = requisitioned into production
• WIP TI = raw materials requisitioned into production
• WIP TO = cost of goods manufactured (jobs completed during the period)
• F/G’s TI = cost of goods manufactured
• F/G’s TO = cost of goods sold

Question 5

Direct materials and labor are assigned to a product.

Manufacturing overhead (indirect) Cost =

Answer 5

1. Indirect materials
2. Indirect labor
3. Other (utilities, prepaids, depreciation, etc.)

Question 6

Manufacturing overhead (indirect) costs are allocated based on some measure of activity

Answer 6

allocated based on some measure of activity

Question 7

Predetermined Overhead Rate =

Answer 7

Estimated overhead $/Estimated Allocation Base

Question 8

3 common Estimated allocation bases

Answer 8

1. direct labor hours
2. direct labor cost
3. machine hours

Question 9

When ending Work-in-Process Inventory is present, must calculate equivalent units

Answer 9

• Equivalent units = number of physical units x percentage of completion
• Predetermined Overhead Rate = Estimated Overhead $/(Equivalent units + completed units)

Question 10

Job costing - “Job Shop”

Answer 10

customized; traces costs to individual units or specific jobs, contracts or batches of goods

-Car shop
- Law or consulting firms
- Print shop
- Hospital
- Construction

Question 11

Process costing - “Continuous Flow Process”

Answer 11

homogeneous/identical items; no need to trace costs to the individual unit level

• Ice cream
• Paint
• Breakfast cereal
• Petroleum

Question 12

Operations costing - “Batch Production”

Answer 12

different batches of products, but homogeneous within the batch; hybrid costing system often used in manufacturing goods that have some common characteristic plus some individual characteristics

• Automobile manufacturing
• Clothing
• Furniture

Question 13

Computing the cost of a job:

Answer 13

• Direct materials - assigned
• Direct labor - assigned
• Manufacturing overhead (indirect materials, indirect labor, other) - allocated

Question 14

Three inventory accounts:

Answer 14

• Raw Materials
• Work-in-Process
• Finished Goods

Question 15

Manufacturing overhead account (MOH)

Answer 15

• Debits to account reflect actual indirect materials, indirect labor or other (utilities, depreciation, prepaids, etc.)
• Credits to account reflect applied overhead based on the predetermined overhead rate

Question 16

Normal Cost

Answer 16

cost of a job is determined by actual direct material and labor costs plus overhead applied using a predetermined rate and an actual allocation base

Question 17

Actual Cost

Answer 17

cost of a job is determined by actual direct material and labor cost plus overhead applied using an actual overhead rate and an actual allocation base

Question 18

Standard Cost

Answer 18

cost of a job is determined by standard (budgeted) direct material and labor costs plus overhead applied using a predetermined overhead rate and a standard (budgeted) allocation base