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Cost And Managerial Accounting > Cost And Managerial Accounting > Flashcards

Cost And Managerial Accounting Flashcards

1
Q

Manufacturing organization

A

Any organization, whose main economic activity involves using components of raw materials to make finished goods for sale

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2
Q

Service organizations

A

Any organization whose main economic activity involves producing a non-physical product that provides value

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3
Q

Merchandising organizations

A

Any organization, whose main economic activity involves purchasing finished goods and reselling them

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4
Q

What are the two types of markets?

A
  1. Price taker
  2. Price maker
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5
Q

Price taker

A

A company that competes in a market by providing goods or services - market sets the price and company determines if it can produce at that price point

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6
Q

Job order costing

A

Process of tracking the costs of an individual product

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7
Q

Price maker

A

Company that determines the price of a product based on costs and markup - product is customized

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8
Q

What is the major purpose of job order costing?

A

To create a system in which manufacturing costs are accumulated by separate product orders

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9
Q

Job order costing is appropriate when which two conditions exist?

A
  1. Products produced are distinct from each other
  2. Manufacturing processes used are different for different products
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10
Q

Why is having accurate product cost information important?

A

So manufacturers can charge a price based on costs and a reasonable markup

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11
Q

When should you not use job order costing?

A

When products/services are similar and when the benefits of tracking costs exceed the costs of tracking

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12
Q

Examples of companies that should NOT use JOC

A
  • paint
  • food/drinks
  • newspapers
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13
Q

What is a condition to using job order costing?

A

Identifying each specific job or product manufactured

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14
Q

Which costs should be assigned to each product under a JOC system?

A

Direct materials
Direct labor
Manufacturing overhead

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15
Q

What are the 3 main costs of manufacturing?

A

Direct materials
Direct labor
Manufacturing overhead

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16
Q

Manufacturing overhead

A

All manufacturing costs that are not classified as materials or labor - wages, utilities, depreciation, insurance and taxes

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17
Q

What are the 4 steps in the manufacturing process?

A
  1. Raw materials are purchased/stored in raw materials inventory
  2. Raw materials are moved to work in process inventory
  3. Materials are worked on by employees to produce finished products
  4. Finished products are moved to finished goods inventory
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18
Q

Product costs

A

All costs necessary to create product

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19
Q

Period costs

A

Costa associated with activities or facilities outside the factory - administration, etc

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20
Q

What are the generally accepted product costs?

A
  • raw materials
  • wages for factory workers
  • salaries of plant manager
  • utilities
  • depreciation/ rent on factory building
  • wages of maintenance personnel
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21
Q

When an accountant is ready to make a credit entry to the finished goods inventory, when should it be made?

A

When finished goods inventory is sold

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22
Q

Which account are the costs of raw materials, direct labor, and misc manufacturing overhead transferred to when the product is being made?

A

Work in process inventory

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23
Q

Which costs are specifically traced to a product when recording in a JOC system?

A

Direct materials and labor

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24
Q

What are the 3 steps required to implement a JOC system?

A
  1. Identify product or project
  2. Trace direct costs
  3. Allocate overhead
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25
Q

Which costs are included in the costs of goods sold?

A

Direct materials, direct labor, and manufacturing overhead

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26
Q

Costs of goods sold (COGS)

A

Costs of products sold in a company including materials, and labor costs

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27
Q

Manufacturing overhead rate

A

The rate at which manufacturing overhead costs are assigned to products - estimated MO costs for the period / # of units being used

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28
Q

Purchasing raw materials JE

A

DR inventory
CR AP/ cash

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29
Q

Use of raw/direct materials JE (moving materials to production)

A

DR work in process inventory
CR raw materials inventory

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30
Q

Use of indirect materials JE (cleaning supplies, nails, glue, etc.)

A

DR manufacturing overhead
CR raw materials overhead

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31
Q

Direct labor JE

A

DR work in progress inventory
CR salaries and wages payable

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32
Q

Indirect labor JE (supervisor salaries)

A

DR manufacturing overhead
CR salaries and wages payable

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33
Q

Actual manufacturing overhead JE

A

DR manufacturing overhead
DR AP
DR Rent payable
DR prepaid insurance
DR accumulated depreciation

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34
Q

Predetermined overhead rate

A

Rate at which estimated MO costs are assigned to products throughout the year

Total estimated MO / number of units produced

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35
Q

Transfer of goods completed JE

A

DR finished goods inventory
CR work in progress inventory

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36
Q

Sale of goods to customer JE

A

DR COGS
CR finished goods inventory

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37
Q

What are the 4 steps for allocation of MO?

A
  1. Budget estimated MO, allocation activity, and establish predetermined overhead rate
  2. As costs are incurred, record actual overhead as DR to MO account
  3. As activity takes place, record applied MO as CR to MO account and DR to work in progress account
  4. Compare actual and applied overhead balances and close out difference in MO account
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38
Q

Estimated MO

A

Amount of overhead costs that management has budgeted for the upcoming production period

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39
Q

Predetermined overhead rate formula

A

Total estimated MO costs for the year / total estimated machine hours for the year

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40
Q

What kind of account is MO?

A

Temporary holding account

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41
Q

How are actual MO costs recorded?

A

As debits to MO throughout the year as they are incurred

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42
Q

How are applied MO costs entered?

A

As credits to MO when production takes place

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43
Q

What business problem is caused by under application of MO?

A

There was not enough overhead applied to each job during the year, prices charged were too low, and if customers don’t pay for overhead, then the company is responsible

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44
Q

How to close out under application MO JE

A

DR COGS
CR MO

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45
Q

What business problem is caused by over application of MO?

A

Computed costs were too high, prices were quoted too high, could drive customers away

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46
Q

How to close out over application MO JE

A

DR MO
CR COGS

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47
Q

What are the 2 methods to treating over/under application of MO?

A
  1. Close directly to COGS
  2. Allocate to work in progress inventory, finished goods inventory, and COGS on the basis of the ending balances in those 3 accounts
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48
Q

Costs of goods manufactured schedule

A

Summarizes the cost flows in a manufacturing organization during a given period - supports COGS calculations on income statement

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49
Q

What is the purpose of the cost of goods manufactured schedule?

A

To report the total costs that have been incurred to manufacture goods during a period

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50
Q

COGM schedule set up

A

Beginning raw materials inventory
+ raw materials purchased
= total raw materials available
- ending raw materials inventory
= raw materials used in production
+ direct labor
+ applied MO
= total manufacturing costs
+ beginning WIP inventory
- ending WIP inventory
= COGM

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51
Q

Work in progress inventory JE

A

DR finished goods inventory
CR work in progress inventory

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52
Q

Which numbers are not included on COGM schedule?

A

ACTUAL MO costs - applied MO costs ARE included

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53
Q

Adjusted COGS setup

A

COGM
+ beginning finished goods inventory
- ending finished goods inventory
+/- under or over applied overhead
= Adjusted COGS

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54
Q

COGS JE

A

DR COGS
CR finished goods inventory

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55
Q

Gross margin (gross profit)

A

total sales = COGS

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56
Q

Process costing

A

method of product costing where production costs for a period are accumulated and then averaged over all units manufactured during that period

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56
Q

What 2 conditions must exist for process costing to take place?

A
  1. activities performed in each process center are basically identical
  2. units produced are basically the same
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57
Q

Conversion costs

A

all products necessary to convert raw materials into finished goods

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58
Q

What costs are included in conversion costs?

A

direct labor and MO

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59
Q

What are the 5 steps involved in assigning production costs in process costing?

A
  1. Determine the amount of “work done” (equivalent units of production)
  2. Compute the product costs by dividing total costs during the period by “work done”
  3. Compute the total cost of units completed and transferred out
  4. Compute the total cost of units remaining in the process at the end of the production period
  5. Prepare production cost report
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60
Q

What are the 3 parts of the period for process costing?

A
  1. work needed to complete the beginning work-in-process inventory
  2. work needed to both start and complete some units
  3. work put into units that are started but not yet completed (the ending work-in-process inventory)
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61
Q

What does equivalent units of production mean?

A

the amount of work actually done during any particular period of time in terms of units of output (of all the work done during the period, what was finished?)

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61
Q

Equivalent number of units (conversion costs) calculation

A

(beginning inventory x opp. % direct labor) + started and completed inventory + (ending inventory x % direct labor)

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61
Q

What is the relationship between equivalent number of units for direct materials?

A

equivalent number of units for direct materials is usually different from the equivalent number of units for conversion costs

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61
Q

Equivalent number of units (direct materials) calculation

A

starting and completed inventory direct materials + ending inventory direct materials

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61
Q

Product costs per unit calculation

A

(direct materials total costs / equivalent units) + (conversion costs total costs / equivalent units)

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62
Q

In process costing, the units completed and the units remaining in ending work-in-process inventory at the end of the period come from where?

A

units in beginning inventory and the units started during the current period

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63
Q

Which costs make up the work-in-process inventory costs in the processing centers?

A

Direct materials and conversion costs

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64
Q

True or false: The costs and equivalent units of production (work done) are tracked separately for direct materials and for conversion costs

A

True

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65
Q

The costs that are associated with units completed and transferred out in the current period are the sum of which components?

A
  • cost of beginning work-in-process inventory, both materials and conversion costs
  • cost per equivalent unit required to complete those units in beginning inventory
  • cost per equivalent unit of the items started and completed this period, both materials and conversion costs
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66
Q

What statement accurately describes the cost of goods transferred out?

A

the cost of goods transferred out to finished goods is the sum of the costs to make the finished goods in all processes, both in the current or prior period

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67
Q

cost of ending WIP inventory calculation

A

material costs + conversions costs for unfinished units only

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68
Q

material costs in ending WIP inventory calculation

A

materials cost per equivalent unit, current period x materials equivalent units ending WIP inventory

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69
Q

How to determine the conversion costs in the ending WIP inventory at the end of the current period

A

conversion costs per equivalent unit, current period x conversion equivalent units in ending WIP inventory

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70
Q

The conversion cost of ending work-in-process inventory is equal to what?

A

conversion cost per equivalent unit, current period x conversion cost number of equivalent units

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71
Q

costs of ending work-in-process inventory calculation

A

(Cost per unit of direct materials x equivalent units for materials) + conversion costs per unit x number of equivalent units for conversion costs

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72
Q

Activity based costing (ABC)

A

an effort to identify the specific factors or cost drivers that cause overhead costs, and using those cost drivers to allocate overhead to products or processes

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73
Q

Traditional vs. ABC costing methods

A

Traditional - assigning all overhead costs to products according to one measure of activity ( ex. direct labor)

ABC - overhead is assigned based on several different measures of activities that create overhead ( ex. # of quality control inspections, amount of glue needed, etc. )

74
Q

When should traditional overhead allocation be used?

A

if overhead activity drives overhead costs ( retail, installation and repairs)

75
Q

When using the traditional overhead costing method, is overhead overstated or understated generally?

A

understated

76
Q

In which setting is the use of an ABC overhead allocation system appropriate?

A

When operations involve a variety of different products and processes

77
Q

Why is a traditional overhead allocation system of using direct labor hours to allocate overhead to products, projects, or processes simple to implement?

A

Because direct labor hours are routinely tracked as part of tracing direct labor costs to products, projects, and processes

78
Q

In addition to better cost allocation, what benefit comes from creating and using an ABC overhead allocation system?

A

Better understanding of the underlying business processes

79
Q

Cost pool

A

total costs being generated by a specific overhead cost activity

80
Q

Cost driver

A

numerical measure that reflects how much effort has gone into an activity

81
Q

What are the 5 steps in implementing an ABC system?

A
  1. Identify overhead cost activities
  2. Analyze individual overhead costs in terms of those cost activities
  3. Identify measurable cost drivers
  4. Assign overhead
  5. Use the ABC data to make decisions
82
Q

What is an important point for companies to remember when deciding whether to implement an ABC overhead allocation system?

A

Companies that understand their costs have an advantage over their competitors that do not understand their costs

83
Q

What does identifying the overhead costs associated with a particular production cost pool require?

A

Analyzing how indirect production personnel involved in a production process spend their time during the workday

84
Q

What is the collection of overhead costs associated with a specific overhead cost activity called?

A

Cost pool

85
Q

Do ABC systems relate to overhead, direct materials, or direct labor?

A

OVERHEAD only

86
Q

unit level activities

A

overhead activities that are performed each time a unit is produced (machine maintenance, depreciation, electricity etc.)

87
Q

batch level activities

A

overhead activities that are performed each time a new batch is started or ended (ex. inspections, setups, etc.)

88
Q

product line activities

A

overhead activities that are associated with the capability to product different types of product ( ex. individual ice cream flavors)

89
Q

facility support activities

A

overhead activities that must be in place before any of the other production activities can take place (ex. property taxes, insurance, security, etc.)

90
Q

What overhead costs are not applicable with increases in production?

A

property taxes, security guards, routine reporting

91
Q

How are facility support overhead costs treated in an ABC system?

A

as common costs that are not assigned to any specific product, division, or product line

92
Q

Variable costs

A

Costs that change in total in direct proportion to changes in activity level (Ex. Direct materials and labor)

93
Q

Cost-volume-profit analysis (CVP)

A

Technique for determining how changes in revenues, costs, and level of activity affect the profitability of an organization

94
Q

Cost behavior

A

The way a cost is affected by activity levels

95
Q

Fixed costs

A

Costs that remain constant in total regardless of activity (Ex. Rent)

96
Q

What are the key factors in CVP analysis?

A
  • revenues from the sales prices charged for goods and services
  • fixed and variable costs
  • sales volume
  • mix of products
  • resulting profits
97
Q

What are some common output measures?

A
  • sales volume
  • production volume
98
Q

What are some common input measures?

A
  • Labor hours worked
  • machine hours used
99
Q

Relevant range

A

The range of activity volume over which the relationship between total costs and activity is approximately linear (as sales increase, variable cost increases proportionately)

100
Q

Economies of scale

A

A proportionate savings in costa gained by an increased level of production

101
Q

Steppes costs

A

Costs that change in total in a stair step fashion (large amounts) with changes in volume of activity

102
Q

Mixed costs

A

Costs that contain both variable and fixed cost components (Ex. Rent at a fixed rate per month plus 1% of sales)

103
Q

CVP (cost volume profit) equation

A

Sales revenue - variable costs - fixed costs =profit

104
Q

What calculation do you use to compute net income, break even number of units, and number of units required?

A

CVP

105
Q

Contribution margin income statement

A

Income statement where costs are separated by behavior instead of by function classification

106
Q

Contribution margin

A

The portion of sales revenue available to cover fixed costs and provide a profit

107
Q

Contribution margin equation

A

Sales revenue - variable costs

108
Q

Per unit contribution margin

A

The excess of the sales price of one unit over its variable costs

109
Q

Contribution margin ratio

A

The percentage of net sales revenue left after variable costs are deducted

110
Q

Contribution margin ratio equation

A

Contribution margin / net sales revenue

111
Q

Break even point equation

A

Sales revenue - variable costs - fixed costs = $0

112
Q

How to calculate the slope of the revenue line

A

Sales revenue and costs / number of units sold = price per unit

113
Q

How to calculate the slope of the total cost line

A

Sales revenue and costs (begins at fixed costs) / number of units sold = variable cost per unit

114
Q

What is the y intercept on a CVP graph?

A

Fixed costs

115
Q

Profit graph

A

A graph that only shows how profits vary with changes in volume

116
Q

In a CVP graph, what is represented by the vertical axis intercept of the total cost line?

A

Total fixed cost

117
Q

Sales mix

A

The relative proportion of total sales that is represented by each of a company’s profits (sales of fries vs. sales of burgers)

118
Q

Break even sales dollar equation

A

Fixed costs / average contribution margin ratio

119
Q

When calculating how much total sales would have to be for each product in a two product firm, why is it necessary to assume that the sales mix stays the same?

A

Because the current sales mix gives you a known average contribution margin percentage to make the CVP calculations - cannot calculate without a known contribution margin

120
Q

Target income

A

Profit level desired by management

121
Q

Return on sales revenue

A

Measure of operating performance

122
Q

Return on sales revenue equation

A

Net income / total sales revenue

123
Q

Shortcut break even in sales units equation

A

Total fixed costs / (sales price per unit - variable cost per unit)

124
Q

Shortcut break even volume AND target income volume equation

A

(Fixed costs + target income) / contribution margin per unit

125
Q

Margin of safety equation

A

Actual sales - break even sales

126
Q

Degree of operating leverage equation

A

Contribution margin / operating income

127
Q

Margin of sales equation

A

(actual sales - break even sales) / actual sales

128
Q

What are the 3 purposes of management accounting?

A
  1. help in planning
  2. control operations
  3. provide useful info for decision making
129
Q

Standard costing system

A

cost- accumulation system in which standard costs are used as product costs instead of actual costs - standard costs are then adjusted when financial reports are created

130
Q

Responsibility accounting

A

system of evaluating performance where managers are held accountable for costs, revenues, assets, etc. over which they have control

131
Q

What are the two behavioral considerations in assigning responsibilities for controlling costs to managers?

A
  1. manager should be involved in developing standards
  2. manager should only be held accountable for those costs over which they have control
132
Q

What are the two elements in the control of materials cost?

A
  1. materials purchase price
  2. quantity of materials used
133
Q

Who is in charge of purchase price ?

A

Purchasing dept

134
Q

Who is in control of quantity of materials?

A

Determined by how efficiently the prod supervisor organizes the manufacturing work

135
Q

7 steps in developing a standard cost system

A
  1. develop standard costs
  2. collect actual costs
  3. compare actual costs to standard costs to identify variances
  4. journalize standard, actual, and variances
  5. report results indicating variances to managers responsible
  6. analyze causes of signification controllable variances
  7. take action to eliminate variances or revise standard costs
136
Q

What are standard costs comparable to?

A

Budgeted costs for the production of a unit or the completion of a service

137
Q

Cost variance equation

A

actual cost - standard cost

138
Q

management by exception

A

strategy of focusing attention on significant deviations from standard costs or expectations

139
Q

materials price variance

A

the extent to which the standard price varies from the actual price for the quantity of materials purchased of used

140
Q

material price variance equation

A

(standard - actual) x actual quantity purchased

141
Q

Who is responsible for the materials price variance?

A

purchasing agent

142
Q

materials quantity variance

A

the extent to which the actual quantity of materials varies from the standard quantity

143
Q

materials quantity variance equation

A

(standard - actual quantity) x standard price

144
Q

who is responsible for the materials quantity variance ?

A

production manager

145
Q

materials price variances JE

A

DR direct materials inventory
CR materials price variance
CR cash or AP

146
Q

materials quantity variance JE

A

DR work in process inventory
DR materials quantity variance
CR direct materials inventory

147
Q

Are inventories recorded at standard or actual costs?

A

Standard

148
Q

How are unfavorable variances recorded?

A

As an expense - a DEBIT

149
Q

How are favorable variances recorded?

A

As a revenue - a CREDIT

150
Q

labor rate variance

A

the extent to which the standard labor rate varies from the actual rate for the quantity of labor used

151
Q

labor rate variance equation

A

(standard rate - actual rate) x quantity of labor used

152
Q

labor efficiency variance

A

the extent to which the actual labor used varies from the standard quantity

153
Q

is labor efficiency variance a price or quantity variance?

A

quantity

154
Q

labor efficiency variance equation

A

(actual quantity - standard quantity) x standard rate

155
Q

Labor variances JE

A

DR work in progress inventory
DR labor rate variance
CR labor efficiency variances
CR wages payable

156
Q

is labor rate variance a price or quantity variance?

A

price

157
Q

2 steps in controlling variable manufacturing overhead

A
  1. study behavior to determine if it is fixed, variable, or mixed
  2. identify cost driver
158
Q

Variable overhead spending variance equation

A

(actual amount spent - actual hours worked) x standard rate for variable overhead

159
Q

Variable overhead efficiency variance equation

A

(actual hours worked - standard hours worked) x standard rate for variable overhead

160
Q

Characteristics of a materials price variance

A
  • based on quantity of materials PURCHASED
  • variance arises when materials are purchased
161
Q

Characteristics of a materials quantity variance

A
  • based on quantity of materials USED
  • variance arises when materials are used
162
Q

What could cause a materials quantity variance?

A

Purchase of substandard or unsuitable materials

163
Q

Which variance should include an analysis of the indirect materials, indirect labor, utilities, and other miscellaneous manufacturing expenses when investigating why expenses are too high?

A

Manufacturing overhead spending variance

164
Q

Which individuals should be directly responsible for the manufacturing overhead efficiency variance?

A

The manager responsible for the control of direct labor hours or the activity by which manufacturing overhead is assigned to products

165
Q
A
166
Q

What is the master budget made up of?

A

Begins with sales budget then splits into production budget and selling/admin budget

167
Q

Sales budget

A

Schedule of projected sales over the budgeted period, including a measure of revenue earned and cash collected

168
Q

What are some difficulties in projecting sales?

A
  • internal variables (price, sales effort, ads)
  • external variables (business environment, customer needs, seasonal cycles)
169
Q

Budgets sales in units

A

Information in the sales budgets that feeds directly into the production budget from which direct materials and labor budgets are created

170
Q

Budgeted sales in dollars

A

Result when the budgeted sales in units is multiplied by the unit sales prices for each product budgeted to be sold in the next period or year

171
Q

Unit sales price

A

Expected or average sales price each product is expected to be sold for in the next budget cycle

172
Q

Important factors to the production budget

A
  • projected sales volume
  • desired ending inventory
  • actual beginning inventory
173
Q

Budgeted production in units

A

Budgeted number of units to be produced in a period

174
Q

Variable manufacturing overhead

A

Expenses needed to produce a product that vary with the amount of levels of budgeted or actual production, including supervisor and maintenance costs

175
Q

Fixed manufacturing overhead expenses

A

Expenses that do not vary with the amount or the level of budgeted or actual production including depreciation and rent

176
Q

Manufacturing overhead budget

A

Includes all production costs other than direct materials and labor

177
Q

Pro forma income statement

A

Projects the reported income for the upcoming period

178
Q

What issue would the pro forma income statement address?

A

Size of dividends for next year

179
Q

3 sections of a cash budget

A
  1. Cash receipts
  2. Cash disbursements
  3. Financing needs
180
Q

Is depreciation a cash expense?

A

NO

181
Q

When does management plan to repay company loans according to the cash budget?

A

When excess cash is available

182
Q

What items are included in the cash budget?

A

Cash receipts and disbursements, minimum cash balance, financing needs

183
Q

Sunk cost

A

Cost that has already been incurred or a future cost that cannot be avoided - always the same

Ex. Depreciation, salaries

184
Q

Differential cost

A

cost that differs between alternatives, sometimes known as avoidable or incremental costs

Ex. Material costs, labor costs

185
Q

Rush order analysis

A

Differential costs only

186
Q

Net income equation

A

Sales
- COGS
- operating expenses

187
Q

When should a company process a joint product further?

A

When incremental revenues are greater than incremental costs

188
Q

What costs are irrelevant when making additional processing decisions?

A

Joint costs that have been incurred up total the point of split off

189
Q

What is a critical resource factor?

A

A resource that limits operating capacity by its availability

Cost And Managerial Accounting (1 decks)

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