Cost Measurement

Question 1

A system for allocating costs to groups of unique products–each job becomes a cost center for which costs are accumulated

Answer 1

Job-Order costing

Question 2

The production expected to be achieved over anumber of periods or seasons under normal circumstances–must be used to allocate fixed MOH costs

Answer 2

Normal capacity

Question 3

Service department allocation method that allocates the costs of each service department to each of hte producing departments based ona relative level of the apportionment base *ignores use of service by other service departments

Answer 3

Direct method

Question 4

Method that allocates service department costs to toher service departments as well as production departments *ignores the fact that reciprocal services are used between some service department

Answer 4

Step method

Question 5

Method that adjusts for reciprocal services provided amont the service departments

Answer 5

Reciprocal method

Question 6

Costing method that is applicable to a continuous process of production of hte same or similar goods

Answer 6

Process costing

Question 7

The amount of work equivalent to completing one unit from start to finish

Answer 7

Equivalent Units of Production

Question 8

Inferior goods either discarded or sold for diposal value

Answer 8

Spoilage (scrap)

Question 9

Inferior goods reworked and sold as normal products

Answer 9

Defective units

Question 10

A costing system that omits recording some or all of hte journal entries to trac the purchase and production of goods. Goods are costed after they have been completed

Answer 10

Backflush costing

Question 11

Costs that are easily traceable to specific units of production and include DL and DM

Answer 11

Prime costs

Question 12

Costs taht include DL and MOH–costs of converting direct materials to fiished products

Answer 12

Conversion costs

Question 13

Activities which customers perceive as increasing hte worth of a product or service and for which customers are willing to play (includes only production actiities)

Answer 13

Value-added activities

Question 14

Activities that increase the cost of a product but do not increase its value to customers (ex. materials ahdnling and rework)

Answer 14

Non-value added activtiies

Question 15

When one product picks up costs that were caused by another product, distorting product costing information

Answer 15

cross-subsidization

Question 16

A form of management that integrates ABC with other concepts such as aTotal Quality Management and target costing to produce a management system that strives for ecellence through cost reduction, continuous process improvement, and productivity gains

Answer 16

Activity-Based Management (ABM)

Question 17

Two or more products produced together up to a split-off point where they become separately identifiable–they cannot be produced by themselves; they incur common costs before the slit-off point

Answer 17

Joint products

Question 18

A decision that should be based onincremental revenues and costs beyond the slit-off point

Answer 18

Sell or process further decision

Question 19

Products that have little market value relative to the overall value of hteproducts being produced–joint costs are usually not allocated to these and any NRV that results from these just serve to decrease the joint production costs

Answer 19

By-products

Question 20

A mathemtaical expression of how a cost changes with changes in the level of activity

–can be measured on a graph with the x-axis measuring the level of activity and the y-axis measuring the corresponding costs

Answer 20

Cost function

Question 21

A cost estimation method that derives estimates from analyzing the physical relationships between inputs and outputs

–time consuming and costly!

Answer 21

Industrial engineering (work-measurement) method

Question 22

A cost estmation method in which estimates are derived from analysis and opinions about cost relationships by individuals from various departments

–quick, but not as reliable as quantitative methods

Answer 22

Conference method

Question 23

A cost estimation method that estimates cost functionas by analysizing ledger accounts and designating them as containing fixed, variable, or mixed costs

–widely used but needs to be done by people who understand the process

Answer 23

Account analysis method

Question 24

Cost estimation method that derives cost functions by usin mathematical models (ex. scattergraph, high-low, regression analysis, correlation analysis, cumulative average time model, and incremental unit-time learning model)

Answer 24

Quantitative methods

Question 25

A graphical approach to computing the relationship between two variables (dependent variable on Y-axis, and indepnedent on x-axis)

–lacks precision

Answer 25

Scattergraph method

Question 26

Computes hte slope for the variable rate based on the highest and lowest observations and then the fixed cost is derived by using either hte highest or lowest observation

–can be inaccurate if high/lows are outliers

Slope=change in cost between high/low points

change in activity b/t high/low points

Answer 26

HIgh-Low method

Question 27

Determines thecuntional relationship between varaibles witha measure of probable error. Fits a regression line between the observation points such that hte sum of hte squared vertial differences between the regeression line and hte individual observations is minimized

*linearity is underlying assumption

y-a+bx

Answer 27

Regression analysis

Question 28

Measures how well the regression line fits hte observed data–better the closer it is to 1

Answer 28

Coefficient of determination (R²)

Question 29

Meaures hte relationship between 2 variables as either being positive (direct) or negative (indirect)

Answer 29

Coefficient of correlation

Question 30

A type of cost function that occurs when the cost increases in discrete amounts periodically as the level of activity increases–nonlinear

Answer 30

Step functions

Question 31

A model that attempts to capture hte effect of learning curves by the cumulative average time per unit declining by a constant percentage each time the quantity of units produced doubles

Answer 31

Cumulative average-tiem model

Question 32

A nonliear cost function model that attempts to explain learning cutves by calculating hte incrementatl unit time needed ot produce the last unit which declines by a constant percentage each time the cumulative quanitty of units produced doubles

Answer 32

Incremental Unit-time learning model

Question 33

Activities which customers perceive as increasing the worth of a product or service and for which customers are willing to pay

Answer 33

Value added activities