MA 7 Costing - Methods

Question 1

3 product costs

Answer 1

DM, DL and allocated MOH

Question 2

3 stages in production

Answer 2

Raw Materials
WIP
Finished goods

Question 3

How to calculate COGM (value of goods transferred from WIP to finished goods)

Answer 3

Opening WIP + DL used + DM used + MOH allocated - ending WIP

Question 4

How to calculate COGS

Answer 4

Opening finished goods + COGM - closing finished goods

Question 5

Define job costing

Answer 5

Allocating costs based upon the job - used for unique items

Question 6

Define process costing

Answer 6

taking total costs divided by units produced - used for items which are identical

Question 7

Define variable costing for inventory - can it be used for ASPE/IFRS? What format of statement will be used?

Answer 7

Only variable MOH costs are applied to inventory. All fixed costs and non-MOH costs are expensed as incurred. Not to be used for ASPE/IFRS, only internal decision making. Contribution margin format to be used.

Question 8

Define absorption costing for inventory - can it be used for ASPE/IFRS? What format of statement will be used?

Answer 8

Variable and fixed MOH costs are applied to inventory. All fixed costs and non-MOH costs are expensed when sold (in COGS) . Required to be used for ASPE/IFRS, external reporting format to be used.

Question 9

Normal spoilage treatment (not specific to particular job)

Answer 9

charge to OH

cost removed from WIP account and charged to MOH account

Question 10

Normal spoilage treatment (specific to particular job)

Answer 10

cost remains in job and not attributed to MOH

Question 11

Abnormal spoilage treatment (not specific to job)

Answer 11

expense in the period as incurred

removed from WIP and expensed to a loss account

Question 12

Abnormal spoilage treatment (specific to job)

Answer 12

charge to particular job

Question 13

What method of costing does process costing use?

Answer 13

Absorption

Question 14

Define EU (equivalent units)

Answer 14

A way of referring to all units in reference to the number of fully completed units they represent. For example, two units 50% complete equals one EU.

Question 15

How is DM tracked for process costing vs conversion costs

Answer 15

Seperately as DM is added at the beginning of the process usually

Question 16

Two methods to cost EU

Answer 16

weighted average and FIFO

Question 17

EU produced formula for weighted average

Answer 17

EU Produced = Units transferred to next process OR finished goods + EU in ending WIP

Question 18

DM costs per EU WA formula

Answer 18

Total DM costs / Units finished + EU DM WIP

Question 19

Conversion costs per EU WA formula

Answer 19

Total conversion costs / Units finished + EU conversion costs WIP

Question 20

5 step guide to process costing

Answer 20

• compute units to be accounted for
• compute output in terms of EU
• compute costs to account for
• compute cost per EU
• assign total costs to units completed and to ending WIP

Question 21

FIFO method of costing

Answer 21

costs incurred during the current period (including costs transferred in) are used to calculate the cost of units completed during the current period. Both beginning and ending WIP inventories are converted to an EU basis. Accounts for the fact that opening WIP not fully complete in current period.

Question 22

Two methods of allocating MOH

Answer 22

Traditional and Activity-Based Costing

Question 23

How is traditional costing allocated?

Answer 23

Based upon a single driver (labour hours/DM etc)

Question 24

How is ABC allocated?

Answer 24

Multiple drivers - allows for better review of costs

Question 25

5 steps for ABC

Answer 25

• identify cost objective
• identify activities and drivers
• assign indirect costs to cost pools
• calculate activity rates
• assign indirect costs to cost objectives

Question 26

Where is over or under allocated MOH journaled to?

Answer 26

WIP/Finished Goods/COGS - mostly COGS

Question 27

Joint products - are they traceable to a single product?

Answer 27

No. At some point the processes split and products may be refined

Question 28

Physical output method of joint costing

Answer 28

Allocated based upon a physical measure such as weight

Question 29

Sales value at split-off method

Answer 29

Costs assigned based upon relative sales value at split-off

Question 30

NRV method

Answer 30

Costs allocated based upon Sales price of FINAL product less separate costs

Question 31

How is waste for items before split-off point calculated?

Answer 31

Joint costs

Question 32

How is waste for items after split-off point calculated?

Answer 32

Separable costs

Question 33

How are service costs calculated in the direct allocation method?

Answer 33

Allocated to operating departments based upon quantity of allocation base, before considering allocation from other service departments

Question 34

How are service costs calculated in the step-down allocation method?

Answer 34

Under the step-down allocation method, service department costs are allocated to both operating and service departments, beginning with the service department that provides the most services to other departments. The costs of service departments are allocated one at a time, in a “step-down” manner

Question 35

How are service costs calculated in the reciprocal allocation method?

Answer 35

Under the reciprocal allocation method, service department costs are allocated simultaneously from all service departments to both operating and service departments. The costs of service departments are allocated one at a time, in a “step-down” manner.