Managment And Cost Accounting

Question 1

What are the three functions management accounting is used for?

Answer 1

1. Planning
2. Controlling
3. Decision making

Question 2

What are the three types of organisations?

Answer 2

• Service
• Retailers
• Manufacturers

Question 3

Define the cost recognition criteria,

Answer 3

• Sacrifice made for goods or services
• Expected to bring current or future benefit to the origination

Question 4

What is a cost object?

Answer 4

Item for which costs are measured.

Question 5

Management Accounting falls under the following:
- Internal focus
- Limited rules
- Future oriented
- Internal evaluation
- Detailed information about segments
- Broad, multi-disciplinary

True or False?

Answer 5

True

Question 6

What are the three components involved in “classification by traceability”?

Answer 6

• Direct costs
• Cost driver
• Indirect costs

Question 7

What is a direct cost?

Answer 7

Cost traceable to a single cost object.

Question 8

What is a cost driver?

Answer 8

Factor that affects cost.

Question 9

What are indirect costs?

Answer 9

Costs that cannot be directly traced to a cost.

Question 10

What are the two cost classification techniques?

Answer 10

• Classification by traceability
• Classification by function

Question 11

What are the two “costs” under the classification by function technique?

Answer 11

Production costs
Non-production costs

Question 12

“All costs incurred in making the product”

Is what type of cost under classification by function?

Answer 12

Production Costs

Question 13

What are the three types of production costs when classifying by function?

Answer 13

Direct materials
Direct labour
Overhead

Question 14

What is the “prime cost”?

Answer 14

Sum of direct material cost + direct labour cost

Question 15

What is the “conversion cost”?

Answer 15

Sum of direct labour cost + overhead costs

Question 16

What are the two non-production costs? Give a definition for each.

Answer 16

Selling costs
- cost necessary to market and distribute a product or service.

Administrative costs
- any cost outside of factory and not selling cost, e.g general manager salary.

Question 17

What is a problem with just using unit costs as the selling price?

Answer 17

Doesn’t take into account non-production cost, thus must set selling price to cover production cost and non-production costs while still maintaining a profit.

Question 18

What is job costing?

Answer 18

Calculating the price for each individual job.

Question 19

How do you calculate unit cost? - Job Costing

Answer 19

total job costs divided by units produced.

Question 20

How do you calculate unit cost? - Process Costing

Answer 20

Process costs for period / units produced in period

Question 21

When is process costing appropriate?

Answer 21

Amount of units produced not known until late in process (e.g manufacturing bricks).

Question 22

How are costs accumulated in a process costing environment?

Answer 22

By process or department, not individual job.

Question 23

What is a materials requisition form and why is it used?

Answer 23

Identifies materials used on a job. Allows for calculation of direct material cost for each job.

Question 24

What is a job cost record and why is is used?

Answer 24

Record of direct labour for each job. Allows tracking and therefore calculation of total direct labour cost per job.

Question 25

What is the formula for pre-determined overhead rate?

Answer 25

Estimated overhead costs / estimated activity driver

Question 26

What is a ‘job order cost record’ and what does it record?

Answer 26

Record of total cost of job.

Records:
- Material cost
- Labour cost
- Overhead cost

Question 27

Steps for calculating raw materials inventory

Answer 27

Opening balance
+ purchases
— transferred to work in process
= Closing balance

Question 28

Steps for calculating work in process inventory

Answer 28

Opening balance
+ raw materials
+ direct labour
+ overhead
— transferred to finished goods
= Closing balance

Question 29

Steps for calculating finished goods inventory

Answer 29

Opening balance
+ transferred in from work in process
— transferred to COGS
= Closing balance

Question 30

Problems using actual overhead?

Answer 30

• Non-uniform incurrence :
  some payments incur all at once (e.g insurance payment), thus driving actual overhead cost per job for that period dramatically more than any other period. Can result in customer dissatisfaction.
• Non-uniform production:
  cost driver hours used to determine overhead may vary throughout the year. Thus, using actual overhead cost will result in different selling prices. Can result in customer dissatisfaction.
• Cannot wait till end of year to allocate overhead.
• Activities included in overhead benefit all jobs (e.g insurance paid all in one period, but gives benefit to all jobs over all periods of year).

Question 31

Problems using estimated overhead rates?

Answer 31

• Not always accurate, can result in overpricing or underpricing jobs.
• No perfect common cost driver.
• Must control overhead costs.
• Requires forecasting of overhead costs, takes time and money.