Module 1: Introduction to Cost Accounting

Question 1

Job Costing System:

Answer 1

A system for assigning costs to products or services that differ in the amount of materials, labor and overhead required.

Question 2

Direct Labor:

Answer 2

The labor cost of employees who convert raw materials into finished products.

Question 3

Direct Materials:

Answer 3

Materials that become a physical part of a finished product and whose costs are easily traced to the finished product.

Question 4

Manufacturing Overhead (MOH):

Answer 4

All manufacturing costs other than direct materials or direct labor; also called factory overhead and indirect manufacturing cost.

Question 5

Why is managerial accounting important?

Answer 5

Managerial accounting helps managers to make operational decisions; intended to help increase the company´s operational efficiency, which also helps in making long-term investment decisions.

Question 6

What are the focuses as well as the uses for both financial accounting and cost accounting?

Answer 6

• Financial Accounting:
• > Focus: To provide information to external decision-makers.
• > Uses: To prepare financial statements and report monetary transactions.
• Cost Accounting:
• > Focus: To provide information to internal decision-makers.
• > Uses: To help managers make decisions for the company´s success.

Question 7

What is a service business? Provide some examples:

Answer 7

Service companies are those that do not sell a physical product but instead provide services to their customers.
Examples: banks, accounting firms, and educational firms.

Question 8

What is a merchandising business? What are its subdivisions?

Answer 8

Merchandising companies are those that sell products but do not manufacture them. Merchandising companies are broken down into the following types:

• Retailers
• Wholesalers

Question 9

What are retailers? Provide some examples:

Answer 9

Retailers buy smaller amounts of bulk goods from wholesalers or distributors and resell them to the end customers.
Examples: Walmart, Best Buy, and Target

Question 10

What are wholesalers? Provide some examples:

Answer 10

Wholesalers buy bulk goods from manufacturers or distributors and store them in order to sell them at a later date to retailers.
Examples: eBay

Question 11

What is a manufacturing business? Provide some examples:

Answer 11

Manufacturing companies are companies that transform raw materials into end products.
Examples: Volkswagen, Siemens, and Monster Beverages

Question 12

Company´s Organizational Chart:

Answer 12

Helps on showing the relationship between departments and divisions as well as the managers responsible for each section.

Question 13

Board of Directors:

Answer 13

• Responsible for Developing the strategic goals of the corporations.
• Elected by the shareholders.

Question 14

Chief Executive Officer (CEO):

Answer 14

• Has the ultimate responsibility

- Implements the company´s short- and long-term goals

Question 15

Line Positions:

Answer 15

Directly involved in providing goods and services to the customers.

Question 16

Staff positions:

Answer 16

-Responsible for supporting the line positions.

Question 17

What are the 3 managerial accounting functions?

Answer 17

• Planning
• Operational planning
• Strategic Planning

Question 18

Planning:

Answer 18

Setting goals and deciding how to achieve them.

Question 19

What is operational planning´s focus? What is its time period? Provide one example:

Answer 19

• Focus: short-term action, dealing with the day-to-day operations of a company.
• Time period: <= 1 year
• Example: Budgeting and projected sales for the current year.

Question 20

What is strategic planning´s main focus? What is its time period? Provide an example:

Answer 20

• Focus: long-term goals
• Time period: 3 to 10 years into the future
• Example: Moving from a service company into a manufacturing company.

Question 21

What is the purpose of Directing? Provide some examples:

Answer 21

-Running the day-to-day operations of a business
Examples:
-> The production manager ensures that we have enough materials to produce tablets
-> The marketing manager ensures that we have an advertising plan for our tablets.

Question 22

Controlling:

Answer 22

Monitoring the day-to-day operations and keeping the company on track.

Question 23

When will a product be able to leave the balance sheet and go to the income statement?

Answer 23

Only when a product is sold is when it leaves the balance sheet and goes to the income statement to become reported as an expense.

Question 24

In which financial statements do the following items belong into?

1. Unused raw materials
2. Unfinished work-in-progress
3. Unsold finished goods inventory
4. Finished goods sold

Answer 24

1. Balance sheet
2. Balance sheet
3. Balance sheet
4. This inventory account is reported in the income statement as an expense

Question 25

What is the flow of costs through inventory accounts?

Answer 25

Direct Materials Inventory -> Work-in-Progress Inventory -> Finished Goods Inventory

Question 26

What is usually the largest expense in a manufacturer´s income statement?

Answer 26

The cost of goods manufactured is usually a manufacturer´s largest expense in the income statement.

Question 27

Raw Materials:

Answer 27

Materials used to manufacture a product.

Question 28

Work in Process:

Answer 28

Goods that have been started in

manufacturing process but not yet complete.

Question 29

Finished Goods:

Answer 29

Completed goods that have not yet been

sold.

Question 30

What are the inventories that a manufacturing company carries?

Answer 30

• Raw materials inventory
• Work-in-progress inventory
• Finished goods inventory

Question 31

Direct cost:

Answer 31

It can be easily and cost-effectively traced to a cost object.

Question 32

Indirect cost:

Answer 32

It cannot be easily and cost-effectively traced to a cost object.

Question 33

Cost object:

Answer 33

A cost object is often a product or department for which costs are accumulated or measured.
Ex: A product is the cost object for direct materials.

Question 34

Define the following manufacturing overhead (MOH) costs:

• Indirect materials

- Indirect labor

Answer 34

• The raw materials used in production that are difficult or not cost-effective to trace.
• The cost of labour in the factory for persons not directly producing that product.

Question 35

Define the following types of costs:

• Period costs

- Product costs (Manufacturing costs)

Answer 35

• Non-manufacturing operating costs.

- Costs of making a product(DL, DM, MOH)

Question 36

What type of company carries 3 different inventory accounts on the balance sheet?

Answer 36

Manufacturing company.

Question 37

Total Quality Management (TQM):

Answer 37

TQM is a philosophy of continuous improvement in products and processes.

Question 38

Value chain:

Answer 38

Each step adds value to the end product, and this is referred to as the value chain.

Question 39

What are the steps of a value chain?

Answer 39

• R&D
• Design
• Production
• Marketing & Sales
• Distribution
• Customer Support

Question 40

Triple bottom line:

Answer 40

The economic, social, and environmental impact of doing business