NOT USED

Question 2

What is Cost Accounting?

Answer 2

Cost Accounting is a component of GAAP that records Ending Inventory on the Balance Sheet for Direct Material so Direct Laboro Work in Proces so Finished Goods

Cost Accounting also records for the Income Statement

Question 3

What is Factory Overhead?

Answer 3

All factory costs except for DM and DL used in production- including Spoilage (except for abnormal spoilage- which is a period cost and not included in OH).

Question 4

What is included in Fixed Factory Overhead?

Answer 4

FFO : Estimated Costs / Normal Capacity

Uses Normal Activity

Examples of Fixed Factory OH: Depreciation (SL)- Utilities- TaxesUnder/Over-applied Fixed OH always goes to COGS

Question 5

What is included in Variable Overhead?

Answer 5

VO : Estimated Activity / Actual Activity

Uses Actual Activity

Examples of Variable Factory OH: Deprecation (Units of Prod)- Indirect materials (supplies & insignificant items)- Indirect labor (factory foreman- janitors- machine maintenance)

Question 6

Where is Under/Over-applied Variable OH recorded?

Answer 6

• If Immaterial - Goes to COGS
• If Material - Goes to WIP- Finished Goods- or COGS- based on their Ending Balance

Question 7

Where is Under/Over-applied Fixed OH recorded?

Answer 7

It always goes to COGS

Question 8

What is indicated by a Debit balance in Actual Factory Overhead? How is it corrected?

Answer 8

Under-applied overhead.If it’s Fixed OH- under-applied goes to COGS.If it’s Variable OH- under-applied goes to COGS if immaterial- but is allocated to WIP- FG or COGS based on ending balances.

Question 9

What is indicated by a Credit balance in Applied Factory Overhead? How is it corrected?

Answer 9

A credit balance indicates over-applied overhead.If Fixed overhead- it is corrected from COGS.If Variable overhead- it is corrected through COGS if immaterial- but if material overage is allocated to WIP- FG or COGS based on ending balances.

Question 10

How does Freight In affect Cost Accounting calculations?

Answer 10

Inventory (Product) Cost

Part of DM Purchases

Question 11

How does Freight Out affect Cost Accounting?

Answer 11

Selling (Period) Cost

Not part of inventory

Question 12

When is Job-Order Costing used?

Answer 12

Used when costs are easily connected to a specific product or product line

Can also be applied to services

Calculation is the same as normal cost accounting - just use your T Accounts- DM to WIP to FG to COGS- You’re likely going to be solving for the last job in the queue

Question 13

What is the Direct Method for allocating service department costs?

Answer 13

No services allocated between service departments- even if they serve each other. Only allocate to product(s)

Question 14

What is the Step Method for allocating service department costs?

Answer 14

Services can be allocated to both other service departments and the product(s)

Question 15

How are Equivalent Finished Units calculated for Direct Materials?

Answer 15

Units Shipped

+ EI x % Complete DM

=EFU (Weighted Average Method)

• Beginning Inventory x % Complete

=EFU (FIFO)

Question 16

How are Equivalent Finished Units calculated for Conversion Costs?

Answer 16

Units Shipped+ EI x % Complete CC: EFU (Weighted Average)- Beginning Inventory x % Complete: EFU (FIFO)

Question 17

How are Direct Materials calculated under the FIFO method?

Answer 17

Current Costs / EFU FIFONote: FIFO method uses Current Period costs only and ignores Beginning Inventory

Question 18

How are Conversion Costs calculated under the FIFO method?

Answer 18

Current Costs / EFU FIFO

FIFO method uses Current Period costs only and ignores Beginning Inventory

Question 19

How is WIP calculated?

Answer 19

Beginning balance (DM- DL- OH) + Current Costs (DM- DL- OH) - COGM (Goes to Finished Goods) + DM EFU x Cost per DM EFU + CC EFU x Cost per CC EFU : Ending WIP

Question 20

How do period costs and product costs relate to net sales- gross margin and operating income?

Answer 20

Net Sales - Product Costs : Gross Margin - Period Costs : Operating Income

Question 21

What is the focus of Activity Based Costing (ABC)?

Answer 21

Focuses on eliminating non-value-added activities for poor quality and inventory and things customers don’t want or don’t care about

Inventory is expensive to store and storing something is not a value-added expenditure

Uses Cost Pools - Different departments can have different OH rates

Uses Several OH rates based on Activity - Cost Pool / Cost Driver

Question 22

How do Cost Pools and Allocations compare under ABC versus traditional costing system?

Answer 22

Cost Pools and Allocations increase compared to a traditional costing system

Question 23

What is Backflush Costing?

Answer 23

Connected to Just-in-Time Production- which is part of Activity-Based Costing and Total Quality Management (TQM) - Works backward to flush out COGS - Mostly GAAP

Question 24

What are the characteristics of By-Products?

Answer 24

Usually immaterial and common costs aren’t allocated to them

Low Market ValueCan be valued at NRVCan be treated as a contra expense and netted against COGS - Can be treated as a contra sale and netted against SalesRecognition rules are very flexible with valuing and classifying by-products