P1: 4.1 Cost Management Terminology

Question 1

Management accounting - define

Answer 1

• reporting to internal users
• used to improve decision making
• future oriented

Question 2

Cost accounting - define

Answer 2

• both financial and management accounting

Question 3

Name 3 types of manufacturing

Answer 3

• direct materials : tangible inputs to manufacturing that can be traced back to product
• direct labor: human labor cost, someone who works directly on product
• manufacturing overhead: all costs of manufacturing that is not direct materials or direct labor

Question 4

Financial Accounting - define

Answer 4

• is concerned principally with reporting to external users.

- GAAP

Question 5

Name and describe two types of manufacturing costs

Answer 5

• prime costs : costs that apply directly to the product, is equal to the sum of direct materials and direct labor
• conversion costs : the cost of converting raw materials to the finished product, equal to the sum of direct labor and manufacturing overhead.

Question 6

Operating a manufacturing concern requires the incurrence of non-manufacturing costs. Name and define both types of non-manufacturing costs.

Answer 6

1. Selling expenses - includes marketing expenses. Ex. Sales salaries, advertising, & product shipping
2. Administration costs - costs not directly related to the producing or advertising of product. Ex. Executive salaries, depreciation of non production equipment, office supplies. *general overhead

Question 7

Product costs - define

Answer 7

• Aka inventoriable costs
• capitalized as part of finished goods sold.
• direct materials and direct labor

Question 8

Period costs. Define

Answer 8

• expensed as incurred
• excluded from cost of goods sold because not capitalized in finished goods
• period costs would still occur when production is zero

Question 9

Absorption costing

Answer 9

• full costing
• where all manufacturing costs are treated as product cost and selling and admin is considered period cost
• for external financial reporting

Question 10

Variable costing

Answer 10

• direct costing

- only include variable manufacturing cost as product cost and all else is considered period cost.

Question 11

Common cost

Answer 11

• shared by 2 or more users
• must be an allocated cost because it cannot be traced directly to users
• ex. Depreciation or rent