Test 1 Flashcards
What are the 3 KEY POINTS related to designing a new cost accounting system for managerial services?
- Cost systems should have a DECISION FOCUS
- Different cost information is used for DIFFERENT PURPOSES
- Cost information for managerial purposes MUST MEET the COST-BENEFIT TEST
What is the purpose of calculating individual product (and service) costs?
-Computing the inventory values and COGS for financial statements
-Helping product manager decision making regarding pricing, production, promotion, add/drop product, outsource product/service, etc.
What is the Basic Cost Flow Model?
Beg. Bal. + Transfers In - Transfers Out = End. Bal.
BB + TI - TO = EB
What are the 3 Types of Inventory Accounts?
- Raw Materials
- WIP
- F/Gs
What is it when there are TRANSFERS IN for Raw Materials?
Purchased
What is it when there are TRANSFERS OUT for Raw Materials?
Requisitioned into production
What is it when there are TRANSFERS IN for WIP?
Raw materials requisitioned into production
What is it when there are TRANSFERS OUT for WIP?
Cost of Goods manufactured (jobs completed during the period)
What is it when there are TRANSFERS IN for F/Gs?
Cost of Goods manufactured
What is it when there are TRANSFERS OUT for F/Gs?
Cost of Goods Sold
What are Direct Costs?
DIRECT materials and labor ASSIGNED to a product
What are Indirect Costs?
Manufacturing Overhead (indirect) costs
-indirect materials
-indirect labor
-other (utilities, prepaids, depreciation, etc.)
MOH costs are ALLOCATED based on some measure of activity.
What are the 3 common estimated Allocation Bases?
- Direct Labor Hours
- Direct Labor Costs
- Machine Hours
What is a Predetermined Overhead Rate (for MOH)?
Estimated Overhead $ / Estimated Allocation Base
What are Equivalent Units?
Number of physical units x % of completion
What is a Predetermined Overhead Rate (for ending WIP)?
Estimated Overhead $ / (Equivalent units + Completed units)
TRUE/FALSE: When ending Work-in-Process Inventory is present, you MUST calculate equivalent units
TRUE
of physical units x % of completion
What are the 3 Basic Types of Product Costing Systems?
- Job Costing
- Process Costing
- Operations Costing
What is Job Costing, and an example?
“Job Shop”
-customized
-traces costs to individual units or specific jobs
-contracts or batches of goods
e.g., car shop, law firms, hospital, construction
What is Process Costing, and an example?
“Continuous Flow Process”
-identical items
-no need to trace costs to the individual unit level
e.g., ice cream, paint, cereal, petroleum
What is Operations Costing, and an example?
“Batch Production”
-different batches of products
-homogenous within the batch
-hybrid costing system
e.g., automobile manufacturing, clothing, furniture
When computing the cost of a job, which are ASSIGNED and which are ALLOCATED?
ASSIGNED:
-Direct Materials
-Direct Labor
ALLOCATED:
-MOH (indirect costs)
What do DEBITS to the MOH account reflect?
ACTUAL indirect materials, indirect labor, or other
What do CREDITS to the MOH account reflect?
APPLIED overhead based on the predetermined overhead rate
When the actual overhead costs incurred (debits) are in excess of the applied overhead costs (credits), what has happened?
UNDERAPPLIED overhead
When the applied overhead costs (credits) are in excess of the actual overhead costs incurred (debits), what has happened?
OVERAPPLIED overhead
You have UNDERAPPLIED overhead.
What is the journal entry when writing-off to COGS?
Dr. COGS
Cr. MOH
You have UNDERAPPLIED overhead.
What is the journal entry when writing-off to WIP, F/Gs, and COGS?
Dr. WIP Inventory
Dr. F/G Inventory
Dr. COGS
Cr. MOH
You have OVERAPPLIED overhead.
What is the journal entry when writing-off to COGS?
Dr. MOH
Cr. COGS
NOTE: opposite of underapplied overhead
You have OVERAPPLIED overhead.
What is the journal entry when writing-off to WIP, F/Gs, and COGS?
Dr. MOH
Cr. WIP
Cr. F/Gs Inventory
Cr. COGS
NOTE: opposite of underapplied overhead
What is a Normal Cost?
cost of a job is determined by ACTUAL direct material and labor costs plus overhead applied using a PREDETERMINED rate and an ACTUAL allocation base
What is an Actual Cost?
cost of a job is determined by ACTUAL direct material and labor costs plus overhead applied using an ACTUAL overhead rate and an ACTUAL allocation base
What is a Standard Cost?
cost of a job is determined by STANDARD (budgeted) direct material and labor costs plus overhead applied using a PREDETERMINED overhead rate and a STANDARD (budgeted) allocation base
