Test 2 Flashcards
Process Costing assumes that all units are ___________.
homogenous, identical
e.g., ice cream, cereal, soda
and follow the same path through the production process
For Job Costing, each job is considered _________
unique
accumulate costs on a “per job” basis
T/F: In a continuous process industry, individual units are difficult to distinguish
TRUE - the individual units are difficult to distinguish
T/F: In a continuous process industry, a reasonable assumption is that all units in a large group cost DIFFERENTLY
FALSE - it is assumed that all units cost the same
i.e., each “batch” has the same cost
What are Equivalent Units?
number of COMPLETE PHYSICAL UNITS to which units in inventories are EQUAL in terms of work done to date
i.e., how “complete” are the units in WIP inventory
What is the formula fo the Basic Cost Flow Model?
BB + TI = TO + EB
What is the 5-Step Process in assigning costs to production?
- Determine “physical flow”
- Calculate equivalent units of production (EUPs) (Mat., Conv.,)
- Identify the product costs to account for materials and conversion costs
- Calculate unit costs
- Allocate costs incurred to inventories (F/G Inv., WIP Inv.)
What does the Weighted-Average Process Costing Method do?
combines costs and equivalent units of a period with the costs and equivalent units from the beginning inventory of the last period
These are then averaged
What does the FIFO Process Costing Method do?
the first goods received are the first units CHARGED OUT when sold or transferred
SEPARATES the costs of current work and the work in beginning WIP (assuming that all beg. WIP units are transferred out first)
Why are Equivalent Units under FIFO Method less than or equal to those under the Weighted-Average Method?
FIFO computations refer to the current period’s production ONLY
Weighted-Average considers ALL units in the department, whether produced in this period or previous period
If the department has NO beginning inventory, then the Weighted-Average and FIFO equivalent units are _________.
Equal
When costs are RISING, which TO $ are greater?
Weighted-Average
When costs are DECREASING, which TO $ are greater?
FIFO
What is a cost of the Weighted-Average Process Costing Method?
It is impossible to know how much it cost to make a product of this period as it combines the work and costs for the TWO PERIODS (Previous and Current) into a SINGLE COST
T/F: Under FIFO, the two periods (current and previous) are kept separate
TRUE
What is a benefit of the FIFO method?
gives managers better information about the work done in the current period
T/F: Under Weighted-Average, it is possible for units in Beg. WIP to be in End. WIP
TRUE
What are the uses of Product Costing Systems?
-used to develop inventory balances
-used to compute COGS
-used to make internal product decisions
What are the 3 types of predetermined allocation rates?
- Machine Hours
- Direct Labor Hours
- Direct Labor Dollars ($)
The predetermined OH rate is applied as if OH costs were _________ with respect to the allocation base.
Variable
What are faults in the Traditional Product Costing System?
some OH could be fixed and some OH could vary with DIFFERENT COST DRIVERS
allocates less MOH costs to low-volume products, and more MOH costs to high-volume products than ABC
Under Plant-wide Allocation Method, how many cost pools are there, and rates?
ONE cost pool for entire plant (single-stage approach)
ONE overhead allocation rate
Under Department Allocation Method, how many cost pools are there, and rates?
SEPARATE cost pools for EACH DEPARTMENT (two-stage process)
Each department has its OWN allocation rate or set of rates
Under ABC costing, what makes this method different than Plant-wide and Department?
Two-stage product costing method
First assigns costs to ACTIVITIES and then allocates them to PRODUCTS based on each product’s consumption of activities
“products consume activities, activities consume resources”
What is the benefit of ABC costing?
provides more DETAILED MEASURES of costs than plant-wide or department allocation
What is a drawback of ABC costing?
requires more recordkeeping due to more cost pools (and associated cost drivers)
“cost/benefit tradeoff”
ABC costing recognizes that OH costs are caused by activities and that activities MAY NOT be caused solely by volume.
What are other activities that could affect OH costs?
-Volume-related
-Batch-related
-Product-related
-Facility-related
T/F: Installing ABC costing does not require teamwork between other departments, like accounting, production, marketing, management, etc.
FALSE - teamwork is required!
What are the 3 problems with identifying users of ABC?
- ABC means different things to different observers
- ABC can be applied in parts to an organization, but not everywhere
- While firms may publically announce the adoption of ABC, they are less likely to announce its discontinuance
In FIFO Costing Method, how are EUPs calculated?
*HELPFUL FOR PROBLEM I and II!!
% Units to COMPLETE in Beg. WIP
+ Units started and completed TO
+% Units completed in End. WIP
*Same as Weighted-Average, but the addition of % Units to COMPLETE in Beginning. WIP
In Weighted-Average Costing Method, how are EUPs calculated?
*HELPFUL FOR PROBLEM I and II!!
Units started and completed TO
+ % Units completed in End. WIP
In Weighted-Average Costing Method, how are Costs Per EUP calculated?
Beg. WIP $
+ Current Costs $
/ EUPS
*NOTICE: Beg. WIP is here for wgt-avg, but is included in EUP calculation for FIFO
In FIFO Costing Method, how are Costs Per EUP calculated?
Current Costs / EUPS
*NOTICE: Beg. WIP is not included here because it was included in the EUP calculation….for wgt.-avg it is here
