Week 1

Question 1

What are the four types/methods of cost classification?

Answer 1

1. Financial reporting
2. Assigning
   Costs to Cost
   Objects
3. Predicting
   Cost Behavior
4. Make business decisions

(FAPM)

Question 2

What is the key concept in the financial reporting cost classification?

Answer 2

Product vs Period costs

Question 3

What is the difference between Product vs Period Costs in the cost classification method for financial reporting?

Answer 3

Product costs are manufacturing costs that include direct materials, direct labour and manufacturing over head.

Period costs include all selling costs and administrative costs (S&A expenses).

Question 4

What is the key concept in the Assign costs to cost objects cost classification method?

Answer 4

Direct vs Indirect costs

Question 5

What is the difference between Direct vs Indirect costs? Give 1 example of each.

Answer 5

Direct costs are costs that can be easily and conveniently traced to a cost object. An example is direct materials or direct labour.

Indirect costs are costs that cannot be easily and conveniently traced to cost objects/ one unit of product. An example is manufacturing overhead/indirect labour/ indirect materials

Question 6

What are indirect materials? Give an example.

Answer 6

Materials used to support the production process or multiple units of products. Examples are lubricants for an assembly line or cleaning supplies.

Question 7

What are examples of indirect labour?

Answer 7

Factory security guard, Factory janitors and Factor maintenance workers.

Question 8

Give three examples of MOH

Answer 8

1. Electricity used in factory
2. Factory rent
3. Depreciation of factory equipment

Question 9

What are the formulas for prime cost and conversion costs?

Answer 9

DM + DL = Prime cost

DL + MOH = Conversion cost

Question 10

Are all direct and indirect costs under product costs?

Answer 10

Yes

Question 11

What are the two purposes of a schedule of Cost of Goods Manufactured?

Answer 11

1. Calculates the cost of DM, DL, and MOH used in production.

2.Calculates the manufacturing costs associated with goods that were finished during the period.

Question 12

What are the two equations for
calculations under Schedule of Cost of Goods Manufactured (COGM)

Answer 12

1.Beg. INVT + Additions to INVT = End. INVT + Withdraws from INVT

2.Beg. INVT + Additions to INVT - Withdraws from INVT = End. INVT

Question 13

What are the three components in Manufacturing (Product) Cost Flows?

Answer 13

1. Raw materials
2. Manufacturing costs
3. Work in process

Question 14

When do direct materials get called direct materials in the production process?

Answer 14

As items are removed from raw
materials inventory and placed into
the production process, they are
called direct materials.

Question 15

What are conversion costs? Give 2 examples.

Answer 15

Conversion costs are costs incurred to convert the direct material into a finished product.

Examples are direct labour and manufacturing overhead which are costs incurred to convert the direct material into a finished product.

Question 16

What are the components of total manufacturing costs?

Answer 16

Direct materials + Direct labor + Manufacturing overhead

Question 17

What is the last Manufacturing (Product) Cost Flows section?

Answer 17

Finished Goods

Question 18

What are the components of total work in process?

Answer 18

Beginning work in process inventory + Total manufacturing costs

Question 19

What are the three Manufacturing (Product) Cost Flows - Equations

Answer 19

1. DM used = Beg. RM + Purchase – End. RM
2. COGM = Beg. WIP + (DM used + DL + MOH) – End. WIP
3. COGS = Beg. FG + COGM – End. FG

Question 20

What is the key concept in the Predicting Cost Behavior cost classification method?

Answer 20

Total Variable Costs (TVC) vs Total Fixed Costs (TFC)

Question 21

As activity increases does TVC increase or decrease?

Answer 21

Increase

Question 22

As activity increases does VC per cup at starbucks increase?

Answer 22

No the VC is constant per cup/ Remains the same.

Question 23

As activity increases does TFC increase?

Answer 23

No it is constant/ remains the same

Question 24

As activity increases is there any change to FC per cup at starbucks?

Answer 24

FC per cup declines as activity increases.

*This is because
Fixed Cost per Unit= Total Fixed Costs/Number of Units
If number of units increase based on formula, since TFC won’t change, the fixed cost per unit decreases.
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Question 25

What is the key concept to make business decisions under this cost classification method?

Answer 25

Relevant vs Irrelevant costs

Question 26

What are the two types of Relevant costs?

Answer 26

1. Differential Cost and Revenue
2. Opportunity Cost

Question 27

What is differential cost and revenue?

Answer 27

➢ Costs and revenues that differ among alternatives are relevant.

Question 28

What is an Irrelevant cost? Explain why it is irrelevant

Answer 28

Sunk Costs.

Sunk costs have already been incurred and cannot be changed now or in the future. These costs should be ignored when making decisions.

Question 29

Name three cost concepts For Cost Control

Answer 29

1. Target Cost
2. Life-cycle Cost
   3.Throughput Accounting

Question 30

What is Target costing

Answer 30

Target costing is the process of determining the maximum allowable cost for a new product and then developing a prototype that can be made for that
maximum target cost figure.

Question 31

What is the equation for Target Cost?

Answer 31

Target cost = Anticipated selling price – Desired profit

Question 32

Why use Target Costing?

Answer 32

Target costing begins the product development process by recognizing and responding to existing market prices (company is a price - taker)

Target costing focuses a company’s cost reduction efforts in the product design stage of production. This is in contrast to other approaches that attempt to squeeze costs out of the manufacturing process after they come to the realization that the cost of a manufactured product does not bear a profitable relationship to the existing market price.

Question 33

Under Life - Cycle Cost what are the four phases and types of cost in each phase?

Answer 33

1. Design Phase. R&D, design and tooling costs.
2. Manufacturing phase. Material, labour, overheads, machine set up, inventory, training, etc costs.

3.Operation phase. Distribution, advertising costs and warranty claims.

4. End of life phase. Environmental clean-up, disposal and decommissioning costs.

Question 34

What is the Theory of Constraints and Throughput Accounting? What should be done for cost control.

Answer 34

The Theory of Constraints is based on the
observation that effectively managing the constraint(bottle necks/ whatever prevents you from getting more of what you want) is the key to success.

Throughput Accounting is based on the principle that efficiency and profitability will be maximized by managing output in relation to the constraining resource.

For cost control, efforts can be made to reduce cost and increase efficiency at the bottleneck.

Question 35

What are the sustainability considerations that impact decision-making?

Answer 35

PPP (People, Planet and Profit)

Question 36

What does a manufacturer’s inventory consist of

Answer 36

1. Raw materials 2. Work in process 3. Finished goods