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Cost Accounting Test 1
Terms in this set (55)
How is financial accounting different from managerial accounting?
Financial accounting is sued to develop reports for EXTERNAL users on past financial performance using GAAP. Management accounting is use to provide future oriented information to help managers (INTERNAL) make decisions and achieve an organizations goals
How do management accountants support strategic decisions?
Management accountants contribute to strategic decisions by providing information about the sources of competitive advantages
How do companies add value, and what are the dimensions of performance that customers are expecting of companies?
research and development, design of products and processes, production, marketing, distribution and customer service. Customers want companies to deliver performance through cost and efficiency, quality, timeliness and innovation
what guidelines do management accountants use?
three guidelines that help management accountants increase their value to managers are a. employing a cost benefits approach
b.recognizing behavioral as well as technical considerations, and
c. identifying different costs for different purposes
Where does the management accounting function fit into an organization's structure?
Management accounting is an integral part of the controllers function. In mot organizations, the controller reports to the chief financial officer who is a key member of the top management team
what are the ethical responsibilities of management accountants?
Management accountants have ethical responsibilities that relate to competence, confidentiality, integrity, and credibility
Describe the business functions in the value chain.
-Research and development—generating and experimenting with ideas related to new products, services, or processes.
-Design of products and processes—detailed planning, engineering, and testing of products and processes.
-Production—procuring, transporting, storing, coordinating and assembling resources to produce a product or deliver a service.
-Marketing—promoting and selling products or services to customers or prospective customers.
-Distribution—processing orders and shipping products or services to customers.
-Customer service—providing after-sales service to customer
Explain the term supply chain and its importance to cost management.
describes the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to consumers, regardless of whether those activities occur in the one organization or in multiple organizations.
Cost management is most effective when it integrates and coordinates activities across all companies in the supply chain as well as across each business function in an individual company's value chain. Attempts are made to restructure all cost areas to be more cost-effective.
describe the five-step decision making process
(1) identify the problem and uncertainties; (2) obtain information; (3) make predictions about the future; (4) make decisions by choosing among alternatives; and (5) implement the decision, evaluate performance, and learn
Which of the following is not a primary function of the management accountant?
a. Communicates financial results and position to external parties.
b. Uses information to develop and implement business strategy.
c. Aids in the decision making to help an organization meet its goals.
d. Provides input into an entity's production and marketing decisions.
A. communicates financial results and position to external parties
What is a cost object?
anything for which a manager needs a separate measurement of cost. Ex: product, service
How do managers decide whether a cost is a direct or an indirect cost?
a direct cost is any cost that is related to a particular cost object and can be traced to that cost object in an economically feasible way.
indirect cost are related to a particular cost object but cannot be traces to it in an economically feasible way
how do managers decide whether a cost is a variable or fixed cost?
a variable cost changes in TOTAL in proportion to changes in the related leech of total activity or volume
a fixed cost remains unchanged in total for a given time period despite wide changes in the related level of total activity or volume of output produced.
What are the differences in the accounting for inventorial versus period costs?
Inventorial costs are all costs of a product that a company regards as an asset in the accounting period in which they are incurred and which become cost of goods sold in the accounting period in which the product is sold.
Period costs are expenses in the accounting period in which they are incurred and are all of the costs in an income statement other than COGS
What is the flow of inventoriable and period costs in manufacturing and merchandising settings?
In manufacturing settings, inventoriable costs flow through WIP and FG accounts and are expenses as COGS.
Period costs are expensed as they are incurred.
In merchandising settings, only the cost of merchandise is treated as inventoriable
What are the three key features of cost accounting and cost management
1. calculating the cost of products, services and other cost objects
2. obtaining information for planning and control and performance evaluation
3. analyzing relevant information for making decisions
Name three factors that will affect the classification of a cost as direct or indirect
the materiality of the cost in question
available information-gathering technology
design of operations
What is a cost driver?
a variable, such as the level of activity or volume that causally affects total costs over a given time span
what is a Manufacturing-sector companies
purchase materials and components and convert them into various finished goods, for example automotive and textile companies.
what is a Merchandising-sector companies
purchase and then sell tangible products without changing their basic form, for example retailing or distribution
what is a Service-sector companies
provide services or intangible products to their customers, for example, legal advice or audits.
Direct material costs
the acquisition costs of all materials that eventually become part of the cost object (work in process and then finished goods) and can be traced to the cost object in an economically feasible way.
Direct manufacturing labor costs
include the compensation of all manufacturing labor that can be traced to the cost object (work in process and then finished goods) in an economically feasible way.
Manufacturing overhead costs
are all manufacturing costs that are related to the cost object (work in process and then finished goods) but cannot be traced to that cost object in an economically feasible way.
what is the building block concepts of a costing system
a cost object, direct costs of a cost object, indirect costs of a cost object, cost pool and cost allocation base
how do you distinguish job costing from process costing?
job costing assign costs to distinct units of a product or service
process costing systems assign costs to masses of identical or similar units and compute unit costs on an avg bases
what is the definition of cost accounting
process of measuring, analyzing, and reporting financial and non financial information related to the costs of acquiring or using resources in an organization
what is cost accumulation
collecting of cost data in some organized way by means of an accounting system
cost tracing goes with
cost allocation goes with
direct material cost + direct manufacturing labor costs
direct manufacturing labor costs + manufacturing overhead
job costing system
distinct units of a product or service
process costing system
masses of identical or similar units of product
actual indirect cost rate=
actual annual indirect costs/actual annual quantity of the cost-allocation base
actual manufacturing overhead rate=
actual annual manufacturing overhead rate/ actual annual quantity of the cost allocation base
manufactured overhead applied
is the amount of manufacturing overhead costs allocated to individual jobs base
DM, DL, FOH are recorded at actual amount
DM and DL are recorded at actual amounts; OH is recorded at applied amount
DM, DL, FOH are recorded at standard costs
if the control balance exceeds the applied account balance then overhead has been
if the applied account balance exceeds the control account then overhead is
adjusted allocation rate approach
all accounts that include FOH will be adjusted
the proration rate
charge everything to COGS
PDOH (predetermined overhead rate) =
est OH/est activity of allocation base
to find applied FOH you multiply
PDOH x actual activity
when is OH applied
at the end of a job or end of period, whichever comes first
when the amount of over applied factory overhead is significant, the entry to close over applied factory overhead will most likely require
credits to COGS, finished goods inventory and WIP
a cost allocation base may be any of the following except a:
-way to link indirect costs to a cost object
a company that manufactures dentures for use by local dentists would use
using normal costing rather than actual costing requires that the allocating of indirect manufacturing costs to work in progress be
calculated by using the budgeted rate times actual quantity of allocation base
manufactured overhead control
-represents actual overhead costs incurred
-has a normal debit balance
-is a control account with a subsidiary ledger detailing the components of manufacturing overhead
-all of the above
all of the above
which of the following accounts is not classified as an asset?
-manufacturing overhead control
-work in progress control
-finished goods control
manufactured overhead control
the costs incurred on jobs that are currently in production but are not yet complete would appear in the
work in progress control account
the work in progress account is
an inventory account indicating the beginning and ending inventory of goods being processed
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