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Cost Accounting

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Answer 50 questions in 15 minutes.
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Match each statement with the correct term.
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This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.

1. Step down method allocation
Cost allocation method that partially recognizes the mutual services provided among all support departments. Also called sequential allocation method.
Approach 2 Allocates joint cost using Physical measures - such as the weight - quantity (physical units) or volume of the joint products.
Managers compare how revenue - costs - and contribution margin change across various alternatives then they choose the alternative that maximizes operating income. It also expands the use of information provided by breakeven analysis. Furthermore - i
Derived amount of output units that (a) takes the quantity of each output (factor of production) in units completed and in incomplete units of work in process and (b) converts the quantity of input into the amount of completed output units that could

2. Net realizable value (NRV) method...
When a joint production process yields two or more products with high total sales values compared with the total sales values of other products - if any.
Past costs because they are unavoidable and cannot be changed no matter What action is taken.
Is a demand-pull manufacturing system in which each component in a production line is produced as soon as - and only when - needed by the next step in the production line. This system achieves close coordination among workstations. It smoothes the fl
Allocates joint cost to joint products produced during the accounting period on the basis of their relative NRV final sales value minus separable costs. The NRV method is typically used in preference to the sales value at splitoff method - only when

3. What are sunk costs?
The normal spoilage is the spoilage related to the good units produced - normal spoilage rates are computed by dividing units or normal spoilage by total good units completed - not total actual units started in production.
Special orders are used when a company receives a onetime only unexpected order that will not affect the company's current fixed manufacturing costs - nor will the special order affect the selling price or the quantity of items sold to regular custom
Past costs because they are unavoidable and cannot be changed no matter What action is taken.
Feedback is important because it might affect future predictions - the prediction methods used - the way choices are made - or the implementation of the decision.

4. Reciprocal allocation
Is a cost allocation method that fully recognizes the mutual services provided among all support departments.
Is units of production whether fully or partially completed that do not meet the specifications required by customers for good units and that are discarded or sold at reduced prices.
Are expected future costs that differ among alternative courses of action being considered. Relevant costs must occur in the future and differ among the alternative courses of action.
Past costs because they are unavoidable and cannot be changed no matter What action is taken.

5. Normal Spoilage
Department that directly adds value to a product or service. Also called a production department in manufacturing companies.
When the actual price of a product is less than the budgeted price - resulting in an increase in operating income.
Allocates support-department costs to operating departments by fully recognizing the mutual services provided among all support departments. It fully incorporates interdepartmental relationships into the support-department cost allocation.
Is spoilage inherent in a particular production process. The cost of normal spoilage are typically included as a component of the cost of goods units manufactured because good units cannot be made without making some units that are spoiled. pp646 is

6. Know the cost function
Qualitative costs and benefits (those costs and benefits that are non-quantifiable and/or immeasurable within the scope of this analysis) were determined based on the literature review and information gathering process.
Step 1 - Identify the problem and uncertainties Step 2 - Obtain information Step 3 - Make predictions about the future Step 4 - Make decisions by choosing among alternatives Step 5 - Implement the decision - Evaluate Performance - and learn
Is a mathematical description of how a cost changes with changes in the level of an activity relating to that cost. Pg.341 It can be plotted on a graph by measuring the level of an activity - such as number of batches produces or number of machines u
Used when implementing strategy. It is the quantitative expression of a proposed plan of action by management and is an aid to coordinating what needs to be done to execute that plan.

7. Purpose of a budget?
We use reciprocal method to have accurate service department cost allocations.
A. to compute inventory cost and cost of goods sold b. to determine cost reimbursement under contracts c. for insurance settlement computations d. for rate regulation e. for litigation purposes
Used when implementing strategy. It is the quantitative expression of a proposed plan of action by management and is an aid to coordinating what needs to be done to execute that plan.
The sensitivity of costs to changes in production or sales volume. Better collaboration - planning - and motivation are a result of different sets of budget decisions. It helps managers make strategic and operating decisions that have a positive envi

8. End products (Separable products at the split off point)
Department that directly adds value to a product or service. Also called a production department in manufacturing companies.
The sensitivity of costs to changes in production or sales volume. Better collaboration - planning - and motivation are a result of different sets of budget decisions. It helps managers make strategic and operating decisions that have a positive envi
Tanning cream and Instant cocoa mix
Allocates joint costs using market base data such as revenues.

9. What is process costing?
Department that directly adds value to a product or service. Also called a production department in manufacturing companies.
Costing system in which the cost object is masses of identical or similar units of a product or service.
Is units of production that do not meet the specifications required by customers but that are subsequently repaired and sold as good finished units.
Is a cost allocation method that fully recognizes the mutual services provided among all support departments.

10. 4 overhead variances.
When a joint production process yields two or more products with high total sales values compared with the total sales values of other products - if any.
The products of a joint production process that have low total sales values compared with the total sales value of the main product or of joint products.
Variable manufacturing overhead costs
Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base.

11. When do we use absorption costing?
Method of inventory costing in which all variable manufacturing costs and all fixed manufacturing costs are included as inventorial costs. - Fixed and manufacturing overhead are the same. It is a method of inventory costing in which all variable/fixe
The difference between actual results and expected performance. The expected performance is also called budgeted performance - which is a point of reference for making comparisons.
The normal spoilage is the spoilage related to the good units produced - normal spoilage rates are computed by dividing units or normal spoilage by total good units completed - not total actual units started in production.
Cost allocation method that partially recognizes the mutual services provided among all support departments. Also called sequential allocation method.

12. Joint cost
Is a mathematical description of how a cost changes with changes in the level of an activity relating to that cost. Pg.341 It can be plotted on a graph by measuring the level of an activity - such as number of batches produces or number of machines u
Is a cost of a production process that yields multiple products simultaneously.
Special orders are used when a company receives a onetime only unexpected order that will not affect the company's current fixed manufacturing costs - nor will the special order affect the selling price or the quantity of items sold to regular custom
When the actual price of a product is less than the budgeted price - resulting in an increase in operating income.

13. What is cost behavior?
The normal spoilage is the spoilage related to the good units produced - normal spoilage rates are computed by dividing units or normal spoilage by total good units completed - not total actual units started in production.
The sensitivity of costs to changes in production or sales volume. Better collaboration - planning - and motivation are a result of different sets of budget decisions. It helps managers make strategic and operating decisions that have a positive envi
Assignment of indirect costs to a particular cost object.
Predicted or forecasted cost (future cost) as distinguished from an actual or historical cost.

14. Constant Gross-Marging Percentage NRV method...
It is a method of inventory costing in which all variable manufacturing costs (direct and indirect) are included as inventoriable costs.
When a joint production process yields one product with a high total sales value - compared with total sales values of other products of the process.
Department that directly adds value to a product or service. Also called a production department in manufacturing companies.
Allocates joint cost to joint products produced during the accounting period in such a way that each individual product achieves an identical gross margin percentage. The method works backward int that the overall gross margin is computed first. Then

15. When do we have a favorable price variance?
When the actual price of a product is less than the budgeted price - resulting in an increase in operating income.
The juncture in a point-production process when two or more products become separately identifiable
Allocates joint costs to joint products produced during the accounting period on the basis of a compatible physical measure - such as the relative weight - quantity - or value at the split off point.
When a joint production process yields two or more products with high total sales values compared with the total sales values of other products - if any.

16. Separable costs
Department that provides the services that assist other internal departments (operating departments and other support departments) in the company.
Are expected future costs that differ among alternative courses of action being considered. Relevant costs must occur in the future and differ among the alternative courses of action.
All costs - manufacturing - marketing - distribution and so on incurred beyond the splitoff point that are assignable to each of the specific products identified at the splitoff point.
Allocation method that classifies costs in each cost pool into two pools (a variable-cost pool and a fixed-cost pool) with each pool using a different cost-allocation base.

17. Why would we use Just-in-time production system? Just-in-time (JIT) production (also called lean production)
Is a demand-pull manufacturing system in which each component in a production line is produced as soon as - and only when - needed by the next step in the production line. This system achieves close coordination among workstations. It smoothes the fl
When a joint production process yields two or more products with high total sales values compared with the total sales values of other products - if any.
Allocation method that classifies costs in each cost pool into two pools (a variable-cost pool and a fixed-cost pool) with each pool using a different cost-allocation base.
Costing system in which the cost object is masses of identical or similar units of a product or service.

18. Physical-Measure Method (Physical Units)...
When a joint production process yields two or more products with high total sales values compared with the total sales values of other products - if any.
Allocates joint costs to joint products produced during the accounting period on the basis of a compatible physical measure - such as the relative weight - quantity - or value at the split off point.
Is units of production whether fully or partially completed that do not meet the specifications required by customers for good units and that are discarded or sold at reduced prices.
Is a demand-pull manufacturing system in which each component in a production line is produced as soon as - and only when - needed by the next step in the production line. This system achieves close coordination among workstations. It smoothes the fl

19. Reciprocal method allocation
Derived amount of output units that (a) takes the quantity of each output (factor of production) in units completed and in incomplete units of work in process and (b) converts the quantity of input into the amount of completed output units that could
Cost allocation method that fully recognizes the mutual services provided among all support departments. Also called matrix-method.
Is a cost allocation method that fully recognizes the mutual services provided among all support departments.
Allocates joint cost to joint products produced during the accounting period on the basis of their relative NRV final sales value minus separable costs. The NRV method is typically used in preference to the sales value at splitoff method - only when

20. When to use special order?

21. What is a decision model?
The budgeted total fixed costs are the same for static budget and flexible budget as long as long as the number of units falls within the relevant range. Therefore - the budget is the same amount of fixed costs.
The products of a joint production process that have low total sales values compared with the total sales value of the main product or of joint products.
Allocates support-department costs to operating departments by fully recognizing the mutual services provided among all support departments. It fully incorporates interdepartmental relationships into the support-department cost allocation.
A formal method of making a choice between different courses of action - which often involves both quantitative and qualitative analyses.

22. What is variable costing?
Approach 2 Allocates joint cost using Physical measures - such as the weight - quantity (physical units) or volume of the joint products.
It is a method of inventory costing in which all variable manufacturing costs (direct and indirect) are included as inventoriable costs.
Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base.
Accounting for spoilage aims to determine the magnitude of spoilage costs and to distinguish between costs of normal and abnormal spoilage. Also - to manage - control - and reduce spoilage costs - they can be highlighted - not simply folded into prod

23. Fixed costs in relation to flexible budget?
Is a cost of a production process that yields multiple products simultaneously.
Method of inventory costing in which all variable manufacturing costs and all fixed manufacturing costs are included as inventorial costs. - Fixed and manufacturing overhead are the same. It is a method of inventory costing in which all variable/fixe
The budgeted total fixed costs are the same for static budget and flexible budget as long as long as the number of units falls within the relevant range. Therefore - the budget is the same amount of fixed costs.
Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base.

24. What is spoilage?
All costs - manufacturing - marketing - distribution and so on incurred beyond the splitoff point that are assignable to each of the specific products identified at the splitoff point.
Managers compare how revenue - costs - and contribution margin change across various alternatives then they choose the alternative that maximizes operating income. It also expands the use of information provided by breakeven analysis. Furthermore - i
Is units of production whether fully or partially completed that do not meet the specifications required by customers for good units and that are discarded or sold at reduced prices.
When a joint production process yields one product with a high total sales value - compared with total sales values of other products of the process.

25. Rework
Allocates support-department costs to operating departments by fully recognizing the mutual services provided among all support departments. It fully incorporates interdepartmental relationships into the support-department cost allocation.
We use reciprocal method to have accurate service department cost allocations.
Is units of production that do not meet the specifications required by customers but that are subsequently repaired and sold as good finished units.
Tanning cream and Instant cocoa mix

26. Main product
Cocoa beans
Allocates joint costs to joint products produced during the accounting period on the basis of the relative total sales value at the splitoff point.
The normal spoilage is the spoilage related to the good units produced - normal spoilage rates are computed by dividing units or normal spoilage by total good units completed - not total actual units started in production.
All costs - manufacturing - marketing - distribution and so on incurred beyond the splitoff point that are assignable to each of the specific products identified at the splitoff point.

27. Joint product
Are outcomes that are measured in numerical terms. Some quantitative factors are financial; examples include the cost of direct materials - direct manufacturing labor - and marketing. Other quantitative factors are nonfinancial; they can be measured
When a joint production process yields two or more products with high total sales values compared with the total sales values of other products - if any.
Are expected future costs that differ among alternative courses of action being considered. Relevant costs must occur in the future and differ among the alternative courses of action.
Is a demand-pull manufacturing system in which each component in a production line is produced as soon as - and only when - needed by the next step in the production line. This system achieves close coordination among workstations. It smoothes the fl

28. Main product
When a joint production process yields one product with a high total sales value - compared with total sales values of other products of the process.
Allocates joint costs to joint products produced during the accounting period on the basis of the relative total sales value at the splitoff point.
Costing system in which the cost object is masses of identical or similar units of a product or service.
Allocates joint costs using market base data such as revenues.

29. What is contribution margin?
Predicted or forecasted cost (future cost) as distinguished from an actual or historical cost.
Costing system in which the cost object is masses of identical or similar units of a product or service.
Qualitative costs and benefits (those costs and benefits that are non-quantifiable and/or immeasurable within the scope of this analysis) were determined based on the literature review and information gathering process.
It is the marginal profit per unit sale. The difference between total revenues and total revenues cost. It indicates why operating income changes as the number of units sold changes. The difference between total revenues minus total variable costs.

30. Use of cost drivers in ABC system

31. What is cost allocation?
Assignment of indirect costs to a particular cost object.
Is units of production that do not meet the specifications required by customers but that are subsequently repaired and sold as good finished units.
Variable manufacturing overhead costs
Cost allocation method that partially recognizes the mutual services provided among all support departments. Also called sequential allocation method.

32. When do we use job order costing?
Allocation method that classifies costs in each cost pool into two pools (a variable-cost pool and a fixed-cost pool) with each pool using a different cost-allocation base.
When the cost object is a distinct product or service called a job. Job costing systems accumulate costs separately for each product or service. Work is broken into jobs; each job is tracked separately
Variable manufacturing overhead costs
All costs - manufacturing - marketing - distribution and so on incurred beyond the splitoff point that are assignable to each of the specific products identified at the splitoff point.

33. What is variance?
Allocates joint costs to joint products produced during the accounting period on the basis of the relative total sales value at the splitoff point.
The difference between actual results and expected performance. The expected performance is also called budgeted performance - which is a point of reference for making comparisons.
Past manufacturing hourly wage rate and past manufacturing labor costs. Historical costs themselves are past costs that therefore are irrelevant to decision making. Managers divide the outcomes of decisions into two broad categories.
When the cost object is a distinct product or service called a job. Job costing systems accumulate costs separately for each product or service. Work is broken into jobs; each job is tracked separately

34. Direct method allocation

35. What are historical costs?
They are expected future costs and relevant revenues are expected future revenues that differ among the alternative courses of action being considered. In order to be relevant costs and relevant revenues - they must: Occur in the future - every decis
Past manufacturing hourly wage rate and past manufacturing labor costs. Historical costs themselves are past costs that therefore are irrelevant to decision making. Managers divide the outcomes of decisions into two broad categories.
Qualitative costs and benefits (those costs and benefits that are non-quantifiable and/or immeasurable within the scope of this analysis) were determined based on the literature review and information gathering process.
It is the marginal profit per unit sale. The difference between total revenues and total revenues cost. It indicates why operating income changes as the number of units sold changes. The difference between total revenues minus total variable costs.

36. When do we use reciprocal allocation?
Allocates joint costs using market base data such as revenues.
We use reciprocal method to have accurate service department cost allocations.
Department that directly adds value to a product or service. Also called a production department in manufacturing companies.
Step 1 - Identify the problem and uncertainties Step 2 - Obtain information Step 3 - Make predictions about the future Step 4 - Make decisions by choosing among alternatives Step 5 - Implement the decision - Evaluate Performance - and learn

37. Actual cost allocation
Assignment of indirect costs to a particular cost object.
Allocation method that classifies costs in each cost pool into two pools (a variable-cost pool and a fixed-cost pool) with each pool using a different cost-allocation base.
The difference between actual results and expected performance. The expected performance is also called budgeted performance - which is a point of reference for making comparisons.
When actual rates are used for cost allocation - managers do not know the rates until the end of the budget period. If actual rates are used - the efficiency of the supplier department affects the cost allocated to the user department.

38. Sales Value at splitoff method...
Is a cost allocation method that fully recognizes the mutual services provided among all support departments.
Allocates joint costs to joint products produced during the accounting period on the basis of a compatible physical measure - such as the relative weight - quantity - or value at the split off point.
Allocates support-department costs to operating departments by fully recognizing the mutual services provided among all support departments. It fully incorporates interdepartmental relationships into the support-department cost allocation.
Allocates joint costs to joint products produced during the accounting period on the basis of the relative total sales value at the splitoff point.

39. Why do we allocate costs?
A. to compute inventory cost and cost of goods sold b. to determine cost reimbursement under contracts c. for insurance settlement computations d. for rate regulation e. for litigation purposes
It is the marginal profit per unit sale. The difference between total revenues and total revenues cost. It indicates why operating income changes as the number of units sold changes. The difference between total revenues minus total variable costs.
It is a method of inventory costing in which all variable manufacturing costs (direct and indirect) are included as inventoriable costs.
When the actual price of a product is less than the budgeted price - resulting in an increase in operating income.

40. Reciprocal allocation method
The products of a joint production process that have low total sales values compared with the total sales value of the main product or of joint products.
Department that provides the services that assist other internal departments (operating departments and other support departments) in the company.
Allocates support-department costs to operating departments by fully recognizing the mutual services provided among all support departments. It fully incorporates interdepartmental relationships into the support-department cost allocation.
Is spoilage that is not inherent in a particular production process and would not arise under efficient (normal) operating condition. Abnormal spoilage is usually regarded as avoidable and controllable. Cost of abnormal spoilage is written off as a l

41. Splitoff point
Cost allocation method that fully recognizes the mutual services provided among all support departments. Also called matrix-method.
Is a cost allocation method that fully recognizes the mutual services provided among all support departments.
The juncture in a point-production process when two or more products become separately identifiable
The sensitivity of costs to changes in production or sales volume. Better collaboration - planning - and motivation are a result of different sets of budget decisions. It helps managers make strategic and operating decisions that have a positive envi

42. Approach one of Joint Costs
Allocates joint costs using market base data such as revenues.
When a joint production process yields one product with a high total sales value - compared with total sales values of other products of the process.
Are outcomes that are measured in numerical terms. Some quantitative factors are financial; examples include the cost of direct materials - direct manufacturing labor - and marketing. Other quantitative factors are nonfinancial; they can be measured
Allocates joint costs to joint products produced during the accounting period on the basis of the relative total sales value at the splitoff point.

43. Intermediate products (Separable products at the split off point)
Cocoa butter and Cocoa powder
Is a mathematical description of how a cost changes with changes in the level of an activity relating to that cost. Pg.341 It can be plotted on a graph by measuring the level of an activity - such as number of batches produces or number of machines u
Used to estimate the cost function of individual activities - the manager collects data on the activity's costs and the quantities of competing cost drivers over a reasonably long period. Managers must identify a cost driver for each activity in the
Is a cost allocation method that fully recognizes the mutual services provided among all support departments.

44. Quantitative costs
Are outcomes that are measured in numerical terms. Some quantitative factors are financial; examples include the cost of direct materials - direct manufacturing labor - and marketing. Other quantitative factors are nonfinancial; they can be measured
When the actual price of a product is less than the budgeted price - resulting in an increase in operating income.
When a joint production process yields two or more products with high total sales values compared with the total sales values of other products - if any.
Department that provides the services that assist other internal departments (operating departments and other support departments) in the company.

45. Supporting department (service department)
A. to compute inventory cost and cost of goods sold b. to determine cost reimbursement under contracts c. for insurance settlement computations d. for rate regulation e. for litigation purposes
Approach 2 Allocates joint cost using Physical measures - such as the weight - quantity (physical units) or volume of the joint products.
Are expected future costs that differ among alternative courses of action being considered. Relevant costs must occur in the future and differ among the alternative courses of action.
Department that provides the services that assist other internal departments (operating departments and other support departments) in the company.

46. Equivalent unit computation in process costing.
Is spoilage that is not inherent in a particular production process and would not arise under efficient (normal) operating condition. Abnormal spoilage is usually regarded as avoidable and controllable. Cost of abnormal spoilage is written off as a l
Derived amount of output units that (a) takes the quantity of each output (factor of production) in units completed and in incomplete units of work in process and (b) converts the quantity of input into the amount of completed output units that could
Predicted or forecasted cost (future cost) as distinguished from an actual or historical cost.
Approach 2 Allocates joint cost using Physical measures - such as the weight - quantity (physical units) or volume of the joint products.

47. Dual rate method
When a joint production process yields one product with a high total sales value - compared with total sales values of other products of the process.
Allocation method that classifies costs in each cost pool into two pools (a variable-cost pool and a fixed-cost pool) with each pool using a different cost-allocation base.
Department that directly adds value to a product or service. Also called a production department in manufacturing companies.
When actual rates are used for cost allocation - managers do not know the rates until the end of the budget period. If actual rates are used - the efficiency of the supplier department affects the cost allocated to the user department.

48. What is the value of feedback in decision-making?
Is a cost of a production process that yields multiple products simultaneously.
Past manufacturing hourly wage rate and past manufacturing labor costs. Historical costs themselves are past costs that therefore are irrelevant to decision making. Managers divide the outcomes of decisions into two broad categories.
The products of a joint production process that have low total sales values compared with the total sales value of the main product or of joint products.
Feedback is important because it might affect future predictions - the prediction methods used - the way choices are made - or the implementation of the decision.

49. Who are users of management accounting information?
Is a demand-pull manufacturing system in which each component in a production line is produced as soon as - and only when - needed by the next step in the production line. This system achieves close coordination among workstations. It smoothes the fl
Managers
Department that directly adds value to a product or service. Also called a production department in manufacturing companies.
Used when implementing strategy. It is the quantitative expression of a proposed plan of action by management and is an aid to coordinating what needs to be done to execute that plan.

50. How is Cost Volume Profit used?
Allocation method that classifies costs in each cost pool into two pools (a variable-cost pool and a fixed-cost pool) with each pool using a different cost-allocation base.
Costing system in which the cost object is masses of identical or similar units of a product or service.
Managers compare how revenue - costs - and contribution margin change across various alternatives then they choose the alternative that maximizes operating income. It also expands the use of information provided by breakeven analysis. Furthermore - i
Special orders are used when a company receives a onetime only unexpected order that will not affect the company's current fixed manufacturing costs - nor will the special order affect the selling price or the quantity of items sold to regular custom