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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. What is cost behavior?
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.
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.
Feedback is important because it might affect future predictions - the prediction methods used - the way choices are made - or the implementation of the decision.
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

2. Qualitative costs
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.
The juncture in a point-production process when two or more products become separately identifiable
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
Approach 2 Allocates joint cost using Physical measures - such as the weight - quantity (physical units) or volume of the joint products.

3. Net realizable value (NRV) method...
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
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
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.
Cost allocation method that fully recognizes the mutual services provided among all support departments. Also called matrix-method.

4. Main product
Variable manufacturing overhead costs
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
Cocoa beans
Managers

5. Intermediate products (Separable products at the split off point)
Costing system in which the cost object is masses of identical or similar units of a product or service.
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
Cocoa butter and Cocoa powder
Department that provides the services that assist other internal departments (operating departments and other support departments) in the company.

6. What is process costing?
Costing system in which the cost object is masses of identical or similar units of a product or service.
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
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
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

7. Reciprocal allocation method
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
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
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.
Variable manufacturing overhead costs

8. End products (Separable products at the split off point)
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
When the actual price of a product is less than the budgeted price - resulting in an increase in operating income.
We use reciprocal method to have accurate service department cost allocations.
Tanning cream and Instant cocoa mix

9. 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.
Predicted or forecasted cost (future cost) as distinguished from an actual or historical cost.
A formal method of making a choice between different courses of action - which often involves both quantitative and qualitative analyses.
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

10. What are sunk costs?
Allocates joint costs using market base data such as revenues.
Past costs because they are unavoidable and cannot be changed no matter What action is taken.
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
Tanning cream and Instant cocoa mix

11. What is the value of feedback in decision-making?
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 juncture in a point-production process when two or more products become separately identifiable
Feedback is important because it might affect future predictions - the prediction methods used - the way choices are made - or the implementation of the decision.
Is residual material that results from manufacturing a product. It has low total sales value compared with the total sales value of the product.

12. 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
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
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.
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

13. Approach one of Joint Costs
Cocoa butter and Cocoa powder
Allocates joint costs using market base data such as revenues.
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
Variable manufacturing overhead costs

14. Supporting department (service department)
Department that provides the services that assist other internal departments (operating departments and other support departments) in the company.
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.
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
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.

15. Use of cost drivers in ABC system

16. Joint product
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.
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.
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
A formal method of making a choice between different courses of action - which often involves both quantitative and qualitative analyses.

17. Rework
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.
Cocoa butter and Cocoa powder
Allocates joint costs using market base data such as revenues.
Is units of production that do not meet the specifications required by customers but that are subsequently repaired and sold as good finished units.

18. What are historical costs?
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
Department that provides the services that assist other internal departments (operating departments and other support departments) in the company.
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.

19. What is spoilage?
Is units of production that do not meet the specifications required by customers but that are subsequently repaired and sold as good finished units.
We use reciprocal method to have accurate service department cost allocations.
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
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.

20. What is cost allocation?
Assignment of indirect costs to a particular cost object.
We use reciprocal method to have accurate service department cost allocations.
Allocates joint costs using market base data such as revenues.
Department that directly adds value to a product or service. Also called a production department in manufacturing companies.

21. Direct method allocation

22. Abnormal Spoilage
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 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
Cocoa butter and Cocoa powder
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.

23. Normal Spoilage
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.
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
Tanning cream and Instant cocoa mix
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

24. When do we use reciprocal allocation?
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.
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.
We use reciprocal method to have accurate service department cost allocations.
Cocoa beans

25. What is contribution margin?
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
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.
Is units of production that do not meet the specifications required by customers but that are subsequently repaired and sold as good finished 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.

26. Sales Value at splitoff method...
Allocates joint costs to joint products produced during the accounting period on the basis of the relative total sales value at the splitoff point.
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
Department that provides the services that assist other internal departments (operating departments and other support departments) in the company.
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.

27. 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.
Predicted or forecasted cost (future cost) as distinguished from an actual or historical cost.
Is a cost allocation method that fully recognizes the mutual services provided among all support departments.
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.

28. Actual cost allocation
Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base.
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.
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.
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

29. Why would we use Just-in-time production system? Just-in-time (JIT) production (also called lean production)
Is residual material that results from manufacturing a product. It has low total sales value compared with the total sales value of the product.
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.
Cost allocation method that allocates each support department's costs to operating departments only
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

30. Constant Gross-Marging Percentage NRV method...
Allocates joint costs to joint products produced during the accounting period on the basis of the relative total sales value at the splitoff point.
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.
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
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.

31. Know the cost function
Department that directly adds value to a product or service. Also called a production department in manufacturing companies.
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.
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

32. Scrap
Is residual material that results from manufacturing a product. It has low total sales value compared with the total sales value of the product.
Is a cost of a production process that yields multiple products simultaneously.
Costing system in which the cost object is masses of identical or similar units of a product or service.
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.

33. Budgeted costs
Is a cost of a production process that yields multiple products simultaneously.
Predicted or forecasted cost (future cost) as distinguished from an actual or historical cost.
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
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.

34. Splitoff point
The juncture in a point-production process when two or more products become separately identifiable
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
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
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

35. Separable costs
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
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.
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
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.

36. Single-rate 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.
Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base.
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 residual material that results from manufacturing a product. It has low total sales value compared with the total sales value of the product.

37. Reciprocal allocation
Is a cost allocation method that fully recognizes the mutual services provided among all support departments.
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.
Assignment of indirect costs to a particular cost object.
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

38. Step down method allocation
Past costs because they are unavoidable and cannot be changed no matter What action is taken.
Cost allocation method that partially recognizes the mutual services provided among all support departments. Also called sequential allocation method.
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
Department that directly adds value to a product or service. Also called a production department in manufacturing companies.

39. Reciprocal method allocation
Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base.
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 the actual price of a product is less than the budgeted price - resulting in an increase in operating income.
Cost allocation method that fully recognizes the mutual services provided among all support departments. Also called matrix-method.

40. What are relevant 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
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
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.
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.

41. Why do we allocate costs?
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.
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
Approach 2 Allocates joint cost using Physical measures - such as the weight - quantity (physical units) or volume of the joint products.
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

42. How is Cost Volume Profit used?
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.
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
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
Assignment of indirect costs to a particular cost object.

43. how do we account for normal spoilage?
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.
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.
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.
Managers

44. Dual rate method
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.
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
Cocoa butter and Cocoa powder
Cost allocation method that fully recognizes the mutual services provided among all support departments. Also called matrix-method.

45. Approach two of Joint Costs
Cost allocation method that allocates each support department's costs to operating departments only
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
Approach 2 Allocates joint cost using Physical measures - such as the weight - quantity (physical units) or volume of the joint products.
Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base.

46. 4 overhead variances.
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.
Variable manufacturing overhead costs
Is units of production that do not meet the specifications required by customers but that are subsequently repaired and sold as good finished units.
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.

47. Byproduct
Managers
Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base.
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.
The juncture in a point-production process when two or more products become separately identifiable

48. What is a decision model?
A formal method of making a choice between different courses of action - which often involves both quantitative and qualitative analyses.
We use reciprocal method to have accurate service department cost allocations.
Predicted or forecasted cost (future cost) as distinguished from an actual or historical cost.
The juncture in a point-production process when two or more products become separately identifiable

49. Joint cost
It is a method of inventory costing in which all variable manufacturing costs (direct and indirect) are included as inventoriable costs.
Cost allocation method that partially recognizes the mutual services provided among all support departments. Also called sequential allocation method.
Cocoa butter and Cocoa powder
Is a cost of a production process that yields multiple products simultaneously.

50. When do we use job order costing?
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
Is a cost of a production process that yields multiple products simultaneously.
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
Cost allocation method that partially recognizes the mutual services provided among all support departments. Also called sequential allocation method.