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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. Supporting department (service department)
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.
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 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.

2. Quantitative 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 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.
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
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

3. Net realizable value (NRV) method...
Tanning cream and Instant cocoa mix
Feedback is important because it might affect future predictions - the prediction methods used - the way choices are made - or the implementation of the decision.
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
Past costs because they are unavoidable and cannot be changed no matter What action is taken.

4. Fixed costs in relation to flexible budget?
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.
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
Is units of production that do not meet the specifications required by customers but that are subsequently repaired and sold as good finished units.
A formal method of making a choice between different courses of action - which often involves both quantitative and qualitative analyses.

5. Why would we use Just-in-time production system? Just-in-time (JIT) production (also called lean production)
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.
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
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
Assignment of indirect costs to a particular cost object.

6. When do we use job order costing?
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.
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 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 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

7. Equivalent unit computation in process costing.
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.
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
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
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

8. What are sunk costs?
Feedback is important because it might affect future predictions - the prediction methods used - the way choices are made - or the implementation of the decision.
Department that directly adds value to a product or service. Also called a production department in manufacturing companies.
Past costs because they are unavoidable and cannot be changed no matter What action is taken.
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

9. When to use special order?

10. Joint product
Managers
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 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.
Assignment of indirect costs to a particular cost object.

11. Normal Spoilage
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
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
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
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.

12. Single-rate 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
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
Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base.
Is a cost allocation method that fully recognizes the mutual services provided among all support departments.

13. 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.
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.
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.
Variable manufacturing overhead costs

14. Use of cost drivers in ABC system

15. What is the value of feedback in decision-making?
Cocoa butter and Cocoa powder
Feedback is important because it might affect future predictions - the prediction methods used - the way choices are made - or the implementation of the decision.
Cost allocation method that partially recognizes the mutual services provided among all support departments. Also called sequential allocation 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

16. Physical-Measure Method (Physical Units)...
Cost allocation method that fully recognizes the mutual services provided among all support departments. Also called matrix-method.
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
It is a method of inventory costing in which all variable manufacturing costs (direct and indirect) are included as inventoriable costs.
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.

17. Reciprocal allocation
Is a cost allocation method that fully recognizes the mutual services provided among all support departments.
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
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.
A formal method of making a choice between different courses of action - which often involves both quantitative and qualitative analyses.

18. What are historical costs?
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 residual material that results from manufacturing a product. It has low total sales value compared with the total sales value of the product.
Assignment of indirect costs to a particular cost object.
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.

19. When do we have a favorable price variance?
Managers
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 the actual price of a product is less than the budgeted price - resulting in an increase in operating income.
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. Separable 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.
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.
It is a method of inventory costing in which all variable manufacturing costs (direct and indirect) are included as inventoriable costs.
Allocates joint costs to joint products produced during the accounting period on the basis of the relative total sales value at the splitoff point.

21. Scrap
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.
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.
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

22. What is variable costing?
Cost allocation method that allocates each support department's costs to operating departments only
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 a method of inventory costing in which all variable manufacturing costs (direct and indirect) are included as inventoriable 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

23. Approach two of Joint Costs
Allocates joint costs using market base data such as revenues.
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
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.

24. What are relevant costs?
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
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.
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.

25. 4 overhead variances.
Variable manufacturing overhead costs
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
Tanning cream and Instant cocoa mix
Allocates joint costs using market base data such as revenues.

26. 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.
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
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.
Department that provides the services that assist other internal departments (operating departments and other support departments) in the company.

27. Know the cost function
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 costs because they are unavoidable and cannot be changed no matter What action is taken.
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 directly adds value to a product or service. Also called a production department in manufacturing companies.

28. Qualitative costs
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
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.
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.

29. What is variance?
Is units of production that do not meet the specifications required by customers but that are subsequently repaired and sold as good finished units.
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.
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
Tanning cream and Instant cocoa mix

30. Direct method allocation

31. 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
Is a cost of a production process that yields multiple products simultaneously.
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 using market base data such as revenues.

32. Purpose of a budget?
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
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.
Managers
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. Constant Gross-Marging Percentage NRV method...
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
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
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.
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

34. Splitoff point
A formal method of making a choice between different courses of action - which often involves both quantitative and qualitative analyses.
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
The juncture in a point-production process when two or more products become separately identifiable
Is a cost of a production process that yields multiple products simultaneously.

35. Main product
We use reciprocal method to have accurate service department cost allocations.
Cocoa beans
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.
Allocates joint costs using market base data such as revenues.

36. Sales Value at splitoff method...
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
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 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
Allocates joint costs to joint products produced during the accounting period on the basis of the relative total sales value at the splitoff point.

37. Main product
Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base.
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.
Cocoa beans
Cost allocation method that allocates each support department's costs to operating departments only

38. What is 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.
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
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 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.

39. What are the steps in the decision-making model?
Past costs because they are unavoidable and cannot be changed no matter What action is taken.
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
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

40. How do we account for abnormal spoilage?
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
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 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.

41. Budgeted costs
Predicted or forecasted cost (future cost) as distinguished from an actual or historical cost.
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
Is residual material that results from manufacturing a product. It has low total sales value compared with the total sales value of the product.
A formal method of making a choice between different courses of action - which often involves both quantitative and qualitative analyses.

42. Approach one of Joint Costs
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.
Approach 2 Allocates joint cost using Physical measures - such as the weight - quantity (physical units) or volume of the joint products.
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.
Allocates joint costs using market base data such as revenues.

43. End products (Separable products at the split off point)
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 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
Tanning cream and Instant cocoa mix
Assignment of indirect costs to a particular cost object.

44. What is cost behavior?
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
Variable manufacturing overhead costs
Cocoa beans
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.

45. Abnormal Spoilage
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.
A formal method of making a choice between different courses of action - which often involves both quantitative and qualitative analyses.
Assignment of indirect costs to a particular cost object.
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

46. Step down method allocation
We use reciprocal method to have accurate service department cost allocations.
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.
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.

47. What is cost allocation?
Assignment of indirect costs to a particular cost object.
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
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 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.

48. When do we use reciprocal 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.
We use reciprocal method to have accurate service department cost allocations.
Department that provides the services that assist other internal departments (operating departments and other support departments) in the company.
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

49. Reciprocal allocation method
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
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.
We use reciprocal method to have accurate service department cost allocations.
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.

50. What is process costing?
Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base.
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.
Costing system in which the cost object is masses of identical or similar units of a product or service.
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.