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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. Single-rate method
Feedback is important because it might affect future predictions - the prediction methods used - the way choices are made - or the implementation of the decision.
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
Assignment of indirect costs to a particular cost object.
Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base.

2. Joint product
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 a joint production process yields one product with a high total sales value - compared with total sales values of other products of the process.
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.

3. What is spoilage?
The juncture in a point-production process when two or more products become separately identifiable
Cocoa butter and Cocoa powder
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.

4. Physical-Measure Method (Physical Units)...
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.
Cost allocation method that partially recognizes the mutual services provided among all support departments. Also called sequential 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
Cost allocation method that allocates each support department's costs to operating departments only

5. Budgeted 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
Predicted or forecasted cost (future cost) as distinguished from an actual or historical cost.
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.
When the actual price of a product is less than the budgeted price - resulting in an increase in operating income.

6. Net realizable value (NRV) method...
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.
A formal method of making a choice between different courses of action - which often involves both quantitative and qualitative analyses.
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
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. Quantitative costs
We use reciprocal method to have accurate service department cost allocations.
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
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.

8. Operating department
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.
A formal method of making a choice between different courses of action - which often involves both quantitative and qualitative analyses.
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

9. Main product
Cocoa beans
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.
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
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

10. 4 overhead variances.
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
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
Variable manufacturing overhead costs
Allocates joint costs using market base data such as revenues.

11. Approach one of Joint Costs
Is a cost of a production process that yields multiple products simultaneously.
Managers
Allocates joint costs using market base data such as revenues.
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

12. Actual cost allocation
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
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.
Cost allocation method that partially recognizes the mutual services provided among all support departments. Also called sequential allocation method.

13. When do we have a favorable price variance?
Department that provides the services that assist other internal departments (operating departments and other support departments) in the company.
Tanning cream and Instant cocoa mix
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
When the actual price of a product is less than the budgeted price - resulting in an increase in operating income.

14. 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
Variable manufacturing overhead costs
The juncture in a point-production process when two or more products become separately identifiable
Cost allocation method that partially recognizes the mutual services provided among all support departments. Also called sequential allocation method.

15. Why do we allocate costs?
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
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
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
Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base.

16. Purpose of a budget?
Is a cost allocation method that fully recognizes the mutual services provided among all support departments.
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.
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 costs to joint products produced during the accounting period on the basis of the relative total sales value at the splitoff point.

17. When to use special order?

18. End products (Separable products at the split off point)
Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base.
Cost allocation method that fully recognizes the mutual services provided among all support departments. Also called matrix-method.
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

19. Abnormal 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
When the actual price of a product is less than the budgeted price - resulting in an increase in operating income.
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
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

20. Reciprocal method allocation
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
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.
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.

21. Supporting department (service department)
Is a cost allocation method that fully recognizes the mutual services provided among all support departments.
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
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
Department that provides the services that assist other internal departments (operating departments and other support departments) in the company.

22. Joint cost
Is a cost of a production process that yields multiple products simultaneously.
A formal method of making a choice between different courses of action - which often involves both quantitative and qualitative analyses.
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
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

23. Normal Spoilage
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 difference between actual results and expected performance. The expected performance is also called budgeted performance - which is a point of reference for making comparisons.
Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base.
Cocoa beans

24. 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.
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
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.

25. What are the steps in the decision-making model?
Is residual material that results from manufacturing a product. It has low total sales value compared with the total sales value of the product.
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 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
Department that directly adds value to a product or service. Also called a production department in manufacturing companies.

26. How is Cost Volume Profit used?
Is a cost of a production process that yields multiple products simultaneously.
Allocates joint costs using market base data such as revenues.
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.
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

27. Approach two of Joint Costs
Cost allocation method that partially recognizes the mutual services provided among all support departments. Also called sequential allocation method.
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.
Approach 2 Allocates joint cost using Physical measures - such as the weight - quantity (physical units) or volume of the joint products.
Is residual material that results from manufacturing a product. It has low total sales value compared with the total sales value of the product.

28. Intermediate products (Separable products at the split off point)
Feedback is important because it might affect future predictions - the prediction methods used - the way choices are made - or the implementation of the decision.
Cocoa butter and Cocoa powder
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
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

29. Fixed costs in relation to flexible budget?
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.
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.

30. Equivalent unit computation in process costing.
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.
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.
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
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

31. how do we account for normal spoilage?
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 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.
Is residual material that results from manufacturing a product. It has low total sales value compared with the total sales value of the product.
Predicted or forecasted cost (future cost) as distinguished from an actual or historical cost.

32. When do we use reciprocal allocation?
Cocoa butter and Cocoa powder
We use reciprocal method to have accurate service department cost allocations.
Cost allocation method that fully recognizes the mutual services provided among all support departments. Also called matrix-method.
Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base.

33. 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.
Managers
Allocates joint costs using market base data such as revenues.
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

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

35. What is cost behavior?
Predicted or forecasted cost (future cost) as distinguished from an actual or historical cost.
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 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
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

36. Why would we use Just-in-time production system? Just-in-time (JIT) production (also called lean production)
Predicted or forecasted cost (future cost) as distinguished from an actual or historical cost.
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
Approach 2 Allocates joint cost using Physical measures - such as the weight - quantity (physical units) or volume of the joint products.
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.

37. Who are users of management accounting information?
Allocates joint costs to joint products produced during the accounting period on the basis of the relative total sales value at the splitoff point.
Managers
Variable manufacturing overhead costs
Cost allocation method that allocates each support department's costs to operating departments only

38. Step down method allocation
Assignment of indirect costs to a particular cost object.
Approach 2 Allocates joint cost using Physical measures - such as the weight - quantity (physical units) or volume of the joint products.
When the actual price of a product is less than the budgeted price - resulting in an increase in operating income.
Cost allocation method that partially recognizes the mutual services provided among all support departments. Also called sequential allocation method.

39. Constant Gross-Marging Percentage NRV method...
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
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
Cost allocation method that allocates each support department's costs to operating departments only
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.

40. What are sunk 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.
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 one product with a high total sales value - compared with total sales values of other products of the process.
Past costs because they are unavoidable and cannot be changed no matter What action is taken.

41. Know the cost function
Managers
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
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.
Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base.

42. Reciprocal allocation
It is a method of inventory costing in which all variable manufacturing costs (direct and indirect) are included as inventoriable costs.
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 the relative total sales value at the splitoff 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

43. What is process costing?
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
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

44. When do we use absorption costing?
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
Tanning cream and Instant cocoa mix
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

45. 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
When the actual price of a product is less than the budgeted price - resulting in an increase in operating income.
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.

46. 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.
Predicted or forecasted cost (future cost) as distinguished from an actual or historical cost.
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.

47. Main 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
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
We use reciprocal method to have accurate service department cost allocations.
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.

48. Use of cost drivers in ABC system

49. Direct method allocation

50. Relevant costs for decision making?
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.
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 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
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.