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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. End products (Separable products at the split off point)
The normal spoilage is the spoilage related to the good units produced - normal spoilage rates are computed by dividing units or normal spoilage by total good units completed - not total actual units started in production.
We use reciprocal method to have accurate service department cost allocations.
Allocates joint costs using market base data such as revenues.
Tanning cream and Instant cocoa mix

2. When do we use absorption costing?
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.
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
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
Is units of production that do not meet the specifications required by customers but that are subsequently repaired and sold as good finished units.

3. Sales Value at splitoff method...
Cost allocation method that allocates each support department's costs to operating departments only
Variable manufacturing overhead 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.

4. Why do we allocate costs?
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
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.
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.

5. Rework
Is units of production that do not meet the specifications required by customers but that are subsequently repaired and sold as good finished units.
Variable manufacturing overhead costs
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
Feedback is important because it might affect future predictions - the prediction methods used - the way choices are made - or the implementation of the decision.

6. What are historical costs?
Past costs because they are unavoidable and cannot be changed no matter What action is taken.
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
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.
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.

7. Who are users of management accounting information?
Cost allocation method that fully recognizes the mutual services provided among all support departments. Also called matrix-method.
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.
Predicted or forecasted cost (future cost) as distinguished from an actual or historical cost.
Managers

8. What are the steps in the decision-making model?
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
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
Department that directly adds value to a product or service. Also called a production department in manufacturing companies.
Step 1 - Identify the problem and uncertainties Step 2 - Obtain information Step 3 - Make predictions about the future Step 4 - Make decisions by choosing among alternatives Step 5 - Implement the decision - Evaluate Performance - and learn

9. Equivalent unit computation in process costing.
When the actual price of a product is less than the budgeted price - resulting in an increase in operating income.
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
Allocates joint costs to joint products produced during the accounting period on the basis of the relative total sales value at the splitoff point.
Cost allocation method that partially recognizes the mutual services provided among all support departments. Also called sequential allocation method.

10. Quantitative costs
Cost allocation method that allocates each support department's costs to operating departments only
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.
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
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

11. 4 overhead variances.
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
The juncture in a point-production process when two or more products become separately identifiable
Variable manufacturing overhead 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.

12. 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.
Cocoa beans
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
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.

13. What is cost allocation?
Allocates support-department costs to operating departments by fully recognizing the mutual services provided among all support departments. It fully incorporates interdepartmental relationships into the support-department cost allocation.
Allocates joint costs to joint products produced during the accounting period on the basis of the relative total sales value at the splitoff point.
Assignment of indirect costs to a particular cost object.
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.

14. Use of cost drivers in ABC system

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15. Separable costs
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
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.
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.
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.

16. Approach one of Joint Costs
Department that directly adds value to a product or service. Also called a production department in manufacturing companies.
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
Allocates joint costs using market base data such as revenues.
Is a cost of a production process that yields multiple products simultaneously.

17. What is variable costing?
It is a method of inventory costing in which all variable manufacturing costs (direct and indirect) are included as inventoriable costs.
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.
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 a cost allocation method that fully recognizes the mutual services provided among all support departments.

18. 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.
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
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 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

19. Reciprocal allocation method
The juncture in a point-production process when two or more products become separately identifiable
We use reciprocal method to have accurate service department cost allocations.
Managers
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.

20. Budgeted costs
Cocoa beans
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
Cost allocation method that allocates each support department's costs to operating departments only
Predicted or forecasted cost (future cost) as distinguished from an actual or historical cost.

21. Single-rate method
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 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 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 allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base.

22. What are relevant costs?
Managers
A formal method of making a choice between different courses of action - which often involves both quantitative and qualitative analyses.
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
Allocates joint costs using market base data such as revenues.

23. 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
Cocoa beans
Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base.

24. What is variance?
Feedback is important because it might affect future predictions - the prediction methods used - the way choices are made - or the implementation of the decision.
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.
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 difference between actual results and expected performance. The expected performance is also called budgeted performance - which is a point of reference for making comparisons.

25. Joint product
Variable manufacturing overhead costs
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.
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.
Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base.

26. What are sunk costs?
Assignment of indirect costs to a particular cost object.
When a joint production process yields two or more products with high total sales values compared with the total sales values of other products - if any.
Past costs because they are unavoidable and cannot be changed no matter What action is taken.
Department that directly adds value to a product or service. Also called a production department in manufacturing companies.

27. Byproduct
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 products of a joint production process that have low total sales values compared with the total sales value of the main product or of joint products.
Allocates 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.
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.

28. Supporting department (service department)
Tanning cream and Instant cocoa mix
Department that provides the services that assist other internal departments (operating departments and other support departments) in the company.
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
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.

29. 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.
Cost allocation method that partially recognizes the mutual services provided among all support departments. Also called sequential allocation method.
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

30. 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
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.
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 units of production that do not meet the specifications required by customers but that are subsequently repaired and sold as good finished units.

31. Main product
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 beans
Past costs because they are unavoidable and cannot be changed no matter What action is taken.
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

32. 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.
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 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.
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

33. Step down method allocation
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 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
Cost allocation method that partially recognizes the mutual services provided among all support departments. Also called sequential allocation method.
Managers

34. Net realizable value (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
Cocoa butter and Cocoa powder
Cocoa beans
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

35. 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.
When the actual price of a product is less than the budgeted price - resulting in an increase in operating income.
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
Past costs because they are unavoidable and cannot be changed no matter What action is taken.

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

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

38. When do we use job order costing?
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
Past costs because they are unavoidable and cannot be changed no matter What action is taken.
Allocates joint costs to joint products produced during the accounting period on the basis of the relative total sales value at the splitoff point.
Cost allocation method that allocates each support department's costs to operating departments only

39. Operating department
Cost allocation method that partially recognizes the mutual services provided among all support departments. Also called sequential allocation method.
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 costs to joint products produced during the accounting period on the basis of the relative total sales value at the splitoff point.
Department that directly adds value to a product or service. Also called a production department in manufacturing companies.

40. Abnormal 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.
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 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
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.

41. 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.
We use reciprocal method to have accurate service department cost allocations.
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
Approach 2 Allocates joint cost using Physical measures - such as the weight - quantity (physical units) or volume of the joint products.

42. Intermediate products (Separable products at the split off point)
Is a cost allocation method that fully recognizes the mutual services provided among all support departments.
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.
Cocoa butter and Cocoa powder
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.

43. Splitoff point
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 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
It is a method of inventory costing in which all variable manufacturing costs (direct and indirect) are included as inventoriable costs.

44. Normal Spoilage
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 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 a joint production process yields one product with a high total sales value - compared with total sales values of other products of the process.
Are 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. What is the value of feedback in decision-making?
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.
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

46. What is spoilage?
When the actual price of a product is less than the budgeted price - resulting in an increase in operating income.
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.
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.
Assignment of indirect costs to a particular cost object.

47. Reciprocal method allocation
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 fully recognizes the mutual services provided among all support departments. Also called matrix-method.
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 a cost allocation method that fully recognizes the mutual services provided among all support departments.

48. How do we account for abnormal spoilage?
Costing system in which the cost object is masses of identical or similar units of a product or service.
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
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
Cost allocation method that allocates each support department's costs to operating departments only

49. Approach two of Joint Costs
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
Approach 2 Allocates joint cost using Physical measures - such as the weight - quantity (physical units) or volume of the joint products.
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.

50. When do we use reciprocal allocation?
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
We use reciprocal method to have accurate service department cost allocations.
Cocoa beans
Predicted or forecasted cost (future cost) as distinguished from an actual or historical cost.