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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. Net realizable value (NRV) 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
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 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
Allocates joint costs using market base data such as revenues.

2. What is cost behavior?
Approach 2 Allocates joint cost using Physical measures - such as the weight - quantity (physical units) or volume of the joint products.
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
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.
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.

3. Supporting department (service department)
Department that provides the services that assist other internal departments (operating departments and other support departments) in the company.
Cost allocation method that partially recognizes the mutual services provided among all support departments. Also called sequential allocation method.
Variable manufacturing overhead 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

4. Operating department
Department that directly adds value to a product or service. Also called a production department in manufacturing companies.
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.
Variable manufacturing overhead 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.

5. 4 overhead variances.
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.
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.
We use reciprocal method to have accurate service department cost allocations.

6. Joint cost
Cost allocation method that partially recognizes the mutual services provided among all support departments. Also called sequential allocation method.
Is a cost of a production process that yields multiple products simultaneously.
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.
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. Scrap
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.
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.
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

8. 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.
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
Allocates joint costs to joint products produced during the accounting period on the basis of the relative total sales value at the splitoff point.
Allocates support-department costs to operating departments by fully recognizing the mutual services provided among all support departments. It fully incorporates interdepartmental relationships into the support-department cost allocation.

9. Direct method allocation

10. Purpose of a budget?
Past costs because they are unavoidable and cannot be changed no matter What action is taken.
Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base.
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.
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

11. How do we account for abnormal spoilage?
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
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
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.

12. What are relevant 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.
We use reciprocal method to have accurate service department cost allocations.
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.

13. Actual cost allocation
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.
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.
Assignment of indirect costs to a particular cost object.
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.

14. Equivalent unit computation in process costing.
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
Approach 2 Allocates joint cost using Physical measures - such as the weight - quantity (physical units) or volume of the joint products.
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
Cost allocation method that fully recognizes the mutual services provided among all support departments. Also called matrix-method.

15. Constant Gross-Marging Percentage NRV method...
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 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.
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

16. End products (Separable products at the split off point)
Allocates support-department costs to operating departments by fully recognizing the mutual services provided among all support departments. It fully incorporates interdepartmental relationships into the support-department cost allocation.
Tanning cream and Instant cocoa mix
Allocation method that classifies costs in each cost pool into two pools (a variable-cost pool and a fixed-cost pool) with each pool using a different cost-allocation base.
Are 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.

17. When do we use reciprocal allocation?
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.
Cocoa butter and Cocoa powder
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.
We use reciprocal method to have accurate service department cost allocations.

18. Quantitative 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.
Are outcomes that are measured in numerical terms. Some quantitative factors are financial; examples include the cost of direct materials - direct manufacturing labor - and marketing. Other quantitative factors are nonfinancial; they can be measured
When a joint production process yields one product with a high total sales value - compared with total sales values of other products of the process.
Tanning cream and Instant cocoa mix

19. Reciprocal method allocation
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.
Is a cost of a production process that yields multiple products simultaneously.
Cost allocation method that allocates each support department's costs to operating departments only

20. Abnormal Spoilage
We use reciprocal method to have accurate service department cost allocations.
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
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
Cocoa beans

21. Know the cost function
Is a cost of a production process that yields multiple products simultaneously.
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
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 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

22. What is 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 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 difference between actual results and expected performance. The expected performance is also called budgeted performance - which is a point of reference for making comparisons.
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.

23. How is Cost Volume Profit used?
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
Approach 2 Allocates joint cost using Physical measures - such as the weight - quantity (physical units) or volume of the joint products.
Managers compare how revenue - costs - and contribution margin change across various alternatives then they choose the alternative that maximizes operating income. It also expands the use of information provided by breakeven analysis. Furthermore - i
Predicted or forecasted cost (future cost) as distinguished from an actual or historical cost.

24. Use of cost drivers in ABC system

25. What are sunk costs?
Past costs because they are unavoidable and cannot be changed no matter What action is taken.
Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base.
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.
Cost allocation method that fully recognizes the mutual services provided among all support departments. Also called matrix-method.

26. Fixed costs in relation to flexible budget?
When a joint production process yields one product with a high total sales value - compared with total sales values of other products of the process.
The 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.
Tanning cream and Instant cocoa mix
Costing system in which the cost object is masses of identical or similar units of a product or service.

27. What is variance?
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 difference between actual results and expected performance. The expected performance is also called budgeted performance - which is a point of reference for making comparisons.
Is a cost of a production process that yields multiple products simultaneously.
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.

28. Approach two of Joint Costs
Approach 2 Allocates joint cost using Physical measures - such as the weight - quantity (physical units) or volume of the joint products.
The juncture in a point-production process when two or more products become separately identifiable
Is units of production whether fully or partially completed that do not meet the specifications required by customers for good units and that are discarded or sold at reduced prices.
Is a demand-pull manufacturing system in which each component in a production line is produced as soon as - and only when - needed by the next step in the production line. This system achieves close coordination among workstations. It smoothes the fl

29. Budgeted costs
Are outcomes that are measured in numerical terms. Some quantitative factors are financial; examples include the cost of direct materials - direct manufacturing labor - and marketing. Other quantitative factors are nonfinancial; they can be measured
Predicted or forecasted cost (future cost) as distinguished from an actual or historical cost.
The juncture in a point-production process when two or more products become separately identifiable
Allocates joint costs to joint products produced during the accounting period on the basis of the relative total sales value at the splitoff point.

30. Splitoff point
Cocoa butter and Cocoa powder
Cost allocation method that allocates each support department's costs to operating departments only
Cost allocation method that fully recognizes the mutual services provided among all support departments. Also called matrix-method.
The juncture in a point-production process when two or more products become separately identifiable

31. Main product
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.
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.
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.

32. Qualitative costs
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
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.
Predicted or forecasted cost (future cost) as distinguished from an actual or historical cost.
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.

33. Main product
Is residual material that results from manufacturing a product. It has low total sales value compared with the total sales value of the product.
Cocoa beans
Is a cost of a production process that yields multiple products simultaneously.
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

34. When do we use absorption costing?
Past costs because they are unavoidable and cannot be changed no matter What action is taken.
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
Variable manufacturing overhead 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

35. Reciprocal allocation
Costing system in which the cost object is masses of identical or similar units of a product or service.
When a joint production process yields two or more products with high total sales values compared with the total sales values of other products - if any.
Is a cost allocation method that fully recognizes the mutual services provided among all support departments.
The juncture in a point-production process when two or more products become separately identifiable

36. Intermediate products (Separable products at the split off point)
Used to estimate the cost function of individual activities - the manager collects data on the activity's costs and the quantities of competing cost drivers over a reasonably long period. Managers must identify a cost driver for each activity in the
Cocoa butter and Cocoa powder
Predicted or forecasted cost (future cost) as distinguished from an actual or historical cost.
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

37. 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 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
Cost allocation method that allocates each support department's costs to operating departments only

38. how do we account for normal spoilage?
All costs - manufacturing - marketing - distribution and so on incurred beyond the splitoff point that are assignable to each of the specific products identified at the splitoff point.
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 actual rates are used for cost allocation - managers do not know the rates until the end of the budget period. If actual rates are used - the efficiency of the supplier department affects the cost allocated to the user department.
Allocates joint costs to joint products produced during the accounting period on the basis of the relative total sales value at the splitoff point.

39. Rework
A formal method of making a choice between different courses of action - which often involves both quantitative and qualitative analyses.
Feedback is important because it might affect future predictions - the prediction methods used - the way choices are made - or the implementation of the decision.
Costing system in which the cost object is masses of identical or similar units of a product or service.
Is units of production that do not meet the specifications required by customers but that are subsequently repaired and sold as good finished units.

40. What is a decision model?
It is a method of inventory costing in which all variable manufacturing costs (direct and indirect) are included as inventoriable costs.
When a joint production process yields two or more products with high total sales values compared with the total sales values of other products - if any.
A formal method of making a choice between different courses of action - which often involves both quantitative and qualitative analyses.
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

41. What is process costing?
Assignment of indirect costs to a particular cost object.
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
Costing system in which the cost object is masses of identical or similar units of a product or service.
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

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

43. Reciprocal allocation method
Department that provides the services that assist other internal departments (operating departments and other support departments) in the company.
Method of inventory costing in which all variable manufacturing costs and all fixed manufacturing costs are included as inventorial costs. - Fixed and manufacturing overhead are the same. It is a method of inventory costing in which all variable/fixe
Allocates 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.
Cocoa beans

44. 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
The normal spoilage is the spoilage related to the good units produced - normal spoilage rates are computed by dividing units or normal spoilage by total good units completed - not total actual units started in production.
The sensitivity of costs to changes in production or sales volume. Better collaboration - planning - and motivation are a result of different sets of budget decisions. It helps managers make strategic and operating decisions that have a positive envi
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

45. Byproduct
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
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.
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
Costing system in which the cost object is masses of identical or similar units of a product or service.

46. Normal Spoilage
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 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
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.

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

48. Step down method allocation
Cost allocation method that fully recognizes the mutual services provided among all support departments. Also called matrix-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.
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 partially recognizes the mutual services provided among all support departments. Also called sequential allocation method.

49. What is the value of feedback in decision-making?
When a joint production process yields two or more products with high total sales values compared with the total sales values of other products - if any.
Feedback is important because it might affect future predictions - the prediction methods used - the way choices are made - or the implementation of the decision.
Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base.
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

50. Why would we use Just-in-time production system? Just-in-time (JIT) production (also called lean production)
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.
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
Cost allocation method that fully recognizes the mutual services provided among all support departments. Also called matrix-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