Test your basic knowledge |

Cost Accounting

Instructions:

Answer 50 questions in 15 minutes.
If you are not ready to take this test, you can study here.
Match each statement with the correct term.
Don't refresh. All questions and answers are randomly picked and ordered every time you load a test.

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. 4 overhead variances.
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
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
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

2. Why do we allocate 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.
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.
A. to compute inventory cost and cost of goods sold b. to determine cost reimbursement under contracts c. for insurance settlement computations d. for rate regulation e. for litigation purposes
Is a 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

3. Direct method allocation

4. 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.
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 spoilage inherent in a particular production process. The cost of normal spoilage are typically included as a component of the cost of goods units manufactured because good units cannot be made without making some units that are spoiled. pp646 is
Is a cost allocation method that fully recognizes the mutual services provided among all support departments.

5. Joint 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.
Is spoilage that is not inherent in a particular production process and would not arise under efficient (normal) operating condition. Abnormal spoilage is usually regarded as avoidable and controllable. Cost of abnormal spoilage is written off as a l
Is residual material that results from manufacturing a product. It has low total sales value compared with the total sales value of the product.
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

6. Net realizable value (NRV) method...
Allocates joint cost to joint products produced during the accounting period on the basis of their relative NRV final sales value minus separable costs. The NRV method is typically used in preference to the sales value at splitoff method - only when
Is a demand-pull manufacturing system in which each component in a production line is produced as soon as - and only when - needed by the next step in the production line. This system achieves close coordination among workstations. It smoothes the fl
Allocates joint costs using market base data such as revenues.
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.

7. Joint cost
Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base.
Is a cost of a production process that yields multiple products simultaneously.
Allocates joint costs using market base data such as revenues.
Past costs because they are unavoidable and cannot be changed no matter What action is taken.

8. What are sunk costs?
We use reciprocal method to have accurate service department cost allocations.
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.
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.

9. What are historical costs?
Cost allocation method that partially recognizes the mutual services provided among all support departments. Also called sequential allocation method.
Allocates joint cost to joint products produced during the accounting period 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
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
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.

10. What is variance?
Cocoa butter and Cocoa powder
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.
Cost allocation method that partially recognizes the mutual services provided among all support departments. Also called sequential allocation method.
Allocation method that classifies costs in each cost pool into two pools (a variable-cost pool and a fixed-cost pool) with each pool using a different cost-allocation base.

11. When do we have a favorable price variance?
Cocoa butter and Cocoa powder
When the actual price of a product is less than the budgeted price - resulting in an increase in operating income.
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.

12. When to use special order?

13. What is the value of feedback in decision-making?
Variable manufacturing overhead costs
Cost allocation method that allocates each support department's costs to operating departments only
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.
Feedback is important because it might affect future predictions - the prediction methods used - the way choices are made - or the implementation of the decision.

14. 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.
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.
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 residual material that results from manufacturing a product. It has low total sales value compared with the total sales value of the product.

15. Reciprocal method allocation
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
Cocoa butter and Cocoa powder
Is a cost allocation method that fully recognizes the mutual services provided among all support departments.
Cost allocation method that fully recognizes the mutual services provided among all support departments. Also called matrix-method.

16. Qualitative costs
Cost allocation method that fully recognizes the mutual services provided among all support departments. Also called matrix-method.
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 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
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.

17. Byproduct
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
Method of inventory costing in which all variable manufacturing costs and all fixed manufacturing costs are included as inventorial costs. - Fixed and manufacturing overhead are the same. It is a method of inventory costing in which all variable/fixe
Allocates joint costs using market base data such as revenues.
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.

18. Step down method allocation
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
Cost allocation method that partially recognizes the mutual services provided among all support departments. Also called sequential allocation method.
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.
The products of a joint production process that have low total sales values compared with the total sales value of the main product or of joint products.

19. Rework
Approach 2 Allocates joint cost using Physical measures - such as the weight - quantity (physical units) or volume of the joint products.
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 costs using market base data such as revenues.
Is units of production that do not meet the specifications required by customers but that are subsequently repaired and sold as good finished units.

20. Single-rate method
Assignment of indirect costs to a particular cost object.
Is a mathematical description of how a cost changes with changes in the level of an activity relating to that cost. Pg.341 It can be plotted on a graph by measuring the level of an activity - such as number of batches produces or number of machines u
Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base.
Department that directly adds value to a product or service. Also called a production department in manufacturing companies.

21. how do we account for normal spoilage?
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
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 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.

22. Quantitative costs
They are expected future costs and relevant revenues are expected future revenues that differ among the alternative courses of action being considered. In order to be relevant costs and relevant revenues - they must: Occur in the future - every decis
Approach 2 Allocates joint cost using Physical measures - such as the weight - quantity (physical units) or volume of the joint products.
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.
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

23. When do we use reciprocal allocation?
We use reciprocal method to have accurate service department cost allocations.
When the actual price of a product is less than the budgeted price - resulting in an increase in operating income.
Predicted or forecasted cost (future cost) as distinguished from an actual or historical cost.
Past costs because they are unavoidable and cannot be changed no matter What action is taken.

24. Main product
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 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 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.
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

25. What is cost allocation?
Department that directly adds value to a product or service. Also called a production department in manufacturing companies.
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.
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

26. Equivalent unit computation in process costing.
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.
Derived amount of output units that (a) takes the quantity of each output (factor of production) in units completed and in incomplete units of work in process and (b) converts the quantity of input into the amount of completed output units that could
Is 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

27. Normal Spoilage
Tanning cream and Instant cocoa mix
Cocoa beans
Is a mathematical description of how a cost changes with changes in the level of an activity relating to that cost. Pg.341 It can be plotted on a graph by measuring the level of an activity - such as number of batches produces or number of machines u
Is spoilage 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

28. 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
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.
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.
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

29. What is process costing?
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
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.
Costing system in which the cost object is masses of identical or similar units of a product or service.
Is a cost of a production process that yields multiple products simultaneously.

30. What are the steps in the decision-making model?
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 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
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
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

31. Relevant costs for decision making?
Is a cost of a production process that yields multiple products simultaneously.
The juncture in a point-production process when two or more products become separately identifiable
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.
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.

32. What are relevant costs?
They are expected future costs and relevant revenues are expected future revenues that differ among the alternative courses of action being considered. In order to be relevant costs and relevant revenues - they must: Occur in the future - every decis
Is a cost of a production process that yields multiple products simultaneously.
Cocoa butter and Cocoa powder
We use reciprocal method to have accurate service department cost allocations.

33. How is Cost Volume Profit used?
Predicted or forecasted cost (future cost) as distinguished from an actual or historical cost.
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.
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.

34. What is spoilage?
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 sensitivity of costs to changes in production or sales volume. Better collaboration - planning - and motivation are a result of different sets of budget decisions. It helps managers make strategic and operating decisions that have a positive envi
Is units of production whether fully or partially completed that do not meet the specifications required by customers for good units and that are discarded or sold at reduced prices.
Allocates joint costs to joint products produced during the accounting period on the basis of the relative total sales value at the splitoff point.

35. Fixed costs in relation to flexible budget?
Costing system in which the cost object is masses of identical or similar units of a product or service.
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.
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
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

36. Approach one of Joint 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.
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
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 joint costs using market base data such as revenues.

37. Use of cost drivers in ABC system

38. Sales Value at splitoff method...
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.
When the actual price of a product is less than the budgeted price - resulting in an increase in operating income.
Allocates joint costs to joint products produced during the accounting period on the basis of the relative total sales value at the splitoff 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.

39. Actual cost allocation
Cost allocation method that allocates each support department's costs to operating departments only
Allocates joint costs to joint products produced during the accounting period on the basis of the relative total sales value at the splitoff point.
When actual rates are used for cost allocation - managers do not know the rates until the end of the budget period. If actual rates are used - the efficiency of the supplier department affects the cost allocated to the user department.
We use reciprocal method to have accurate service department cost allocations.

40. End products (Separable products at the split off point)
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.
Cocoa butter and Cocoa powder
Tanning cream and Instant cocoa mix

41. 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
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 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

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

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

44. Who are users of management accounting information?
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.
Managers
Variable manufacturing overhead 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.

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

46. Separable costs
Is a cost of a production process that yields multiple products simultaneously.
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.
Costing system in which the cost object is masses of identical or similar units of a product or service.

47. Know the cost function
Is a mathematical description of how a cost changes with changes in the level of an activity relating to that cost. Pg.341 It can be plotted on a graph by measuring the level of an activity - such as number of batches produces or number of machines u
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.
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.
Cost allocation method that allocates each support department's costs to operating departments only

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

49. What is contribution margin?
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
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
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

50. Purpose of a budget?
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.
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.
Predicted or forecasted cost (future cost) as distinguished from an actual or historical cost.
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