Cost Accounting Pt.1 Chap 1
Irrelevant Costs
Costs that do not relate to any of the decision alternatives
Fixed Costs
Costs that remain constant in total but will vary on a per unit basis regardless of changes in activity level
Expenses
Costs that are intentionally incurred in the process of generating revenues
Losses
Costs that are not intentionally incurred
Step-variable costs
Costs that stay fixed over a range of activity but change after the range is overcome
Variable Costs
Costs that vary in total as the volume of production or sales changes
Mixed Costs/Semi-variable Costs
Costs that vary with changes in volume but do not vary in direct proportion.They are partly fixed and partly variable.
Avoidable Costs
Costs that will not be incurred when an activity is suspended
Non-manufacturing costs
Marketing, Advertising, Administrative, General, and Selling expenses are __________________
1. Materials 2. Labor 3. Factory Overhead
The 3 cost elements of production:
1. High & Low Points Method 2. Scatter-graph Method 3. Least Squares Method
The 3 methods used to identify the estimate of the variable or fixed portion of a mixed cost:
1. To develop reasonable and accurate product/service costs 2. To assess product/service life-cycle performance 3. To improve understanding of processes and activities 4. To control costs 5. To measure performance 6. To allow the pursuit of organizational strategies
The 6 primary goals of a cost management system
Cost
A resource sacrificed or forgone to achieve a specific objective
General accountant or controller
Supervisor of the cost accountant
Principle of Management by Exception
A concept that dictates that managers should be provided with information that directs or focuses their attention to activities that require corrective action
True
A cost accountant may be involved in the compilation or updating of the notes to the financial statements. True or False?
True
A cost can be controlled only when the related activity is monitored and the information is available. True or False?
1. Cost Accumulation 2. Cost Assignment
A cost system accounts for costs in two basic stages:
Step Cost
A cost that shifts upward or downward when an activity changes by a certain interval
True
A direct cost can be an indirect cost in another. True or False?
True
An asset is a cost. True or False?
Cost Object
Anything for which costs are measured or assigned to it
True
Cost Accounting measures and reports financial and non financial information relating to the costs of acquiring or utilizing resources in an organization. True or False?
True
Cost accountants are mainly concerned in collecting large quantities of data to create a sufficient pool of information that can be used for various types of costing analysis. True or False?
Manufacturing Firms, Service Firms, Government & Non-government Organizations
Cost accounting information is applicable to these 4 kinds of firms:
Product Cost/Inventoriable Cost
Cost incurred in the factory. Inventoried when not sold and expensed only when revenue is recognized
Cost of Goods Manufactured
Cost of goods completed during a period
Semi-fixed cost
Cost that increases in lumps of cost with changes in activity
Manufacturing Costs/ Production Costs/ Factory Costs
Costs associated with the production activities of the company.
Direct Costs
Costs directly traceable to a costing object
Budgeted Costs
Costs expected to be incurred in the future
Period Costs
Costs expensed in the period which they are incurred
Incremental Costs
Costs increases or additional costs
Historical Costs
Costs incurred in the past
Non-controllable Costs
Costs not subject to influence at any given level of managerial supervision
Indirect Costs
Costs that are difficult to trace to a specific costing object
Decremental Costs
Decreases in cost
Relevant/Differential Costs
Expected future costs that will differ between 2 or more alternatives. May be incremental or decremental
Indirect Labor
Expended labor which does not directly affect the construction of the finished product
True
Expenses and losses are expired costs. True or False?
Selling Expenses
Expenses associated with obtaining sales and the delivery of the product/service
Beginning Raw Materials + Purchases - Ending Raw Materials + Direct Labor + Factory Overhead + Beginning Work in Process - Ending Work in Process
Formula for Cost of Goods Manufactured (COGM)
Usefulness
Guiding light for Cost Accounting
Cost Accountant
Head of the cost deparment
False. Future investment opportunities, not past.
Information generated from a cost management system will also help managers to measure and evaluate human or equipment performance as well as past investment opportunities. True or False?
Financial Accounting
Integrated with cost accounting to determine product costing information for financial statements
Management Accounting
Integrated with cost accounting to determine quantitative cost-based information which supports management information needs
Cost Accounting
It can be defined as the systematic recording and analysis of the cost of materials, labor and overhead incident to production
Accountability
It deals with the discharge of an individual's responsibility to achieve assigned objectives within the costs and expenses allowed for the performance and agreed to by the individual
Cost Accounting
It helps managers understand the costs of running a business
Cost Accounting
It is concerned with cost accumulation for inventory valuation to meet the requirements of external reporting and internal profit measurement
Benchmarking Study
It is conducted to find better ways to complete a task, by searching within other divisions of the company or looking outside the company for "best practices".
Financial Accounting
It is designed to meet external information needs to comply with GAAP
Product costing information
It is essential in determining appropriate prices
Cost Accounting
It is the bridge between and foundation of financial and management accounting
Cost Accounting
It is the process of tracking, recording, and analyzing costs associated with products or activities of an organization
Modern Cost Accounting
It originated during the Industrial Revolution
Management Accounting
It serves to satisfy internal information needs and provide product costing information for financial statement reporting purposes
Manufacturing Overhead/ Production Overhead/ Factory Expense/ Factory Burden
Other terms relating to factory overhead
Cost Tracing
Refers to the assignment of direct costs
Factory Overhead
Production costs incurred in the plan or factory that cannot be classified as direct materials or direct labor
Cost Allocation
Refers to the assignment of indirect costs
Relevant Range
The assumed activity range that usually reflects a company's normal operating range
Controller
The company's chief accountant
False. They can.
The cost accountant cannot assist in preparing legal justification for a company or called to testify. True or False?
Cost Department
The department responsible for gathering, compiling, and communicating information about the company's activities
Staff position and Line position
The groups or categories of functional units or positions
Chief Financial Officer or the Vice President for Finance
The head of the finance/accounting department
Fixed Factory Overhead
The only fixed manufacturing cost
Controller
The person primarily responsible for the cost accumulation and preparation of cost reports
Treasurer
The person responsible in handling the inflow and outflow of cash in an institution
Controller
The person who advises other managers of activities requiring corrective action
1. Help management plan 2. Make decisions 3. Control the organization
The role of cost accounting:
Conversion Cost
The sum of direct labor and factory overhead
Prime Cost
The sum of direct materials and direct labor
Cost Behavior
The way a cost responds to a change in activity
Legal and contractual requirements
These must be met in order to have a cost-effective accounting system
Decision-specific Reports
These reports are concerned about a specific issue that occurs only once, after which is discarded
Function-level reports
These reports can be issued to individual departments or at lower levels like supervisors of individual machines. They are usually custom-designed for each recipient
Performance Reports
These reports emphasize deviations from a predetermined plan
Project-specific Reports
These reports focus on those costs being incurred for a specific purpose and so tends to be heavy on direct costs
Business unit-level Reports
These reports include information about machine utilization, cost of quality, inventory turnover, profitability and cash flow projections. These tend to be voluminous and have the greatest mix of financial and operational information
Corporate-level Reports
These reports may include relevant information about a few critical success factors that would be most interesting to senior managers in influencing bottom-line profits and return on assets for each store, and do forecasting at the product line level
Cost Accounting Data
They are accumulated via a cost accounting system and allocated to various cost objects to facilitate wise decision making
Indirect Materials
They are needed to complete a product but their use is so minimal/complex
Direct Materials
They form an integral part of the finished product and can be conveniently traced
Cost Department
This department analyzes cost; issues control reports; prepare cost studies; and coordinates cost and budget data with other departments
Cost Department
This department keeps detailed records of materials, labor, factory overhead, and market and administrative expenses
Treasury Department
This department needs accounting, budgeting and related reports in scheduling cash requirements
Legal Deparment
This department needs cost information to keep many affairs of the company in conformity with the law
Manufacturing Department
This department needs estimates of production costs incurred for measuring and efficiency of scheduling, producing and inspecting products
Marketing Department
This department needs information on prices, wages, profits, and dividends in order to inform the public
Personnel Department
This department supplies employees' wage rates
Staff position
This functional unit gives advice and performs technical functions
Line postition
This functional unit makes decisions
Direct Labor
This is involved in making the product in which the labor cost can be traced without inconvenience
Organization Charts
This is used by companies to present staff and line functions
Cost Management System
This refers to a set of methods developed for planning and controlling cost-generating activities to achieve profitability in the short-run and maintaining a competitive position in the long-run
Cost Management
This refers to the approaches and activities of managers in short-run and long-run planning and control decisions that increase value for customers and lower costs of products and services
False. When fixed costs are involved, not variable.
When variable costs are involved the average cost of a unit of product will depend on the number of units being manufactured. True or False?