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?