ACCY 200 CH. 13

True or false: Determining a product's cost is necessary to value the units, purchased or manufactured, of that product either as cost of goods sold or as ending inventory for any units unsold.

True

direct cost

a cost directly related to a product or activity; the cost would not be incurred if the product or activity were discontinued

indirect cost

a cost that is indirectly related to the product or activity under consideration; the cost would continue to be incurred if the product or activity were discontinued

process costing system

a costing system used to accumulate costs for a production process that is more or less continuous, frequently involving several departments

overapplied overhead

a credit balance in the manufacturing overhead account that results from applied overhead in excess of actual overhead costs

underapplied overhead

a debit balance in the manufacturing overhead account that results from actual overhead costs in excess of applied overhead

absorption costing

a product costing method by which both variable and fixed manufacturing costs are included in product costs

variable costing

a product costing method by which only variable manufacturing costs are included in product cost. sometimes called direct costing

direct costing

a product costing method in which only variable manufacturing costs are included in product cost. sometimes called variable costing

job order costing system

a product costing system used when discrete products, or "jobs" are manufactured

cost distortion

a shift in the relative amount of manufacturing overhead costs applied to the mix of products produced that occurs because a single cost driver application rate is used instead of activity-based costing rates

cost accounting

a subset of managerial accounting that relates to the accumulation and determination of product, process, or service costs

statement of cost of goods manufactured

a supplementary financial statement that supports cost of goods sold, which is an element of the income statement. This statement summarizes raw material, direct labor, and manufacturing overhead costs during the period

Cost accounting is concerned with:

accumulation and determination of product, process or service cost. income measurement and inventory valuation. generally accepted accounting principles.

In order to achieve higher quality cost information from the assignment of overhead costs to products manufactured, the use of a predetermined overhead rate is being replaced by:

activity-based costing.

Which of the following costs would be classified as a period cost?

advertising expense for the product.

manufacturing overhead (overhead)

all manufacturing costs except those classified as raw materials or direct labor

cost driver

an activity that causes the incurrence of a cost

cost object

any reference point for which cost is measured

Common costs pertain to costs that:

are not directly traceable to a cost object.

Indirect costs describe costs that:

are not traceable to a cost object

Direct costs pertain to costs that:

are traceable to a cost object.

A predetermined overhead rate is used to:

assign indirect costs to units produced.

Cost accounting is a subset of:

both financial and managerial accounting.

cost pool

costs that have been accumulated for assignment to a cost object

Underapplied overhead represents a (debit/credit) balance in the Manufacturing overhead account that results from actual overhead costs in excess of applied overhead.

debit

When units in production are completed, the resulting flow of cost of goods manufactured is that the Work in process inventory is (increased/decreased) and the Finished goods inventory is (increased/decreased).

decreased, increased

In an activity-based costing system, a cost (...) is an activity that causes the incurrence of a manufacturing cost.

driver

direct labor

effort provided by workers who are directly involved in the manufacture of a product, ex. wages paid to an automobile assembly workers

The difference between absorption costing and direct (or variable) costing is in the accounting for:

fixed manufacturing overhead

A standard cost or production standard that assumes maximum operating conditions and 100% efficiency at all times is called a(n):

ideal standard.

equivalent units of production

in a process costing system, the number of units that would have been produced if all production efforts during the period had resulted in completed products

direct materials

ingredients of the product ex. radio installed in an autmobile

product cost

inventoriable costs including raw materials, direct labor, and manufacturing overhead

finished goods inventory

inventory account applicable to goods available for sale to customers

raw materials inventory

inventory account applicable to materials ready for the production process

work in process inventory

inventory account for the costs (raw material, direct labor, and manufacturing overhead) of items that are in the process of being manufactured

A firm (can elect/is required) to use absorption costing for both financial reporting and income tax purposes.

is required

The product cost accounting system used when discrete products are manufactured is known as a (job/process) costing system.

job

The finished goods inventory account is increased for the cost of goods (manufactured/sold) and is decreased for the cost of goods (manufactured/sold).

manufactured, sold

period cost

noninventoriable costs, including selling, general, and administrative expenses, that relate to an accounting period

Costs not incurred for the manufacturing of a product and not included in inventory as a product cost are known as (...) costs.

period

For a manufacturing firm, (...)costs are inventoried and treated as assets until inventory is sold while (...) costs are recorded as expense in the accounting period incurred.

product, period

An example of a cost that is likely to have a direct relationship with products being manufactured is:

production labor costs.

Cost accounting _____.

relates primarily to the accumulation and determination of product, process, or services costs

raw material (DM or direct material)

the ingredients of a product

activity-based costing (ABC)

the process of accumulating manufacturing overhead costs by production support activity and then applying manufacturing overhead to production based on the activity required for each job or product

cost assignment

the process of allocating an amount of cost to a cost object

cost management

the process of using cost information to manage the activities of the organization

predetermined overhead application rate

the rate per unit of activity used to apply manufacturing overhead to work in process

value chain

the sequence of functions (R&D, design, production, marketing, distribution, and customer service) and related activities that, over the life of a product or service, adds value for the customer

On the statement of cost of goods manufactured, the sum of raw materials used + direct labor incurred + manufacturing overhead applied is known as:

total manufacturing costs

activity-based management (ABM)

use of activity-based costing information by managers to support the decision-making process

An organization's (...) (...) is the sequence of functions and related activities that adds value for the customer over the life of a product or service.

value chain

predetermined overhead application rate is established to apply manufacturing overhead to __________.

work in process

A cost that is clearly traceable to a product or activity such that the cost would not be incurred if the product or activity were discontinued is known as a(n) (...) cost.

- Research and development - Design - Production - Marketing - Distribution - Customer Service

The term "cost" means:

- the price paid for maintenance supplies. - the salary paid to a supervisor. - the price charged by an accounting firm for its audit services.

Identify the correct sequence of steps in the cost accumulation and assignment process, which allows managers to observe costs for different organizational cost objects.

1. Accumulate costs 2. Identify cost objects 3. Pool Costs 4. Assign Costs

Identify the correct cost flow sequence as product costs move through the manufacturing process.

1. Raw materials inventory 2. Work in Progress 3. Finished Goods 4. Cost of goods sold

Which of the following activities is not included in the organization's value chain?

Accounting

Which of the following process steps occurs first for managers to observe costs for different organizational reference points?

Cost accumulation

Identify the true statements about cost accounting.

It is a subset of both financial and managerial accounting. It reports the cost of goods manufactured and sold, as well as the cost of goods manufactured and not sold.

Which of the following is NOT an account that over/under applied overhead is transferred to at the end of an accounting period?

Raw Materials.

Which of the following are elements of a product's cost for a manufacturing firm?

- Human production effort - Production machine support - Ingredients

From the following list of activities, identify those that could represent cost drivers in an activity-based costing system.

- Machine setup for production runs - Raw material handling - Quality inspection - Production order preparation