test two for cost accounting

straight line equation

Y=A+Bx

in the straight line equation, x represents the

independent variable

in the straight line equation, y represents the

dependent variable

in the straight line equation, a represents the

y-intercept

in the straight line equation, b represents the

slope

equation useful for estimating cost

TC=F+VX

in the equation useful for estimating cost, TC represents the

total costs

in the equation useful for estimating cost, F represents the

fixed cost

in the equation useful for estimating cost, V represents the

variable cost per unit of activity

in the equation useful for estimating cost, X represents the

volume of activity

we need to be able to estimate costs because

actual costs are not known until much later

the independent variable always represents the

volume of activity

the dependent variable always represents the

costs

the estimated cost always depends on the

level of activity

variable costs are BLANK on the level of activity

dependent

fixed costs are BLANK of the level of activity

independent

cost estimations provided by the cost accountant allow managers to

make better decisions when choosing among alternatives

three methods to estimate cost behavior

engineering estimates, account analysis, and statistical methods

at the end of the period, BLANK and BLANK do not need to be estimated (we have actual numbers)

direct materials; direct labor

at the end of the period, BLANK does need to be estimated because some costs may not be known until after the end of the month

manufacturing overhead

definition of engineering estimates

a detailed step-by-step analysis is written (by engineers) for what needs to be done to make the product and each activity is assigned an amount of time

definition of time in motion study

watching the product being built to get an idea of how much time each step in the process was taking

advantages of engineering estimates include

1. able to detail each step in the process

2. does not require prior knowledge and may be used for new products

3. may be able to identify “slack” (seeing how much of the time the workers actually built the product vs when they were not working on the product)

disadvantages of engineering estimates include

1. may be expensive to analyze all the details of production

2. often based on optimal work conditions when actual work conditions may be less than optimal

the account analysis method requires lots of BLANK

judgement

the account analysis method requires each account that is part of the total cost must be

analyzed and categorized into either fixed or variable

each class of overhead costs is

itemized and divided into the estimated variable and fixed components

mixed costs must be

studied and separated into the fixed and variable components

a variable cost shows up as

y=VX (where Y is the total cost)

a fixed cost shows up as

Y=A (where Y is the total cost)

a mixed cost shows up as

Y=A+VX (where Y is the total cost)

equation where all the various fixed and variable components are combined

total cost = fixed cost + variable cost

process for account analysis method

1. identify the accounts

2. classify each cost as fixed or variable depending on the cost and the activity

3. prepare the cost estimate

the key is account analysis method is to

identify the relationship between the cost and the activity

determining the relationship between the cost and the activity when using the account analysis method requires

experience and judgment

when using statistical analysis, the cost accountant must insure the

observations are within the relevant range

options available for statistical analysis include

1. scattergraph

2. high-low method

3. regression

definition of the scattergraph method

all the observations on a graph and then by observation a line of best fit is drawn through the points so the total distance from the line and the points of observations is minimized

definition of regression analysis

the most precise method of cost estimating because this analysis considers all observations

definition of the correlation coefficient

a measure of the linear relationship between the dependent and the independent variable

in regards to the correlation coefficient, the closer to 1 (+ or -) the BLANK the relationship is

stronger

in regards to the correlation coefficient, the closer to 0 the BLANK the relationship is

weaker

definition of the coefficient of determination

the square of the correlation coefficient

the coefficient of determination explains the

percentage change in the dependent variable explained by the change in the independent variable

high-low method of cost estimating

considers only 2 options; start by picking the high independent variable and the associated cost with this high and then pick the lowest independent variable and the associated cost (DO NOT MIX OBSERVATIONS)

definition of learning phenomenon AKA learning curve

the relationship between experience and time needed to perform a certain task

learning affects BLANK

labor costs

a learning curve is BLANK in nature and BLANK over time

judgmental; refined

all the various cost estimating methods assume

1. cost behavior depends on just one driver (done with Multiple Regression)

2. cost behavior patterns are straight line within the relevant range (actually curvilinear, step, or semi-variable)

definition of job in product costing

a unit of product easily distinguished from other units

definition of job shop in product costing

a firm that produces jobs

definition of job cost sheet

the document cost accountant use to keep track of a particular job

once completed, the job cost sheet will show the

job number, customer, time frame, direct materials, direct labor, and manufacturing overheard associated with the job

definition of a subsidiary ledger account

account that records costs for the customer, vendor, or job

definition of a control account

an account that summarizes a set of subsidiary ledger accounts

the control account for manufacturing is

work-in-process

think of work-in-process as providing a

total for the detail form the job cost sheets

journal entry for purchase of materials

DEBIT materials

CREDIT cash or payable

journal entry to charge direct materials into production

DEBIT Work-In-Process

CREDIT Materials

definition of materials reacquisition

source document used to charge direct materials to production

journal entry to charge direct labor into production

DEBIT Work-In-Process
CREDIT Wages Payable

definition of time tickets AKA time cards

source document used to charge direct labor to production

journal entry to charge applied manufacturing overhead into production

DEBIT Work-In-Process

CREDIT Manufacturing Overhead

definition of pre-determined overhead rate

basis for charging overhead to production

journal entry to charge actual overhead into the accounts

DEBIT Manufacturing Overhead

CREDIT Inventory, Payable, Etc.

journal entry for when the job is finished

DEBIT Finished Goods

CREDIT Work-In-Process

journal entry for when the job is sold

DEBIT Cost of Goods Sold
CREDIT Finished Goods

journal entry to close out cost of goods sold

DEBIT Income Summary
CREDIT Cost of Goods Sold

journal entry to close out income summary

DEBIT Retained Earnings

CREDIT Income Summary

a cost that starts out as $1 in materials ends up as

a debit to Retained Earnings (a reduction)

the debit side of manufacturing overhead is the BLANK side where BLANK overhead costs are recorded

actual

the credit side is always the BLANK side used to get overhead into work in process

applied or estimated

actual overhead BLANK go into work in process

does not

what are the accounts that amount of overhead are unknown?

depreciation, electricity, supplies, indirect materials, indirect labor

definition of predetermined overhead rate

the rate used to apply overhead to jobs

formula for predetermined overhead rate

estimated overhead / estimated activity

the numerator of the predetermined overhead rate is always

money or dollars

formula for applied overhead

rate x activity

definition of overapplied overhead

where applied overhead is greater than actual overhead; you estimated TOO MUCH

journal entry for overapplied overhead

DEBIT Manufacturing Overhead

CREDIT Cost of Goods Sold

definition of underapplied overhead

where applied overhead is less than actual overhead; you UNDERESTIMATED

journal entry for underapplied overhead

DEBIT Cost of Goods Sold
CREDIT Manufacturing Overhead

definition of a normal cost system

actual direct materials, actual direct labor, applied overhead

definition of actual cost system

a system using actual direct materials, direct labor, and manufacturing overhead

what is the problem with an actual cost system?

having to wait to price the job until all actual overhead costs are known

definition of a standard cost system

a system employing standard costs

job costing steps

1. Record Direct materials in Work in process using Materials Requisitions.

2. Record Direct labor in work in Process using time tickets (cards). 

3. Estimate overhead for each overhead cost pool.

4. Select an allocation base and estimate the base for the next accounting period.

5. Divide the estimated overhead by allocation base to determine the Pre-determined overhead rate.

6. Apply overhead to work in process based on the rate times the actual base units

7. Record actual overhead costs as debits to Manufacturing overhead

8. Compare actual overhead to applied overhead.  Then close the over or under applied overhead to cost of goods sold.

flow of job costing

DM, DL, and applied overhead go into WIP; once the job is completed, the cost goes into FG; Once sold the cost goes into cost of goods sold; at the end of the period close cost of goods sold to income summary; and finally close income summary to retained earnings.

ethical considerations to consider

1. misrepresent the state of completion

2. charging costs to the wrong jobs

3. overstating the cost of a job to deceive customers

4. misrepresent job progress to obtain bank loans (independent audits help here)

5. allocation of costs in a manner that does not truly represent overhead usage

definition of a project

a complex job that may take many months or even years to complete

definition of process costing

used for products produced on a continuous basis with each finished unit receiving the same amount of direct materials, direct labor, and manufacturing overhead and all finished units are homogeneous

once the units in process are known, and the stage of completion is estimated, the cost accountant is able to estimate BLANK.

equivalent units of production

definition of equivalent units of production

represents the equivalent whole number of units represented by the partially completed units in process

process costing steps

1. measure the physical flow of units

2. calculate the equivalent units of production

3. collect the cost data for materials, labor, and overhead

4. calculate the cost per equivalent unit

5. for each resource, cost is assigned to the units completed and transferred out and then to the units remaining in ending work in process

formula to measure the physical flow of units

beginning units work in process + units started = units transferred out + ending work in process

formula to calculate the equivalent units of production for materials

(units transferred out x 100%) + (ending units x stage of completion with regard to materials)

formula to calculate the equivalent units of production for labor and overhead

(units transferred out x 100%) + (ending units x stage of completion with regard to labor and overhead)

after steps 1 through 3 of process costing, what are the two possibilities to consider?

weighted-average method (FOCUS ON THIS ONE) and the FIFO method

the essence of weighted average in process costing

assume all costs in the beginning inventory were added during the current period and not the last period (we know this is not true, but we assume that it is)

step 2 of process costing gives us the BLANK

denominator for our unit calculations