Cost Accounting Exam 1 Concept Questions

What are the three general uses of accounting decisions?

1. financial reporting (external eval)

2. managerial decision making

3. managerial planning and control (internal eval)

Financial vs Managerial Accounting

Financial accounting is summarized, conforms to GAAP, and is backwards looking for the purpose of outside investors while Managerial accounting is for internal control and planning, is detailed, creative (non-GAAP), and is only generated if the benefit of the information exceeds the costs

Cost Object

anything for which a costs measurement is desired

Costs vs Expenses

A cost is a sacrificed resource, while an expense is an expired asset. Costs occur at the time of purchase while expesnes occur when the resource is consumed or sold

Direct vs Indirect Costs

Direct costs can be tracked to a cost object. while indirect costs need to be allocated to a cost object

Product vs Period costs

A product cost is an expense that is tied directly to creating the product. Period costs are not related to manufacturing and are expensed immediately

Opportunity Cost

the value of the alternative foregone when making a decision

Sunk Cost

one that has resulted from a previous expenditure, no decision can change this cost, can be ignored

Differential Cost

one that changes in response to an action

Why do product costs need to be evaluated?

product costs must be evaluated to determine accurate pricing and maximize profits

Actual costing

includes actual costs for all inputs (DM, DL, OH). Tends to be used for job costing

Normal Costing

includes actual DM and DL but uses an allocated OH rate based on a driver

Standard Costing

includes estimates of all inputs, used for process costing

Job Costing

cost obkect is a unit or multiple units of a distinct product or service. Each job generally uses different amoutns of resources

Process Costing

cost object is a mass of identical or similar units of a product or system. Need to set a per-unit cost based on total costs and the number of units produced

Traditional Costing

allocates OH costs based on general volume measurements

ABC Costing

(activity based costing) assigns indirect costs (OH costs) to specific tasks/processes required to produce a product

What is the goal of a product costing system?

to allocate indirect costs in the proportion they are consumed

Cross-Subsidization

occurs when a company artificially inflates the price of one product to affect the losses of another

What happens to the overcosted product in cross-subsidization?

Overcosted product absorbs too much costs, making it seem less profitable than it actually is

Three benefits of ABC system:

1. more accurate product costs

2. possible cost-reduction

3. more responsive costing of new products or services

Non-Value-Added Activities

activities that, if eliminated, would not reduce the utility received by the customer for that product or service

Benefits of Flexible vs Static budgets

Flexible budgets provide the expected costs for the actual level of activity

Financial accounting treatment of variances

at the end of the accounting period, variances are treated as either 1. COGS or 2. ending inventory

Production Value Variance

when a predetermined OH rate is used, we get a volume variance when actual production does not equal expected production