Cost Accounting Exam 2 review for MC

CHAPTER 4

• The equivalent units of production of materials would be (Ending Inventory * % complete)

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Job Order costing and Process Costing Similarities

• Same accounts used

• Flow of costs are used

  
  

Job Order Costing and Process Costing Differences

• Process costing used for long production runs with a continuous flow of product

• Costs accumulated by department rather than by job

• No use of job costs sheets

• Multiple WIP accounts

Each department tracks its own costs, which simplifies cost allocation and provides relevant data for financial reporting. Additionally, process costing emphasizes the average cost per unit, which is essential for pricing decisions.

• Unit Costs are accumulated by department and generally costs within a department are Direct Materials and Conversion Costs

CHAPTER 5

Break Even:

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• Cost-Volume-Profit Analysis is used in many functional areas of business

• Profits are changed by changes in these five factors

  • Selling Prices

  • Sales Volume

  • Unit variable costs

  • Total fixed costs

  • Sales mix

• Whats the contribution margin Income statement?

• The contribution margin income statement is a financial report that emphasizes the contribution margin, which is calculated by subtracting total variable costs from total sales revenue, allowing for a clearer analysis of how sales affect profitability.

• Contribution Margin = Sales - Variable Costs

• Profit = Sales - Variable Costs - Fixed Costs

• Contribution Margin Ratio = CM/Sales

• Variable Expense Ratio = VE/Sales

  These ratios need to equal 100%

An Increase in Profit will always equal the increase in sales * the contribution margin ratio

IMPORTANT I THINK

• Unit Sales to Break even = Fixed Costs/CM

  • $ sales to break even = Unit Sales to BE * Sales price then. Fixed Cost/CMR

CHAPTER 6

• Absorption costing is required under GAAP.

• Under absorption costing includes- Direct Materials, Direct Labor, Variable MOH and Fixed MOH (long term)

• Variable Costing in not allowed under GAAP

• Variable Costing include the same but without Fixed MOH

  • It would include DM, DL, VMOH (short term)

Know what a traceable fixed cost is?

• A traceable fixed cost is something that can be traced back from the departments it has came from.

What was on the quizzes:

Ch 5 quiz

• The higher the contribution margin the lower the volume of unit sales required to cover a given amount of fixed costs is.

• If direct cots decrease the break even point will decrease as well

• Average unit costs varies the opposite with production activity

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