Exam Notes for ACC 312 Exam

Exam Overview

• Subjects Covered:

  • Chapter 3: Product Costing and Cost Accumulation

  • Chapter 5: Activity Based Costing

  • Chapter 9: The Master Budget

Chapter 3: Product Costing and Cost Accumulation

• Product Costing: The process of calculating the costs related to making a product. Used to:

  • Determine the cost of goods sold

  • Value inventory

  • Assist in pricing decisions and evaluating profitability

Flow of Costs

• Understanding how costs roll through the manufacturing process.

Job Order Costing

• Suitable for unique, custom work and small production batches. Common in:

  • Construction

  • Custom manufacturing

  • Professional services

• Costs are summed for specific jobs and averaged over the number of units.

Process Costing

• Used for continuous production of homogeneous products. Costs are averaged over many units. Common in industries like:

  • Chemicals

  • Gasoline

  • Electricity

Key Differences

Overhead Application

• Volume-Based Costing

  • Allocates overhead based on a single metric (e.g., machine or labor hours).

• Activity-Based Costing (ABC)

  • Allocates overhead costs based on activities driving costs for better accuracy.

Overhead Costs Application Issues

1. Timeliness: Delayed costing can lead to profitability tracking challenges.

2. Fluctuating Rates: Variability in overhead costs complicates calculations.

3. Pricing Difficulties: Lack of real-time overhead knowledge hampers pricing and decision-making.

Predetermined Overhead Rate

• Computed at the start of a period using estimated overhead and allocation base.

  • Benefits:

  • Consistent costing

  • Improved budgeting and planning

  • More accurate pricing

Overhead Application Formula

• \text{Applied OH} = \frac{\text{Budgeted Total MOH (Year)}}{\text{Budgeted Total Cost Driver (Year)}} \times \text{Actual cost driver amount}

• Overapplied and underapplied defined in terms of actual vs. applied overhead.

Case Studies

• Job costing vs. Process costing applied to various industries.

Chapter 5: Activity-Based Costing (ABC)

• ABC offers better cost allocation by tracking actual resource usage.

• Key Activity Levels:

  • Unit Level: Per unit costs

  • Batch Level: Costs per batch

  • Product-Sustaining Level: Costs to support product line

  • Facility Level: Costs necessary for overall operation

Comparing Costing Approaches

• Traditional costing provides less accurate cost allocation compared to ABC.

Chapter 9: The Master Budget

• Purposes of Budgeting:

  1. Planning

  2. Communication

  3. Resource Allocation

  4. Control

  5. Performance Evaluation

Master Budget Components

• Budgeted Income Statement

• Budgeted Balance Sheet

• Operational Budgets including Sales, Production, Direct Materials, Labor, and Overhead.

Budgeting Process

1. Sales Forecasting

2. Creation of revenue budgets, production budgets, and subsequent operational budgets.

Calculating Units to Produce

• Formula for determining how many units to manufacture based on sales forecasts and inventory levels.

Practice Problems & Case Studies

• Multiple scenarios to solve for overhead costing, and inventory management.

Key Reminders

• Always double-check calculations in problems, particularly regarding underapplied and overapplied overheads.

• Familiarize yourself with terminology and formulas as they will be crucial for the exam.

Closing Thoughts

• Stay organized, understand each chapter's concepts, and practice applying them in various scenarios to prepare effectively for the exam!

Good luck!