Cost Accounting Exam 2 Material

Front 1

Give three examples of industries that use process-costing systems

Back 1

17-1

Front 2

In process costing, why are costs often divided into two main classifications?

Back 2

17-2

Front 3

Explain equivalent units. Why are equivalent unit calculations necessary in process costing?

Back 3

17-3

Front 4

What problems might arise in estimating the degree of completion of semiconductor chips in a semiconductor plant?

Back 4

17-4

Front 5

Name the five steps in process costing when equivalent units are computed.

Back 5

17-5

Front 6

Step 1:

Back 6

Summarize the flow of physical units of output.

Front 7

Step 2:

Back 7

Compute output in terms of equivalent units.

Front 8

Step 3:

Back 8

Summarize total costs to account for.

Front 9

Step 4:

Back 9

Compute cost per equivalent unit.

Front 10

Step 5:

Back 10

Assign total costs to units completed and to units in ending work in process.

Front 11

Name the three inventory methods commonly associated with process costing.

Back 11

17-6

Front 12

Describe the distinctive characteristic of weighted-average computations in assigning costs to units completed and to units in ending work in process.

Back 12

17-7

Front 13

Describe the distinctive characteristic of FIFO computations in assigning costs to units completed and to units in ending work in process.

Back 13

17-8

Front 14

Why should the FIFO method be called a modified or department FIFO method?

Back 14

17-9

Front 15

Identify a major advantage of the FIFO method for purposes of planning and control.

Back 15

17-10

Front 16

Identify the main difference between journal entries in process costing and job costing.

Back 16

17-11

Front 17

“The standard-costing method is particularly applicable to process-costing situations.” Why?

Back 17

17-12

Front 18

Why should the accountant distinguish between transferred-in costs and additional direct material costs for each subsequent department in a process-costing system?

Back 18

17-13

Front 19

“Transferred-in costs are those costs incurred in the preceding accounting period.” Do you agree? Explain.

Back 19

17-14

Front 20

“There’s no reason for me to get excited about the choice between the weighted-average and FIFO methods in my process-costing system. I have long-terms contracts with my materials suppliers at fixed prices.” Do you agree? Explain.

Back 20

17-15

Front 21

What are the four elements of the budgeting cycle?

Back 21

6-1

Front 22

a.

Back 22

Planning the performance of the company as a whole as well as planning the performance of its subunits. Management agrees on what is expected.

Front 23

b.

Back 23

Providing a frame of reference, a set of specific expectations against which actual results can be compared.

Front 24

c.

Back 24

Investigating variations from plans. If necessary, corrective action follows investigation.

Front 25

d.

Back 25

Planning again, in light of feedback and changed conditions.

Front 26

Define master budget

Back 26

6-2

Front 27

“Strategy, plans, and budgets are unrelated to one another.” Do you agree? Explain

Back 27

6-3

Front 28

“Budgeted performance is a better criterion than past performance for judging managers.” Do you agree? Explain.

Back 28

6-4

Front 29

“Production managers and marketing managers are like oil and water. They just don’t mix.” How can a budget assist in reducing battles between these two areas?

Back 29

6-5

Front 30

“Budgets meet the cost-benefit test. They force managers to act differently.” Do you agree? Explain.

Back 30

6-6

Front 31

Define rolling budget. Give an example.

Back 31

6-7

Front 32

Outline the steps in preparing an operating budget.

Back 32

6-8 The steps in preparing an operating budget are as follows:

Front 33

“The sales forecast is the cornerstone for budgeting.” Why?

Back 33

6-9

Front 34

How can sensitivity analysis be used to increase the benefits of budgeting?

Back 34

6-10

Front 35

Define kaizen budgeting

Back 35

Kaizen budgeting explicitly incorporates continuous improvement anticipated during the budget period into the budget numbers.

Front 36

Describe how non-output-based cost drivers can be incorporated into budgeting.

Back 36

Non-output-based cost drivers can be incorporated into budgeting by the use of activity-based budgeting (ABB). ABB focuses on the budgeted cost of activities necessary to produce and sell products and services. Non-output-based cost drivers, such as the number of part numbers, number of batches, and number of new products can be used with ABB.

Front 37

Explain how the choice of the type of responsibility center (cost, revenue, profit, or investment) affects behavior.

Back 37

6-13

Front 38

What are some additional considerations that arise when budgeting in multinational companies?

Back 38

6-14

Front 39

“Cash budgets must be prepared before the operating income budget.” Do you agree? Explain.

Back 39

6-15

Front 40

What is the relationship between management by exception and variance analysis?

Back 40

7-1

Front 41

What are two possible sources of information a company might use to compute the budgeted amount in variance analysis?

Back 41

Two sources of information about budgeted amounts are (a) past amounts and (b) detailed engineering studies.

Front 42

Distinguish between a favorable variance and an unfavorable variance

Back 42

A favorable variance––denoted F––is a variance that has the effect of increasing operating income relative to the budgeted amount. An unfavorable variance––denoted U––is a variance that has the effect of decreasing operating income relative to the budgeted amount.

Front 43

What is the key difference between a static budget and a flexible budget?

Back 43

The key difference is the output level used to set the budget. A static budget is based on the level of output planned at the start of the budget period. A flexible budget is developed using budgeted revenues or cost amounts based on the actual output level in the budget period. The actual level of output is not known until the end of the budget period.

Front 44

Why might managers find a flexible-budget analysis more informative than a static-budget analysis?

Back 44

7-5

Front 45

Describe the steps in developing a flexible budget

Back 45

7-6

Front 46

Step 1:

Back 46

Identify the actual quantity of output.

Front 47

Step 2:

Back 47

Calculate the flexible budget for revenues based on budgeted selling price and actual quantity of output.

Front 48

Step 3:

Back 48

Calculate the flexible budget for costs based on budgeted variable cost per output unit, actual quantity of output, and budgeted fixed costs.

Front 49

List four reasons for using standard costs

Back 49

7-7

Front 50

(i)

Back 50

cost management,

Front 51

(ii)

Back 51

pricing decisions,

Front 52

(iii)

Back 52

budgetary planning and control, and

Front 53

(iv)

Back 53

financial statement preparation.

Front 54

How might a manager gain insight into the causes of a flexible-budget variance for direct materials?

Back 54

7-8

Front 55

List three causes of a favorable direct materials price variance.

Back 55

7-9

Front 56

1.

Back 56

purchasing officer negotiated more skillfully than was planned in the budget,

Front 57

2.

Back 57

purchasing manager bought in larger lot sizes than budgeted, thus obtaining quantity discounts,

Front 58

3.

Back 58

materials prices decreased unexpectedly due to, say, industry oversupply,

Front 59

4.

Back 59

budgeted purchase prices were set without careful analysis of the market, and

Front 60

5.

Back 60

purchasing manager received unfavorable terms on non-purchase price factors (such as lower quality materials).

Front 61

Describe three reasons for an unfavorable direct manufacturing labor efficiency variance.

Back 61

7-10

Front 62

1.

Back 62

the hiring and use of under-skilled workers;

Front 63

2.

Back 63

inefficient scheduling of work so that the workforce was not optimally occupied;

Front 64

3.

Back 64

poor maintenance of machines resulting in a high proportion of non-value-added labor;

Front 65

4.

Back 65

unrealistic time standards.

Front 66

How does variance analysis help in continuous improvement?

Back 66

7-11

Front 67

Why might an analyst examining variances in the production area look beyond that business function for explanations of those variances?

Back 67

7-12

Front 68

Comment on the following statement made by a plant manager: “Meetings with my plant accountant are frustrating. All he wants to do is pin the blame on someone for the many variances he reports.”

Back 68

The plant supervisor likely has good grounds for complaint if the plant accountant puts excessive emphasis on using variances to pin blame. The key value of variances is to help understand why actual results differ from budgeted amounts and then to use that knowledge to promote learning and continuous improvement.

Front 69

How can variances be used to analyze costs in individual activity areas?

Back 69

Variances can be calculated at the activity level as well as at the company level. For example, a price variance and an efficiency variance can be computed for an activity area.

Front 70

“Benchmarking against other companies enables a company to identify the lowest-cost producer. This amount should become the performance measure for next year.” Do you agree? Discuss.

Back 70

Evidence on the costs of other companies is one input managers can use in setting the performance measure for next year. However, caution should be taken before choosing such an amount as next year's performance measure. It is important to understand why cost differences across companies exist and whether these differences can be eliminated. It is also important to examine when planned changes (in, say, technology) next year make even the current low-cost producer not a demanding enough hurdle.

Front 71

How do managers paln for variable overhead costs?

Back 71

8-1

Front 72

How does the planning of fixed overhead costs differ from the planning of variable overhead costs?

Back 72

8-2

Front 73

How does standard costing differ from actual costing?

Back 73

8-3

Back 74

Actual Costing

Front 75

Direct costs

Back 75

Actual prices × Actual inputs used

Front 76

Indirect costs

Back 76

Actual indirect rate × Actual inputs used

Front 77

What are the steps in developing a budgeted variable overhead cost-allocation rate?

Back 77

8-4

Front 78

1.

Back 78

Choose the period to be used for the budget,

Front 79

2.

Back 79

Select the cost-allocation bases to use in allocating variable overhead costs to the output produced,

Front 80

3.

Back 80

Identify the variable overhead costs associated with each cost-allocation base, and

Front 81

4.

Back 81

Compute the rate per unit of each cost-allocation base used to allocate variable overhead costs to output produced.

Front 82

What are the factors that affect the spending variance for variable manufacturing overhead?

Back 82

8-5

Front 83

a.

Back 83

Price changes of individual inputs (such as energy and indirect materials) included in variable overhead relative to budgeted prices.

Front 84

b.

Back 84

Percentage change in the actual quantity used of individual items included in variable overhead cost pool, relative to the percentage change in the quantity of the cost driver of the variable overhead cost pool.

Front 85

Assume variable manufacturing overhead is allocated using machine-hours. Give three possible reasons for a favorable variable-overhead efficiency variance.

Back 85

8-6

Front 86

•

Back 86

Workers more skillful in using machines than budgeted,

Front 87

•

Back 87

Production scheduler was able to schedule jobs better than budgeted, resulting in lower-than-budgeted machine-hours,

Front 88

•

Back 88

Machines operated with fewer slowdowns than budgeted, and

Front 89

•

Back 89

Machine time standards were overly lenient

Front 90

Describe the difference between a direct materials efficiency variance and a variable manufacturing overhead efficiency variance.

Back 90

8-7

Front 91

What are the steps in developing a budgeted fixed overhead rate?

Back 91

8-8

Front 92

a.

Back 92

Choose the period to use for the budget,

Front 93

b.

Back 93

Select the cost-allocation base to use in allocating fixed overhead costs to output produced,

Front 94

c.

Back 94

Identify the fixed-overhead costs associated with each cost-allocation base, and

Front 95

d.

Back 95

Compute the rate per unit of each cost-allocation base used to allocate fixed overhead costs to output produced.

Front 96

Why is the flexible-budget variance the same amount as the spending variance for fixed manufacturing overhead?

Back 96

8-9

Front 97

Explain how the analysis of fixed manufacturing overhead costs differs for a) planning and control on the one hand and b) inventory costing for financial reporting on the other hand

Back 97

8-10

Front 98

Provide one caveat that will affect whether a production-volume variance is a good measure of the economic cost of unused capacity.

Back 98

8-11

Front 99

“The production0volume variance should always be written off to Cost of Goods Sold.” Do you agree? Explain.

Back 99

8-12

Front 100

What are the variances in a 4-variance analysis??

Back 100

8-13

Front 101

•

Back 101

Variable manufacturing overhead costs spending variance & efficiency variance

Front 102

•

Back 102

Fixed manufacturing overhead costs spending variance & production-volume variance

Back 103

8-14

Back 104

8-15

Front 105

Give three examples of industries that use process-costing systems
17-1

Back 105

Industries using process costing in their manufacturing area include chemical processing, oil refining, pharmaceuticals, plastics, brick and tile manufacturing, semiconductor chips, beverages, and breakfast cereals.
In process costing, why are costs often divided into two main classifications?
17-2