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Cost Accounting Study Guide

This document provides a study guide for an exam covering chapters 2 through 7 of a cost accounting course. It outlines the key concepts, terms, and calculations that will be assessed for each chapter. For chapter 2, it lists important cost accounting concepts and the calculations involved in total costs, direct costs, indirect costs, cost of goods sold, and inventory cost flow. Chapter 3 covers contribution margin, breakeven point, target operating income, margin of safety, and degree of operating leverage. Chapter 4 defines basic cost accounting terms and normal costing approaches. Chapter 5 discusses simple and activity-based costing systems. Chapter 6 is about budgeting, including components of a master budget. Chapter 7 examines three levels of variance analysis and how

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Judith Garcia
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92 views

Cost Accounting Study Guide

This document provides a study guide for an exam covering chapters 2 through 7 of a cost accounting course. It outlines the key concepts, terms, and calculations that will be assessed for each chapter. For chapter 2, it lists important cost accounting concepts and the calculations involved in total costs, direct costs, indirect costs, cost of goods sold, and inventory cost flow. Chapter 3 covers contribution margin, breakeven point, target operating income, margin of safety, and degree of operating leverage. Chapter 4 defines basic cost accounting terms and normal costing approaches. Chapter 5 discusses simple and activity-based costing systems. Chapter 6 is about budgeting, including components of a master budget. Chapter 7 examines three levels of variance analysis and how

Uploaded by

Judith Garcia
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Study Guide SP21 ACCT302 Cost Accounting Exam 1

CH2

1. Concepts:
1) Costs
2) Cost driver
3) Cost pool
4) Actual cost
5) Budgeted cost
6) Cost object
7) Direct cost
8) Indirect cost
9) Fixed cost
10) Variable cost
11) Inventoriable cost
12) Manufacturing cost
13) Period cost
14) Cost of goods sold
15) Cost of goods manufactured
16) Inventory rollforward
17) Inventory stages

2. Calculations
1) Total costs
a. Total costs = total fixed costs + qty. x unit variable costs
2) Total direct costs
3) Total indirect costs
4) Cost of goods sold
5) Cost of goods manufactured
6) Inventory cost flow in different inventory stages (roll forward)

CH3

Concepts and calculations:

1. Contribution margin (CM)


1) Contribution margin = Revenue – Variable Costs
2) Contribution margin per unit = Revenue – Variable cost per unit
3) Contribution margin = Contribution margin per unit x Qty. sold
4) Contribution margin % =Contribution margin / Revenue
5) Operating income = Revenue – Variable costs – Fixed costs
6) Operating income = Unit selling price x Qty. sold
7) Operating income = Contribution margin – Fixed costs
8) Operating income = Contribution margin % x Revenues – Fixed costs
9) Operating income =Contribution margin per unit / Revenue

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Study Guide SP21 ACCT302 Cost Accounting Exam 1

2. Breakeven point (BEP)


1) What is BEP
2) BEP in units and in revenue
3) BEP in units = Fixed costs/ CM per unit
4) BEP in revenue = BEP in units x Selling price per unit
5) BEP in revenue = Fixed costs / CM %
6) Target sales in units = (Fixed costs + Target operating income)/ CM per unit
7) Target revenue = (Fixed costs + Target operating income)/CM %

3. Income tax effect on target operating income


1) Net income = Operating income – Income taxes
2) Target operating income = Target net income / (1-Tax rate)

4. Margin of safety
1) Margin of safety in $ = Revenue – BEP revenue
2) Margin of safety in units = Sales qty. – BEP qty.

5. Degree of operating leverage = CM/ Operating income

CH4

1. Basic terms
1) Cost pool
2) Indirect cost pool
3) Cost tracing
4) Cost allocation
5) Cost-allocation base (or basis)
6) Cost driver
7) Job-costing
8) Process-costing
9) Normal costing
10) Actual costing

2. Normal costing approach of job-costing system

Variations fr.
Actual Normal Normal
  Costing Costing Costing
Direct
Costs AR x AQ AR x AQ BR x AQ
Indirect
Costs AR x AQ BR x AQ BR x AQ
Usually, Cost Rate = Costs / Qty. of Cost (or, allocation Base)
Actual cost rate = Actual cost / Actual Qty. (Alloc. Base)

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Study Guide SP21 ACCT302 Cost Accounting Exam 1

Budgeted cost rate = Budgeted cost / Budgeted Qty. (Alloc. Base)


Allocated costs (to a cost object) = Cost Rate x Qty. of cost

3. Under-allocated vs over-allocated indirect costs


1) Two temporary accounts need to be closed (zero out) during adjustment of under/over
allocation:
a. Manufacturing Overhead Control (MOH Control)
i. The record of the actual costs in individual overhead categories
b. Manufacturing Overhead Allocated (MOH Allocated)
i. The record of manufacturing overhead allocated to individual jobs using
budgeted rate
2) Journal entries using normal costing
3) Write off over/under-allocated indirect costs (overheads) to Cost of Goods Sold

DR MOH Allocated

CR MOH Control

DR COGS (Under-allocated) or CR COGS (Over-allocated)

CH5
1. Concepts:
a. Simple costing system using single indirect-cost pool
b. Activity-based costing (ABC)
i. Activities  Costs of Activities  Assignment to cost objects
ii. Steps to take in applying ABC
iii. What are the benefits and costs of ABC (comparing to simple costing)
c. Pros and cons of ABC comparing to simple costing system

2. Calculations:
a. Manufacturing overhead allocation rate
b. Manufacturing overhead costs allocation
c. Total manufacturing overhead costs for certain cost object under ABC
d. Total costs for cost object under ABC

CH6

3. Concepts:
a. Budget
i. What is budget
ii. Why management needs budget
iii. How budget is prepared
b. Master budget
i. Components
c. Rolling budget
d. Budgeting cycle

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Study Guide SP21 ACCT302 Cost Accounting Exam 1

e. Pro forma statement

4. Calculations
a. Sales budget (including service setting)
b. Production budget
c. Revenue budget
d. Purchase budget
e. Gross margin
f. Basic management decision making according to budgets

CH7

Concepts and calculations:

1. The three levels of variance analysis


a. Level 1: actual - static budget = static budget variance
b. Level 2:
i. actual – flexible budget = flexible budget variance
ii. flexible budget – static budget = sales volume variance
c. Level 3 (input level):
i. Actual – Actual Input @BP = Price Variance
ii. Actual Input @ BP – Flexible Budget =Efficiency Variance

2. Different variances for different performance item on performance report (Contribution Margin
version of Income Statement). For instance:
a. Static budget variance of revenue/variable costs/contribution margin /operating income
b. Flexible budget variance of revenue/variable costs/fixed costs/operating income
c. Sales volume variance of revenue/variable costs/CM/operating income
d. Price variance of DM/DL
e. Efficiency variance of DM/DL

3. The interpretation of different variances


a. Possible causes
i. Unfavorable DM efficiency variance:
 Poor design of products
 Poor work on production line due to unskilled workers or faulty
machines
 Inappropriate assignment of labor or machines to specific jobs
 Congestion due to scheduling a large number of rush orders
 Suppliers not manufacturing materials of uniformly high quality
ii. Favorable DM price variance

 Purchasing manager bargained the direct materials prices


 Purchasing manager switched to a lower-price supplier.
 Purchasing manager ordered larger quantities than the quantities
budgeted, thereby obtaining quantity discounts.

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Study Guide SP21 ACCT302 Cost Accounting Exam 1

 Direct materials prices decreased unexpectedly due to an oversupply of


materials in the industry.
 The budgeted purchase prices of direct materials were set too high because
managers did not carefully analyze market conditions.
 The purchasing manager negotiated favorable prices because he was willing
to accept unfavorable terms on factors other than prices (such as agree to
lower-quality material).

iii. Unfavorable DL efficiency


 Workers took longer to make each unit of FG
 Manager hired underskilled workers.
 Production scheduler inefficiently scheduled work, resulting in more
manufacturing labor time than budgeted being used per jacket.
 Maintenance department did not properly maintain machines
 Budgeted time standards were too tight because the skill levels of employees
and the environment in which they operated weren’t accurately evaluated.

b. Implications for management

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