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business
cost accounting

Questions and Answers of Cost Accounting

Gross profit or contribution margin analysis compares actual sales and costs with some other value. What are the commonly used bases for comparison? LO2
Discuss the following statement: Price setting is truly an art. LO2
What is life cycle costing, and how does it relate to reducing costs and setting prices? LO2
What are some common product pricing methods? LO2
Explain the pricing approach that attempts to maximize profits. LO2
How are standard costs helpful in setting prices? LO2
What is target pricing? LO2
The Robinson-Patman Act was enacted by Congress to prevent price discrimination among competitors. What three defenses for price cuts are available to the seller under the Act? LO2
Compute the percentage of profit to sales, the capital-employed turnover rate, and the rate of return on capital employed. LO4
Distinguish between using the rate of return on capital employed to evaluate profitabil¬ ity and using it to evaluate the performance of divisional managers. LO4
State the advantages and limitations of using the rate of return on capital employed. LO4
Justify the use of residual income as a performance measure and the use of multiple performance measures. LO4
List six different transfer pricing alternatives, and identify when they should be used. LO4
What management activities are measured by percentage of profit to sales and by the capital- employed turnover rate? LO4
What items are generally included in the term capital employed? LO4
State two major objectives that management may have in mind when it sets up a system for measuring the return on divisional capital employed. LO4
List five dysfunctional actions that managers can take to improve the short-term return on capital employed at the expense of long-term profitability. LO4
List five frequently claimed advantages of using the rate of return on capital employed. LO4
List five frequently encountered limitations of using the rate of return on capital employed. LO4
What is the purpose of using multiple perfor¬ mance measures? LO4
What types of management incentive compen¬ sation plans are commonly found, and which are likely to be the most effective in achieving long-term improvement? LO4
Identify the basic methods of pricing intracom¬ pany transfers. LO4
From an organizational point of view, two approaches to transfer pricing are (a) to let man¬ agers of profit centers bargain with one another and arrive at their own transfer prices (negoti¬ ated
Explain the dual transfer pricing approach in intracompany transfer pricing. LO4
Define factory overhead and its components LO6
Define and calculate factory overhead rates. LO6
Accumulate actual overhead costs. LO6
Apply overhead using predetermined rates. LO6
Dispose of over- or underapplied overhead. LO6
List some of the costs included in factory overhead.. LO6
Why does factory overhead vary from month to month?. LO6
When and why must predetermined factory overhead rates be used? Indicate the impracti- calities and inaccuracies of charging actual overhead to jobs and products.(AICPA adapted). LO6
Name six bases used for applying overhead. What factors must be considered in the selec¬ tion of a particular base?. LO6
Why is the selection of a proper predetermined rate essential to reasonable costing? Explain.. LO6
Discuss the objectives and criteria that should be used in deciding whether to use direct labor hours or machine hours as the overhead alloca¬ tion base. (AICPA adapted). LO6
Differentiate among (a) theoretical capacity, (b) practical capacity, (c) expected actual capacity, and (d) normal capacity.. LO6
How does the selection of normal or maximum capacity affect operating profit in setting the overhead rate?. LO6
(a) What situations give rise to idle capacity costs?. LO6(b) How and why are such costs accounted for?(c) What is excess capacity cost?
What are the steps involved in accounting for actual overhead?. LO6
The factory overhead control account has a credit balance at the end of the period. Was overhead over- or underapplied?. LO6
A company applies overhead to production on the basis of direct labor dollars. At the end of the year, overhead has been overapplied to the extent of $60,000. What factors can cause this situation?.
Describe two methods for disposing of over- or underapplied overhead and explain how the decision to use one of these methods rather than the other affects net income.. LO6
Comment on the following statement: If large amounts of underapplied overhead occur month after month, the overhead rate should be revised to make unit costs more accurate.. LO6
Predetermined Overhead Rates; Activity Levels. Parts Manufacturers (PM) is a maker of small steel machine parts. PM’s total factory overhead costs are a linear function of the number of tons of
Factory Overhead Application. The work in process account of Yorktown Inc. showed the following at the end of September: LO6 Work in Process Materials 24,800 Finished goods 48,600 Direct labor 20,160
Calculation Of Estimated Labor Base. The direct labor work force of Austin Inc. consists of 150 employees working full time, 8 hours, 5 days a week. Normal capacity assumes that the equivalent of 48
Various Factory Overhead Rates. Vicksburg Company estimates factory overhead of $225,000 for the next year. An estimated 25,000 units will be produced, with materials cost of $500,000. Conversion
Normal and Expected Actual Capacity. Theoretical capacity for Madison Tool Company is 80,000 direct labor hours, and normal capacity is 50,000 direct labor hours. The actual capacity attained for the
Over- or Underapplied Overhead. Sunny Inc. budgeted factory overhead at $255,000 for the period for Department A, based on a budgeted volume of 50,000 machine hours. At the end of the period, the
Entries for Factory Overhead. Black Inc. assembles and sells hand drills. All parts are purchased, and the cost of the parts per drill totals $50. Labor is paid on the basis of $32 per drill
Over- or Underapplied Overhead. Normal annual capacity for Greencroft Company is 48,000 units, with pro¬ duction rates being level throughout the year. The October budget shows fixed factory
Applied Overhead; Over- or Underapplied Amount. Normal annual capacity for Daswan Company is 36,000 machine hours, with fixed factory overhead budgeted as $16,920 and an estimated variable factory
Over- Of Underapplied Overhead. Quitman Company made the following data available from its account¬ ing records and reports: LO6(a) $800,000 estimated factory overhead . , , , . , ,---= $4
Fixed and Variable Factory Overhead Rates; Over- or Underapplied Amount. Normal operating capacity of Baco Inc. is 100,000 machine hours per month, the level used to compute the predetermined factory
Over- Or Underapplied Overhead. Granville Company was totally destroyed by fire during June. However, the following cost data were recovered: actual direct labor cost, $8,117; actual direct material
Disposition Of Over- or Underapplied Overhead. The following information is available concerning the inventory and cost of goods sold accounts of Magnolia Company at the end of the most recent year:
Over- or Underappplied Overhead; Predetermined Rates; Activity Levels; Disposition of Underapplied Amount. Amalgamated Manufacturing (AM) is a sheet-metal fabricator. AM’s total factory overhead
Determining Variable and Fixed Factory Overhead Cost Behavior. Toms Company had the following budgeted amounts for production, sales, and costs in April and August, 19A, which are considered to be
Factory Overhead; Job Order Costing. Lamb Company uses job order cost accumulation. Manufacturing costs for December were: LO6 Work in process, December 1 (Job50). $ 54,000 Materials and supplies
Factory Overhead; Job Order Costing. Amalgamators Incorporated has made the following manufacturing cost data available for the most recent period: LO6 Work in process-beginning of period:Job
Predetermined Rates; Applied Overhead. Dagnut Company set normal capacity at 60,000 machine hours. The expected operating level for the period just ended was 45,000 hours. At this expected actual
Inventory Costing; Overhead Analysis; Statement of Cost of Goods Sold. The Cost Department of Columbus Company received the following monthly data, pertaining solely to manufacturing activities,
Cost Behavior Analysis; Utility of Cost Behavior Information. Lawson Incorporated assigns factory over¬ head by a predetermined rate on the basis of direct labor hours. Factory overhead costs for
Identify and differentiate among the three different kinds of quality costs. LO6
Explain the concept of total quality management and the need for continuous improvement. LO6
Compute the cost of scrap, spoilage, and rework in a job order cost system. LO6
Prepare the appropriate journal entries required to account for scrap, spoilage, and rework in a job order cost system. LO6
Compute the cost of spoilage in a process cost system with average costing and prepare a cost of production report when spoilage occurs. LO6
Prepare the appropriate journal entries required to account for spoilage in a process cost system. LO6
(Appendix) Compute the cost of spoilage and prepare a cost of production report when spoilage occurs in a process cost system with a fifo cost flow assumption. LO6
List and define the three classifications of quality costs. LO6
What is TQM? LO6
What are five characteristics of TQM systems that can be found in most world-class manufacturing settings? LO6
How does the concept of continuous quality improvement differ from the concept of quality optimization? LO6
Some companies have attempted to obtain qual¬ ity by inspecting it into the product. What is wrong with this approach? LO6
Advocates of TQM argue that companies should concentrate their efforts on preventing poor quality rather than by trying to inspect it into the process. Why? LO6
Why should quality costs be measured and reported to management? LO6
What is the difference between scrap, spoiled goods, and rework? LO6
Historically, many companies have ignored the cost of scrap, spoiled goods, and rework, theo¬ rizing that such costs are normal and unavoid¬ able. Why is this a poor practice? LO6
Spoilage and rework can be caused by customer requirements or by internal failure. Why is it important to determine the cause of the spoilage and rework? LO6
Recording Scrap. Campton Metal Fabricators Inc. accumulates fairly large quantities of metal shavings and trimmings from the products it manufactures. At least once a month, the scrap metal is sold
Recording Spoilage Attributable to an Internal Failure. Miller Wood Products Company manufactures custom wooden cabinets and furniture. During the current period, 80 table legs were incorrectly
Spoilage in a Job Order Cost System Attributable to an Internal Failure. Valdeze Plastics Company uses a job order cost system to account for its production costs. During the current period, 1,000
Spoilage in a Job Order Cost System Attributable to Customer Change Order. Hargrove sheet Metal Works manufactures custom sheet metal products ranging from cabinets and storage containers to portable
Rework Attributable to Internal Failure. Lindle Sunshine Furniture Inc. manufactures several different designs of outdoor furniture. Production costs are accounted for using a job order cost system.
Rework Attributable to Customer Change Order. Wilson Electronics Inc. manufactures gauges and instru¬ ments for aircraft. During the current year, an order for 1,000 units of a custom-designed gauge
Spoilage in a Process Cost System Using an Average Cost Flow Assumption. Manx Company uses a process cost system with average costing to account for the production of its only product. The product is
Spoilage with a Salvage Value in a Process Cost System Using an Average Cost Flow Assumption, juniper ^ Company manufactures a single product in two departments, Cutting and Finishing. Units of
Production Shrinkage in a Process Cost System Using an Average Cost Flow Assumption. Coastal Petroleum Inc. uses a process cost system with an average cost flow assumption to account for the
(Appendix) Spoilage in a Process Cost System with a Fifo Cost Flow Assumption. Sun Valve Company sells a single product that is manufactured in two departments, Tooling and Finishing. Units of
(Appendix) Spoilage with a Salvage Value in a Process Cost System with a Fifo Cost Flow Assumption.Plastico Furniture Company uses a process cost system with a fifo cost flow assumption to account
(Appendix) Production Shrinkage in a Process Cost System with a Fifo Cost Flow Assumption. Local Pop Inc. uses a process cost system with fifo cost flow assumption to account for the production of
Recording Scrap and Spoilage. Foxx Metal Works Inc. is a special order manufacturer of metal products. Each period the company accumulates fairly large quantities of metal shavings and trimmings from
Spoilage in a Job Order Cost System. Purelli Foundry Inc. manufactures custom metal products that require casting, such as engine blocks, pistons, and engine housings. During the current period, an
Rework in a Job Order Cost System. Big Sky Cabinet Company manufactures custom cabinets for modular and prefabricated housing companies. During the current period, an order for 1,000 custom cabinets
Spoilage Resulting from an Internal Failure in a Process Cost System Using an Average Cost Flow Assumption. Nimblerod Company sells a single product that is manufactured in two departments, Cutting
Spoilage and Shrinkage in a Process Cost System Using an Average Cost Flow Assumption. Hometown Brewery Company uses a process cost system with an average cost flow assumption to account for the
(Appendix) Spoilage Resulting from an Internal Failure in a Process Cost System with a Fifo Cost Flow Assumption. Handy Tool Company uses a process cost system with a fifo cost flow assumption to
(Appendix) Shrinkage in a Process Cost System with a Fifo Cost Flow Assumption. XXX Chemicals Company produces a single product in two departments, Distillation and Refining. Unrefined chemicals are
Quality Improvement Program, star Disk Corporation manufactures computer disk drives that it sells under its own brand name to computer manufac¬ turers and to large retail outlets. Several years ago

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