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business
cost accounting

Questions and Answers of Cost Accounting

The budgeted income statement can be viewed as the apex of budgeting. Explain this statement. LO3
The budgeted balance sheet can indicate an unsatisfactory financial condition. Discuss. LO3
Prepare a PERT/cost network and state how the addition of cost is useful in control¬ ling and analyzing projects. LO5
Define expected value. LO1
How are the costs transferred in from a prior department treated in the cost of production report when the average cost method is used?
Present arguments in support of each of the fol- Towing three methods of treating standard cost variances for purposes of financial reporting: LO6(a) As deferred charges or credits on the balance
List the arguments for the use of direct costing. LO7
(Appendix) What kind of unit costs are used in linear programming? LO3
Classify manufacturing costs as being direct materials, direct labor, or manufacturing overhead.LO.1
Explain the meaning of prime costs and conversion costs.LO.1
Explain the role of the three inventory accounts used in a manufacturing business.LO.1
State the purpose of cost accounting.LO.1
Determine the type of cost accounting system to be used in various types of manufacturing operations.LO.1
Prepare a statement of cost of goods manufactured.LO.1
Prepare an income statement for a manufacturing business.LO.1
Describe how an income statement for a merchandising business differs from an income statement for a manufacturing business.LO.1
Explain how cost of goods manufactured is calculated.LO.1
What costs are involved in the manufacture of a product? How are these costs classified?LO.1
What is the difference in operations between a company that uses a job order cost system and a company that uses a process cost system?LO.1
What are the three major classifications of manufacturing costs?LO.1
Define the following:a. Direct materialsb. Direct laborc. Manufacturing overhead LO.1
How do prime costs differ from conversion costs?LO.1
List four examples of manufacturing overhead costs.LO.1
What is the difference between direct labor and indirect labor?Give an example of each.LO.1
What is the difference between direct materials and indirect materials?Give an example of each.LO.1
A retailing business has one inventory account, Merchandise Inventory, listed on its balance sheet. What inventory account! s)appear on the balance sheet of a manufacturing concern?LO.1
For each of the inventory items listed below, identify on which of the following statement(s) the item will appear: statement of cost of goods manufactured, income statement, or balance sheet.a. Raw
How does the income statement for a retailing business differ from the income statement for a manufacturing business?LO.1
In what type of manufacturing operation would the job cost system be used? Where would the process cost system be used?LO.1
Describe a budget. What is the purpose of preparing a budget?LO.1
How does a cost accounting system help management? Does the statement of cost of goods manufactured provide enough data for decision making? Explain.LO.1
How are cost accounting records used by management in making contract bids or in estimating the cost of a job?LO.1
What type of cost systems would you recommend to the management of each of the following types of manufacturing concerns. Why?a. Manufacturer of custom-designed mobile homesb. Tailorc. Company that
What types of manufacturing overhead costs do you think management would closely watch in attempting to control costs? Why?LO.1
What is the purpose of determining and using standard costs?LO.1
Explain why an item that is classified as direct materials by one company may be classified as indirect materials by another. Give an example.LO.1
Classify the following costs of the Best Chocolate Chip Cookie Company as direct materials, direct labor, overhead, selling expense, or administrative expense.a. Repair of ovensb. Salary of
What type of manufacturing overhead would you expect to find in the following businesses?a. Automobile factoryb. Electronics factoryc. Clothing manufacturer LO.1
Why might a company decide to have a separate inventory account for factory supplies?LO.1
Calculate manufacturing costs and cost of goods manufactured.(Obj. 1). The costs for Simpson, Inc. for the year ended June 30, 19X9, are given below.Direct Materials $60,380 Direct Labor 88,835
Calculate prime costs and conversion costs. (Obj. 2). The following costs were incurred by Prime Radio Manufacturers:Direct Materials $250,280 Direct Labor 391,320 Manufacturing Overhead 222,492a.
Calculate costs of goods sold and gross profit. (Obj. 7). The following amounts relate to the Micro-Disk Corporation:Finished Goods Inventory, April 1, 19X9 $ 88,840 Finished Goods Inventory, April
Calculate cost of goods manufactured, cost of goods sold, and gross profit. (Objs. 6, 7). The New England Plumbing Company manufactures water pumps and filters and uses a job cost order accounting
Calculate direct materials cost. (Obj. 1). The Auto Products Company maintains a raw materials inventory account for all materials used in its factory operations. Purchases of both direct and
Explain how the financial statements of DeNardo Hat Company would change if the company manufactured the caps.LO.1
What type of cost accounting system would DeNardo Hat Company most likely use if it manufactured the caps? Why?LO.1
What are the advantages and disadvantages of Joe DeNardo's plan for the company to manufacture the baseball caps it sells?LO.1
Prepare a percentage-of-sales analysis to assist in control of distribution costs.LO.1
Make operating analyses to aid in increasing efficiency of sales activities.LO.1
Prepare various expense analyses to aid in controlling costs of distribution activities.LO.1
Prepare a planning budget and flexible budget for distribution costs.LO.1
Prepare a break-even analysis for a distribution business.LO.1
Establish standard costs for distribution activities and analyze variances.LO.1
Prepare a flexible budget and break-even analysis for a service company.LO.1
Develop standard costs and apply standard cost analysis in a service company.LO.1
sometimes more difficult to analyze, plan, and control distribution expenses than manufacturing costs?LO.1
Are there likely to be more discretionary costs in a manufacturing operation or in a distribution operation? Explain.LO.1
A distribution company has several retail stores. For 19X9 sales salaries were 18 percent of net sales in Store 4, whereas in Store 19 sales salaries were only 14.4 percent of sales. On the surface,
Why is contribution, rather than net profit, often used to compare the efficiency of two segments of a business, such as two stores in a chain of stores?LO.1
What argument can be given that cost control at the segment level should be measured by the final net profit of the segment, after considering all fixed expenses and all allocated indirect
Can a flexible budget be prepared for distribution functions? Is so, what basis would be used for measuring variability?LO.1
Why are comparisons between budgeted amounts and actual costs made on a monthly basis rather than annually?LO.1
If the percentage of cost of goods sold to sales is known, the percentage of variable operating expenses to sales is known, and fixed costs are known, how can the break-even point be easily
What is the major difference between the calculation of the break-even point for a manufacturing concern and for a merchandising concern?LO.1
Why generally desirable to have large sales per invoice and large sales per customer?LO.1
How does a profit center differ from a cost center?LO.1
What are some factors that have contributed to a great rise in the number of service-type businesses in recent years?LO.1
Is it possible to use a single base for all types of service businesses in measuring cost variability, preparing flexible budgets, analyzing costs, and so on? Explain.LO.1
Can flexible budget techniques be used to aid in controlling costs in a service business? Explain.LO.1
In making a business decision, what consideration must be given to fixed costs?LO.1
Explain how standard costs can be used in a service business.LO.1
If standard costs are used in a service business, can the variance between actual costs and standard costs be analyzed into component parts? Explain.LO.1
What are distribution costs?LO.1
Why is it more difficult to budget some distribution costs than to budget manufacturing costs?LO.1
What is a percentage-of- sales analysis?LO.1
What is the difference between controllable distribution expenses and noncontrollable distribution expenses?LO.1
List some possible bases for determining cost variability for each of the following.a. Warehouse activitiesb. Billingc. Deliveries by truck LO.1
Why is the flexible budget for a retail store normally based on levels of sales volume?LO.1
In some companies, advertising is a variable expense for a given year, whereas in other companies, advertising is considered a fixed expense for a given year. Explain why this is possible.LO.1
Name some cost accounting techniques used in manufacturing businesses that may be applied in the analysis and control of distribution costs.LO.1
What would be the major problem in attempting to measure profit for each group of customers?LO.1
What are discretionary costs? Give two exemiples.LO.1
How often should comparison of actual results with the flexible budget be made? Why?LO.1
What is the feature that distinguishes a service business from a manufacturing or distribution business?LO.1
What is meant by the comment that many service companies employ what is in effect a job order cost accounting system?LO.1
Can standard cost analysis be applied in service companies?Explain.LO.1
How does a contribution margin approach help management evaluate the performance of one segment of a distribution business?LO.1
If a segment has no positive contribution margin, what options should management examine?LO.1
Disks and Such has made a percentage-of-sales analysis for each of its nine stores. For eight stores, the rent expense is 5.7 percent of net sales, but in one store the rent expense is 9.2 percent of
The Carlton Company has analyzed its customers by the volume of annual sales. The company has found that the average annual sales to a customer are $12,320. However, annual sales to 3 percent of the
The Big Sky Company, a wholesale distributor, has recorded an operating loss for each of the past three years. A percentage-ofsales analysis shows that its gross profit is 21.6 percent. The average
The Wide Net Company operates over 100 retail stores. Net income after income taxes is computed for each store. Included in the computation are allocated home office expenses, allocated interest
The Capital Corporation employs eight outside sales representatives.In preparing a flexible budget, the accountant based the sales representatives' travel costs on sales volume. Comment on the use of
The president of KMA corporation has suggested that all district managers be paid a commission based on the profit after controllable expenses. The vice president of sales argues that the commission
The Philadelphia Hardware Company handles over 2,000 products.The firm is considering whether to drop certain product lines. An analysis of the inventory records shows that 200 products make up less
What use is made of a flexible budget in a service business?LO.1
You are business manager for a partnership of attorneys. You have analyzed past records and discover that the number of hours spent by support staff (legal assistants, intern law students, and junior
Explain and illustrate the use of a standard manufacturing cost system for planning and control purposes.LO.1
Determine standard materials costs and standard labor costs per unit of product.
Compute materials quantity and materials price variances and identify them as being favorable or unfavorable.

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