Questions and Answers of Fundamentals Cost Accounting

Prepare journal entries for vari- able and fixed overhead vari- ances
Explain how a 4-variance analy- sis can provide an integrated overview of overhead cost vari- ances
Give two reasons why the output level overhead variance may not be a good measure of the oppor- tunity cost of unused capacity
Explain why the output level (production volume) overhead variance applies to fixed overhead but not to variable overhead
Describe how per-unit inventory costs are affected by the denomi- nator level chosen for fixed manu- facturing overhead
Illustrate how to compute the budgeted fixed manufacturing overhead rate
Explain the computation and meaning of spending and efficiency variances for variable overhead
Explain differences in the planning and control of variable overhead costs and fixed overhead costs
Comment on the following statement made by a plant supervisor: "Meetings with my plant accountant are frustrating. All he wants to do is pin the blame for the many variances he reports."
Give two examples of performance gaps based on benchmarks not found in accounting systems.
How might the continuous improvement theme be incorporated into the process of setting standard costs?
List and briefly describe two different types of standard costs.
Describe why direct materials price and direct materials efficiency variances may be computed with reference to different points in time.
List four sources of an unfavorable materials efficiency variance.
How might a manager gain insight into the causes of a flexible-budget variance for di- rect materials?
List four purposes of standard costs.
What is the relationship between a budgeted amount and a standard amount?
"Performance mav be both effective and efficient, but either condition can occur without the other." Give an example of effectiveness. Give an example of efficiency.
Comment on the following statement made by a manufacturing plant controller:"I would prefer to use a flexible budget rather than a static budget, but I cannot, as we don't have a standard costing
Why might managers find a Level 2 flexible-budget analysis more informative than a Level 1 static-budget analysis?
What is the key question in deciding which variances should be computed and analyzed?
Give an example of the three types of benchmarks of interest to managers.
Describe the relationship between a performance gap and a variance.
Describe a cost benchmark used for cost management
Describe how the continuous improvement theme can be integrated into a standard costing system
Explain why purchasing perfor- mance measures should focus on more factors than just price variances
Compute the price and efficiency variances for direct cost cate- gories
Describe two different definitions of standards used in computing a standard cost
Use the flexible-budget approach to compute flexible-budget vari- ances and sales-volume variances
Illustrate how a flexible budget can be developed
Describe the difference between a static budget and a flexible budget
Distinguish between a perfor- mance gap and a variance
Define responsibility accounting.
Define kaizen budgeting.
Define activity-based budgeting. Describe the four key steps in activity-based budgeting.
"The sales forecast is the cornerstone for budgeting." Why?
Distinguish between sales forecast and sales budget.
Define operating budget and financial budget.
Define rolling budget and pro forma statements.
"Operating plans are contracts, and I want them met. If your revenue is below expectations, you should cut your costs accordingly." Do you agree? Explain.
"Budgets are wonderful vehicles for communication." Comment.
"Budgeted performance is a better criterion than past performance for judging managers." Do you agree? Explain.
"Budgets meet the cost-benefit test. They force managers to act differently." Do you agree? Explain.
"Strategy, plans, and budgets are unrelated to one another." Do you agree? Explain.
What are the elements of the budgeting cycle?
Identify three major steps in the evolution of management control systems.
Explain how controllability is re- lated to responsibility accounting
Describe responsibility centers and responsibility accounting
Describe the uses of computer- based financial planning models
Define activity-based budgeting and kaizen budgeting
Construct the budgeted income statement and its supporting schedules
Distinguish various components of the master budget
Define master budget and de- scribe its major benefits to an organization
"There are five key steps in process costing when all units are not fully completed." Wha ire they?
Describe three alternative wavs to make end-of-period adjustments for underallocated or overallocated indirect costs.
Give two reasons for underallocation or overallocation of indirect (overhead) costs at the end of an accounting period.
What are the limitations of the general ledger as a management tool?
Distinguish among actual costing, normal costing, and budgeted costing.
Describe two source documents used in assigning manufacturing costs to products in a job costing system.
Give three examples of specific manufacturing overhead cost items allocated to prod- ucts.
Give two ways that jobs undertaken in the manufacturing sector can differ.
Why are costing systems in the manufacturing sector often more complex than those in the service and merchandising sectors?
Distinguish between the traditional and the activity-based costing approaches to designing a costing system
Describe distinctive features of activity-based costing
Explain the role of equivalent units in process costing
Identify five key steps in process costing
Describe alternative methods of disposing of period-end underallo- cated or overallocated indirect costs
Prepare summary journal entries for typical transactions of a job costing system
Distinguish between the Work in Process subsidiary ledger and the Work in Process Control account in the general ledger
Describe three key source docu- ments used in job costing systems
Outline a five-step approach to job costing
Job costing, accuracy of time records, ethics. Tax Assist provides advice on tax planning and tax return preparation to a broad range of clients. Tax Assist employs its professional staff on an
Customer costing, service company. Instant Service (IS) is a repair service company specializing in the rapid repair of photocopying machines. Each of its 10 clients pays a fixed monthly service fee
Customer costing, merchandising. (Continuation of 4-30) Flair decides to further use the activity-based costing information to examine individual customer profitability within each distribution
Activity-based costing, merchandising. Figure Four Inc. operates a company that specializes in the distribution of pharmaceutical products. Figure Four buys from pharmaceutical companies and resells
Job costing with multiple direct cost categories, single indirect cost pool, law firm.(Continuation of 4-27) Hanley speaks to the other partners about the pricing of the two cases.Several believe
Job costing with single direct cost category, single indirect cost pool, law firm.VVigan Associates is a recently formed law partnership. Ellery Hanley, the managing partner of Wigan Associates, has
Job costing with a refined costing system, law firm. (Continuation of 4-25) Keating & Associates received feedback from Punch Inc. that its bid for the labor contract work was too high. This feedback
Job costing, law firm. Keating & Associates is a law firm specializing in labor relations and employee-related work. It has 25 professionals who work directly with its clients (3 partners and 20
Job costing, peanut-butter costing. (Extension of the Problem for Self-Study) Lindsay and Associates (see pp. 124—126) is examining how the refined costing system in Panel C of Exhibit 4-5 will
Peanut-butter costing, cross-subsidization. For many years, five former classmates— Steve Goodyear, Lola Gonzales, Rex King, Elizabeth Poffo, and Gary Young — have had a reunion dinner at the
Job costing, architectural design firm. Atlas Inc., an architectural design firm, is preparing to bid on two jobs — Brad Armstrong Enterprises and Judy Martin Associates. Both potential clients
Job costing, engineering consulting firm. Serra & Co., an engineering consulting firm, specializes in analyzing the structural causes of major building catastrophes. Its job costing system in 194 had
Job costing, consulting firm. Taylor & Associates, a consulting firm, has the follow- ing condensed budget for 195:Revenues Total costs:Direct costs Professional labor Indirect costs Client support
Computing indirect cost rates, job costing. Mike Rorundo, the president of Tax Assist, is examining alternative wavs to compute indirect cost rates. He collects the following information from the
Job costing; actual, normal, and budgeted costing. Chirac & Partners is a Quebecbased public accounting partnership specializing in audit services. Its job costing system has a single direct cost
Comment on the following statement that appeared in a brochure promoting a new costing software package: "The software can be fully operational almost immediately. There are no delays due to
Explain the increased interest bv companies in customer costing.
What use can managers in a supermarket make of more refined product-line cost infor- mation?
Why should managers worry about product overcosting or product undercosting?
Define peanut-butter costing, and explain how managers may determine if it occurs with their costing system.
What is costing si/stem refinement? Describe three guidelines for such refinement.
"Computing the direct labor cost rate in a service organization is far from straightforward." Do you agree? Explain.
VVhv do most managers use budgeted costs rather than actual costs when computing di- rect labor rates?
What are the five steps in a general approach to job costing?
Give an example of a job costing system in the service sector, in the merchandising sec- tor, and in the manufacturing sector.
"In the production of services, direct materials are usually the major cost." Is this quo- tation accurate? Explain.
Define cost pool cost tracing, cost allocatio)i, and cost allocation base.
Outline the importance of cus- tomer costing
Describe undercosting and over- costing of products

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