Test 2 flash cards.txt

The flashcards below were created by user isatonk on FreezingBlue Flashcards.

  1. In service department costing, what is a user department?
    department that uses the functions of service departments

    aka operating or production departments
  2. In service department costing, what is a service department?
    department that provides service to support user departments

    costs of service department must be allocated to user departments
  3. What are 3 methods of allocating service department costs when there are multiple service departments?
    direct method (no mutual support)

    step-down method (one-way mutual support)

    reciprocal method (intertwined mutual support)
  4. What is the primary difference between the three methods of allocating service department costs?
    degree to which mutual support to other service departments is recognized
  5. Which of the four criteria is most likely being used to allocate service department costs?
    most common: benefit received

    allocation methods of service department costs differ in their consideration of benefit received by other service departments
  6. Which method is generally most and least accurate?
    direct (ignores all mutual service support) - least accurate

    step-down (no cross-over support)

    reciprocal (recognizes all mutual serice support) - most accurate
  7. What must be true if you believe that the direct method is reasonably accurate?
    service departments provide very little support to other service departments
  8. What must be true is you believe that the step-down method is reasonably accurate?
    service department support is generally one-sided
  9. In service department cost allocation, what are the possible cost pools to be allocated?
    • direct method:
    • direct cost of operating the service department

    • step-down method:
    • direct cost of operating the service department
    • + any indirect costs that are allocated from other service departments

    • reciprocal method:
    • direct cost of operating the service department
    • + all of the indirect costs allocated from other service departments
  10. When allocating service department costs, what are the likely cost objects?
    • direct method:
    • user departments only

    • step-down method:
    • user departments
    • + some other service departments

    • reciprocal:
    • all user departments
    • + all service departments
  11. What is a process costing system?
    allocates all department processing costs to units of product that are essentially identical
  12. What is true about a manufacturing plant if process costing to be used?
    all products or services are essentially identical
  13. Why do we assign costs to units in each department?
    to evaluate department managers on their cost control => motivation to be careful with their costs
  14. What are conversion costs?
    direct labor + manufacturing overhead
  15. What is a physical unit?
    unit of output that may or may not be completed yet
  16. What are the two method of assigning costs to units that we discussed?
    • weighted average
    • FIFO
  17. What is the formula for estimating cost per eu using weighted average?
    Image Upload 1
  18. What is the formula for estimating cost per eu using FIFO?
    Image Upload 2
  19. What is the advantage of FIFO over weighted average method?
    FIFO allows accurate determination of cost per EU and conversion cost for the department

    => allows comparison to previous period costs
  20. What explains the difference in cost per equivalent unit between FIFO and weighted average?
    difference is affected by:

    • a change in material or conversion cost
    • amount of BI
  21. What are the possible cost pools to be allocated in a process costing system?
    • Weighted average:
    • 1) BI DM costs + added DM costs
    • 2) BI conversion costs + added conversion costs

    • FIFO:
    • 1) added DM costs
    • 2) added conversion costs
  22. Are direct materials added in every department?
    No (some departments only convert)
  23. What is the allocation base used to assign costs in a process costing system?
    • EU of DM
    • EU of conversion
  24. What cost objects can material and conversion costs be allocated to in a process costing system?
    1) batch of PU transferred out of department

    2) batch PU in EI
  25. What are transferred-in costs?
    costs that physical units bring with them when they come from another department

    treated like direct material costs in which 100% of the material is added at the beginning of the process
  26. Why should we separate transferred in cost from material cost?
    Transferred in cost:

    • *are incurred in previous period
    • *cannot be controlled in this department
  27. What are joint costs?
    input costs and production costs of process that yields multiple products simultaneously
  28. What is the split-off point?
    point in process where

    • *joint products are separately recognizable
    • *joint costs are assigned
  29. What are joint products?
    products resulting from a single process
  30. What is a main product?
    products resulting from a single process that have high value
  31. What is a by-product?
    products resulting from a single process that have low value
  32. What is a separable or additional processing cost?
    • *costs incurred after the split-off
    • *can be assigned to a specific product

    if additional processing is required before a joint product can be sold, then they are direct costs to the finished product
  33. What are reasons for allocating joint costs?
    • internal and external reporting
    • cost reimbursement
    • insurance
    • rate regulation
    • litigation
  34. What are some types of products that might require joint cost allocation?
    • oil refining (gas, jet fuel, diesel)
    • processing dairy products (cream, skim milk)
    • processing lumber (boards, chips, saw dust)
    • grinding bricks (dust, ground brick)
  35. What are four methods to allocate joint costs?
    • physical quantity method
    • net realizable value at the split-off
    • estimated net realizable value
    • constant gross-margin method
  36. In allocating joint costs, what is the cost pool?
    always the joint processing cost
  37. In allocating joint costs, what are the cost objects?
    always products at split off
  38. What is the objective to joint cost allocation?
    • relate costs to economic benefits received
    • => net realizable value & estimated net realizable value are most preferred

    if additional concerns about fairness => constant gross margin method

    physical quantity method should not be used if sales value of product cannot bear costs (=allocation is poorly related to economic benefit received)
  39. What is the most likely criterion associated with each method?
    • physical quantity method:
    • *cause and effect

    • net realizable value at split-off:
    • *benefit received
    • *ability to bear

    • estimated net realizable value:
    • *benefit received
    • *ability to bear

    • constant gross-margin:
    • *equity and fairness
  40. What is an advantage to the physical quantity method?
    best reflects cost of producing

    as long as the sales value > resulting costs => ok to use allocated cost in setting product price
  41. What is a drawback to the physical quantity method?
    some products not able to bear cost assigned
  42. Should allocated cost resulting from net realizable value method or estimated net realizable value be used to set product prices?

    costs are determined by their future revenue potential (price) => inappropriate to use cost to set price
  43. What is a budget?
    • financial plan of resources needed to carry out planned selling and production activity
    • tool to estimate financial outcomes
  44. What is the master budget?
    • generally covers one year
    • short-term profit plan portion of company's overall plan
  45. What are organizational goals?
    • company's broadly defined objectives
    • can include income growth, employee learning, innovation, community service
  46. What is a long-term profit plan?
    • method by which companies plan to achieve their financial goals
    • usually includes capital investments that match the company's growth plan

    example: capital investment to diversify products or investments to lower operating costs
  47. What are the objectives of a budgeting system?
    • promote coordination and communication
    • provide framework to evaluate performance
    • can be used to motivate employees
    • further planning of operations
  48. What are some challenges associated with standard budgeting systems?
    • "Communication is biased" - budgetary slack
    • incentive to avoid necessary expenses
    • predicted sales and costs can change rapidly
  49. What are some companies doing to address the challenges associated with standard budgetary systems?
    more frequent planning for shorter periods of time
  50. Is there an order to the budgeting process?

    • Image Upload 3

  51. Describe each of different methods used to determine sales?
    • sales staff:
    • most common b/c most knowledgeable

    • market researchers:
    • outside companies whose job is to forecast sales

    • Delphi technique
    • group forecasting that begins with anonymous individual forecasts

    • Trend analysis:
    • looks at trends over time

    • econometric models:
    • regression models that consider multiple possible factors
  52. What is participative budgeting and why is it useful?
    process that obtains inputs from all levels of employees

    • - costly
    • - time consuming
    • + enhances employee acceptance of goals
    • + obtain information only employees know
  53. What types of financial statements results from the budgeting process?
    • budgeted financial statements (aka pro-forma statements)
    • include balance sheets, statements (income, COGS, etc)
Card Set
Test 2 flash cards.txt
UNT cost accounting updated flashcards for test 2
Show Answers