ACT202 Chapter Notes - Chapter 4: Management Accounting

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21 Jun 2018

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ACT 202 Management Accounting

Product and service costing

Product costing

• Product costing systems o Accumulate product-related costs and use procedures to assign

them to the final products In some businesses upstream and downstream costs are regarded as

product related

• Upstream costs—research and development, product design, supply

• Downstream costs—marketing, distribution, customer service

• Product costs are the input to the product costing system

Different product costs for different purposes

• Product costs can include upstream, manufacturing and downstream costs

• Inclusion of various costs depends on the timeframe and type of decision to be made

• Managers’ needs for product cost information will vary depending on the type of decision to

be made and managers’ personal preferences

• Cost for inventory valuation for external reporting must include only manufacturing costs

• For long-term decisions about products a wider definition may be used

• Product costs are used to value inventory, for short-term decision making and strategic

decision making, for planning and controlling costs and for cost reimbursement

• Current or future product costs

- Current product costs are relevant for inventory valuation

- Future product costs may be relevant for input into some decisions such as pricing

• Frequency of cost information

- Infrequently for long-term decisions or some short-term decisions

- More regularly for inventory valuation

• In summary, product costs may differ over

- The range of costs included o Current or future costs

- How frequently product costing information is required

Designing product costing systems

• Identify the managers’ needs

• All product cost information may not come from a single product costing system

- Future product costs

- Long-term product costs

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Document Summary

Current product costs are relevant for inventory valuation. Future product costs may be relevant for input into some decisions such as pricing: frequency of cost information. Infrequently for long-term decisions or some short-term decisions. More regularly for inventory valuation: in summary, product costs may differ over. The range of costs included o current or future costs. Designing product costing systems: identify the managers" needs, all product cost information may not come from a single product costing system. Inventory valuation: cost and benefits of providing various cost estimates must be compared. Flow of costs in manufacturing businesses: for inventory valuation in external financial reports only manufacturing costs are assigned to products, as required by australian accounting standards, manufacturing costs consist of: Manufacturing costs flow through several manufacturing ledger accounts. Profit and loss account: australian accounting standards require that upstream and downstream costs are expensed in the period in which they are incurred.

Related Questions

How to reply to the below Discussion response.

Managerial accounting provides internal managers the use ofaccounting to plan and control business operations(Pearsoncustom.com, n.d). The internal nature of managerialaccounting is opposite to financial accounting which is used inregards to external entities (investors, creditors and government).Management accounting focuses on the cost-benefit analysis tooperating procedures within an organization.

Associated with the two forms of accounting are two coststructures used in an income statement: absorption and variable.The two cost structures identify the cost of a product butabsorption costing includes the fixed manufacturing overhead.Variable costing identifies fixed manufacturing overhead as aperiod cost thus not including it in the price of a unit produced(EducationUnlocked, 2014). Absorption costing is typically utilizedin financial accounting for external entities. Variable costing istypically used in managerial accounting because they focus on onlyvariable costs which eliminate skewed results from fixed overheadin unused inventory. In the short-run managers donât need toinclude fixed costs because they are regarded as sunk costs nomatter how many units are produced or sold.

A variable costing income statement generates a contributionmargin. The contribution margin reflects the sale price of aproduct less all variable costs (EducationUnlocked, 2014). The contribution margin gains insight into costs thatcan be calculated in units. The contribution margin can helpmanagers understand profit per unit based on the variable expensesincurred. As the contribution margin doesnât include fixed expensesit can quickly identify if a company is going to be profited ableby subtracting the fixed expenses from the contribution margin.

olivebuffalo913

1. A cost pool is :

A. a collection of homogeneous cost to be assigned.

B. almost always the combined result of decision made bydifferent responsibility center manager.

C. The primary function of a responsibility accountingsystem.

D. the amount of cost that has been allocated say, 10% to a userdepartment.

E. The tool used to allocate cost dollars to userdepartments.

2.Variable costs are those costs that:

A. vary (in total ) inversely with changes in activity.

B. vary (in totals) directly with in activity.

C. remain constant (in total) as activity changes.

D. Decrease on a per unit basis as activity increase.

E. Increase on a per unit basis as activity increases.

3. When comparing EOQ and JIT inventory system, which of thefollowing statement is false?

A. The EOQ approach takes the viewpoint that some inventory isnecessary.

B. The EOQ system assumes a constant order quantity.

C. JIT argues that inventory investments should beminimized.

D. The EOQ system focuse on acquistion and holding costs.

E. JIT argues that safety stocks are necessary to reduce theprobability of a stock shortage.

4. Procust costing in manufacturing firm is the process of:

A. Accumulating the company 's period costs

B. Allocating costs among the firm departments.

C. Placing a value on the company's fixed assets.

D. Assigning cost to the firm's inventory.

E. Assinging costs to the comapny's managers.

5.Decentralized firms can delegate authority by structuring anorganization into responsibility centers. Which of the followingorganizational segments is most like a totally independent,standalone business where managers are expected to "make it on theown?

A. Cost center

B. Revenue Center

C. Profit Center

D. Investment center

E. Contribution center

6. Costs that are expensed when incurred are called:

A. Product costs

B. Direct Costs

C. Inventoriable Cost

D. Period Cost

E. Indirect costs

7. A budget serves as a benchmark against which:

A. Actual result can be compared

B. Allocated results can be compared

C. actual result be inconsequential

D. Alloated results become inconsequential.

E. Cash balances can be compared to expense totals.

8. Activity based costing system.

A. use a single volume based cost driver.

B. Assign overhead to product based on the products' relativeusage of direct labor.

C. often reveal products that were under or over costed bytraditional costing.

D. Typically use fewer cost driver than more traditional costingsystem.

E . Have a tendency to distort product costs/

9.The point in a joint production process where each individualproduct becomes separately identifiable is commonly called the:

A. Decision point

B. Separation point

C. Individual product point

D. Split-off point

E. Joint product point.

10.The RIO calculation will indicate:

A. the percentage of each sale dollar that is invested inassets.

B. The sale dollars generated from each dollar of income.

C.How effectively a company used its invested capital

D. the invested capital generated from each dollar of income

E. the overall quality of the company's earnings.

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1. All of the following statements regarding managementaccounting's role in assigning decision-making authority are trueexcept:

A. Since management accounting information is used for decisionmaking purposes, historical information is unnecessary.

B. Information from the management accounting system supportsdecision making.

C. The syllabus for a college course is a type of report thatoutlines students' decision-making responsibilities.

D. All members of an organization have some decision-makingability.

2. Which of the following costs would not be considered part ofthe manufacturing overhead of a furniture manufacturer?

A. The cost of compliance with federal factory safetyregulations.

B. Depreciation expense on factory equipment.

C. The cost of grease used to lubricate factory equipment.

D. The cost of wood used in furniture construction.

3. Which of the following costs would not be considered part ofthe manufacturing overhead of a chemical plant?

A. The costs of disposing of toxic waste materials.

B. Salaries of factory medical personnel.

C. Salaries of employees who operate distilling equipment usedin the production process.

D. The cost of complying with federal safety regulationsconcerning plant operations.

4. Duffy Brothers manufactures a single product using a processinvolving (1) mixing ingredients and (2) a subsequent packagingoperation. Duffy uses a process costing system to account for theflow of costs through its production process

4a) Refer to the information above. In the production processdescribed, what is the Work in Process Inventory: PackagingDepartment debited for?

A. Costs transferred from the Work in Process Inventory: MixingDepartment only.

B. The cost of materials, direct labor, and overhead applicableto the packaging operation only.

C. Costs transferred from the Work in Process Inventory: MixingDepartment, as well as materials, direct labor, and overheadapplicable to the packaging operation.

D. Costs transferred to the Finished Goods Inventory.

4b) Refer to the information above. In Duffy s operation, theFinished Goods Inventory account is debited for:

A. The cost of units transferred directly from the MixingDepartment.

B.The cost of units transferred directly from the PackagingDepartment.

C. The cost of units transferred directly from both the MixingDepartment and the Packaging Department.

D. The cost of the units sold.

5. Sue s Soup Products uses a process costing system with twoprocessing departments: the Mixing and Cooking Department and theCanning Department. Work in process inventories are reduced to zeroeach month. In March, the Mixing and Cooking Department incurredmanufacturing costs of $63,000 to mix 42,000 gallons of soup. TheCanning Department incurred manufacturing costs of $9,000. A totalof 170,000 cans of soup were transferred to the finished goodswarehouse during the month.

5A) Refer to the information above. The journal entry to recordthe transfer of soup out of the Mixing and Cooking Departmentduring March would include:

A. A debit to Work in Process Inventory, Mixing and CookingDepartment of $63,000.

B. A credit to Work in Process Inventory, Canning Department of$72,000.

C. A debit to Finished Goods Inventory of $72,000.

D. A credit to Work in Process Inventory, Mixing and CookingDepartment of $63,000.

5B) Refer to the information above. The journal entry to recordthe transfer of soup out of the Canning Department during Marchwould include:

A. A credit to Work in Process Inventory, Canning Department of$9,000.

B. A credit to Work in Process Inventory, Canning Department of$63,000.

C. A debit to Finished Goods Inventory of $72,000.

D. A credit to Finished Goods Inventory, Mixing and CookingDepartment of $72,000.

5C) Refer to the information above. The unit cost per gallon ofsoup transferred to the Canning Department during March was:

A. $1.50.

B. $1.62.

C. $1.71.

D. $1.83.

5D) Refer to the information above. The unit cost per can ofsoup transferred to the finished goods warehouse during Marchwas:

A. $0.05.

B. $0.42.

C. $0.37.

D. $1.71.

6. Evans Products uses a process costing system with twoprocessing departments: the Mixing Department and the FinishingDepartment. In June, unit costs incurred by the Mixing Departmentamounted to $4.00 per unit. Unit costs transferred to the finishedgoods warehouse during the month amounted to $22. Work-in-processinventories are reduced to zero each month.

Refer to the information above. If 80% of all inventory was soldat $32 per unit and 3,500 units were sold, what is the cost of thefinished goods inventory at year-end?

A. $16,800.

B. $77,000.

C. $19,250.

D. $96,250

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ACT202 Chapter Notes - Chapter 4: Management Accounting

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