Questions and Answers
What is the definition of cost accounting?
Cost accounting is the system of recording, classifying, summarizing, analyzing, and interpreting the details of the costs of materials, labor, and overhead used in the production of goods and services.
What is one purpose of cost accounting?
Which of the following is considered a manufacturing cost?
What are direct materials?
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What is the prime cost?
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What does work-in-process inventory reflect?
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Which cost system collects actual amounts of direct materials, direct labor, and factory overhead?
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What distinguishes the Job Order Cost System?
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Study Notes
Introduction to Cost Accounting
- Cost accounting involves the recording, classification, summarization, analysis, and interpretation of costs associated with materials, labor, and overhead in production.
- Essential for management planning and controlling activities, including budget preparation.
Purposes of Cost Accounting
- Provides necessary tools for management decision-making and future activity planning.
- Aids in determining costs for construction, manufacturing, and service delivery.
- Facilitates intelligent decision-making by comparing actual costs against standard costs.
Classification of Manufacturing Costs
- Manufacturing Process: Converting raw materials into finished goods utilizing labor and manufacturing overhead.
- Direct Materials: Raw materials that become a significant part of the finished product.
- Direct Labor: Wages of employees directly involved in production.
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Manufacturing Overhead: Indirect costs including utilities and supplies, subdivided into:
- Indirect Materials: Minor materials that are impractical to trace to specific products.
- Indirect Labor: Wages for factory personnel not directly manufacturing products.
- Other Overhead: Costs such as payroll taxes, factory rent, insurance, and maintenance.
Key Cost Concepts
- Prime Cost: Sum of direct materials and direct labor; reflects major cost sources in production.
- Conversion Cost: Total of direct labor and manufacturing overhead; indicates cost to convert raw materials into finished goods.
Inventories in Manufacturing
- Raw Materials Inventory: Cost of raw materials and supplies set for manufacturing; shifts to work-in-process inventory once utilized.
- Work in Process Inventory: Cost of unfinished goods including raw materials, direct labor, and overhead at the accounting period's end.
- Finished Goods Inventory: Cost of completed goods ready for sale; akin to merchandise inventory for retail businesses.
Systems of Cost Accumulation
- Actual Cost Accumulation: Records actual costs of materials, labor, and overhead for each product.
- Standard Cost System: Establishes costs in advance through analysis and forecasts prior to production.
- Normal Cost System: Combines actual and standard systems; accumulates direct material and labor costs, with overhead based on predetermined rates.
Types of Cost Systems
- Job Order Cost System: Tracks costs assigned to specific job orders for similar goods; utilizes job cost sheets for recording material and labor costs, along with estimated manufacturing overhead upon job completion.
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Description
This quiz covers the basics of cost accounting and the job order cost cycle, focusing on the definition and purposes of cost accounting. Test your knowledge of how costs are recorded, classified, summarized, and analyzed. Perfect for beginners in accounting.
