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Questions and Answers
The cost allocation process is important for understanding the ______ of production.
The cost allocation process is important for understanding the ______ of production.
cost
The first step in the cost allocation process is ______ the costs.
The first step in the cost allocation process is ______ the costs.
identifying
Costs can be classified as either direct or ______.
Costs can be classified as either direct or ______.
indirect
The ______ of a cost depends on where it is incurred, such as in specific departments.
The ______ of a cost depends on where it is incurred, such as in specific departments.
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The allocation of costs is based on ______ of work.
The allocation of costs is based on ______ of work.
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Raw material ______ are a major component of the cost of production.
Raw material ______ are a major component of the cost of production.
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The functional income account provides a comprehensive view of a company's ______ and expenses.
The functional income account provides a comprehensive view of a company's ______ and expenses.
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The cost allocation process uses information from both financial accounting and ______ accounting.
The cost allocation process uses information from both financial accounting and ______ accounting.
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The cost allocation process involves allocating costs to ______ based on units of work.
The cost allocation process involves allocating costs to ______ based on units of work.
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The cost allocation process begins by identifying costs in ______ departments.
The cost allocation process begins by identifying costs in ______ departments.
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The cost allocation process involves distributing costs from ______ to auxiliary centers.
The cost allocation process involves distributing costs from ______ to auxiliary centers.
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The cost allocation process uses ______ keys to distribute costs to different departments.
The cost allocation process uses ______ keys to distribute costs to different departments.
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The cost allocation process can be used to assign costs to ______, such as manufacturing overhead, administration, and maintenance.
The cost allocation process can be used to assign costs to ______, such as manufacturing overhead, administration, and maintenance.
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Costs are allocated from auxiliary centers to ______ using a work unit method.
Costs are allocated from auxiliary centers to ______ using a work unit method.
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Costs are allocated from main centers to ______ using direct allocation or imputation.
Costs are allocated from main centers to ______ using direct allocation or imputation.
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The cost allocation process can be used to determine the ______ cost of producing a product.
The cost allocation process can be used to determine the ______ cost of producing a product.
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The cost of materials is calculated by subtracting ______ from gross purchases.
The cost of materials is calculated by subtracting ______ from gross purchases.
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The department responsible for ______ includes both procurement and production.
The department responsible for ______ includes both procurement and production.
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The ______ cost distribution table highlights indirect costs allocation across various departments.
The ______ cost distribution table highlights indirect costs allocation across various departments.
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The secondary distribution of indirect costs is calculated based on ______ of work.
The secondary distribution of indirect costs is calculated based on ______ of work.
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The table shows the allocation of indirect costs for products A, B, and C, with a total of ______ euros.
The table shows the allocation of indirect costs for products A, B, and C, with a total of ______ euros.
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The total cost of materials is referred to as the ______ cost.
The total cost of materials is referred to as the ______ cost.
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The units of work for Product A represent ______% of the total kgs purchased.
The units of work for Product A represent ______% of the total kgs purchased.
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The indirect cost allocation for Product A is ______ euros.
The indirect cost allocation for Product A is ______ euros.
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The units of work for Product C represent ______ machine hours.
The units of work for Product C represent ______ machine hours.
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The table shows the allocated indirect costs for the ______ department are 18,000 euros.
The table shows the allocated indirect costs for the ______ department are 18,000 euros.
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The ______ distribution involves transferring costs from auxiliary centers to main centers.
The ______ distribution involves transferring costs from auxiliary centers to main centers.
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The distribution of indirect costs among cost centers is facilitated by ______ keys.
The distribution of indirect costs among cost centers is facilitated by ______ keys.
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The fourth phase of the cost allocation process involves allocating general manufacturing costs to ______.
The fourth phase of the cost allocation process involves allocating general manufacturing costs to ______.
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The ______ criterion is important for ensuring that distribution keys are representative of actual consumption.
The ______ criterion is important for ensuring that distribution keys are representative of actual consumption.
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A ______ of work or transfer is a tool used for allocating common indirect costs.
A ______ of work or transfer is a tool used for allocating common indirect costs.
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The concept of a unit of work or transfer involves finding a ______ variable of the center's costs.
The concept of a unit of work or transfer involves finding a ______ variable of the center's costs.
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The ______ criterion focuses on the practicality and feasibility of using a distribution key in practice.
The ______ criterion focuses on the practicality and feasibility of using a distribution key in practice.
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The ______ of indirect costs is essential for understanding the true cost of products or services.
The ______ of indirect costs is essential for understanding the true cost of products or services.
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The ______ key is crucial for determining the unit of work or transfer.
The ______ key is crucial for determining the unit of work or transfer.
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The unit of work or transfer facilitates the allocation of ______ costs of a center.
The unit of work or transfer facilitates the allocation of ______ costs of a center.
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Supplies, insurance premiums, and depreciation are examples of ______ costs.
Supplies, insurance premiums, and depreciation are examples of ______ costs.
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The unit of work or transfer can be used for the analysis of the ______ of the center.
The unit of work or transfer can be used for the analysis of the ______ of the center.
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The total ______ costs are calculated as the sum of all primary costs, including direct materials, direct labor, and indirect costs.
The total ______ costs are calculated as the sum of all primary costs, including direct materials, direct labor, and indirect costs.
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The table presented re-classifies indirect costs based on their ______.
The table presented re-classifies indirect costs based on their ______.
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The first distribution of indirect costs primarily focuses on allocating costs to ______ centers.
The first distribution of indirect costs primarily focuses on allocating costs to ______ centers.
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The use of installed ______ kW/h is a distribution key for allocating supplies costs.
The use of installed ______ kW/h is a distribution key for allocating supplies costs.
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The ______ cost is calculated for both finished products and semi-finished products.
The ______ cost is calculated for both finished products and semi-finished products.
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The ______ cost is the difference between the entry cost and the closing stock.
The ______ cost is the difference between the entry cost and the closing stock.
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The ______ account provides a comprehensive view of a company's revenues and expenses.
The ______ account provides a comprehensive view of a company's revenues and expenses.
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The ______ cost of production includes the cost of raw materials, direct labor, and manufacturing overhead.
The ______ cost of production includes the cost of raw materials, direct labor, and manufacturing overhead.
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The ______ purchases are calculated by subtracting returns and prompt payment discounts from gross purchases.
The ______ purchases are calculated by subtracting returns and prompt payment discounts from gross purchases.
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The ______ stock is calculated by multiplying the closing stock quantity by the unitary cost.
The ______ stock is calculated by multiplying the closing stock quantity by the unitary cost.
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The ______ cost of production is calculated by summing the cost of raw materials, direct labor, and general manufacturing costs.
The ______ cost of production is calculated by summing the cost of raw materials, direct labor, and general manufacturing costs.
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The ______ cost is the difference between the net purchases and the procurement costs.
The ______ cost is the difference between the net purchases and the procurement costs.
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Flashcards
Cost Allocation Process
Cost Allocation Process
A systematic approach to distributing costs among departments or products.
Identification
Identification
The first step in the cost allocation process, recognizing from financial accounting.
Classification
Classification
The process of categorizing costs as direct or indirect.
Location
Location
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Allocation
Allocation
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Direct Costs
Direct Costs
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Indirect Costs
Indirect Costs
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Functional Income Account
Functional Income Account
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Primary Distribution
Primary Distribution
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Secondary Distribution
Secondary Distribution
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Auxiliary Departments
Auxiliary Departments
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Units of Work
Units of Work
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Direct Allocation
Direct Allocation
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Common Costs
Common Costs
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Quality Consideration
Quality Consideration
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FIFO Consumption
FIFO Consumption
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Closing Stock Calculation
Closing Stock Calculation
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Net Purchases
Net Purchases
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Gross Purchase Cost
Gross Purchase Cost
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Production Cost (PC)
Production Cost (PC)
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Entry Cost
Entry Cost
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Gross Margin
Gross Margin
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Functional P&L Account
Functional P&L Account
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Indirect Cost Distribution
Indirect Cost Distribution
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Total Cost Primary Distribution
Total Cost Primary Distribution
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Total Cost Secondary Distribution
Total Cost Secondary Distribution
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Cost per Unit of Work
Cost per Unit of Work
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Unit of Work Examples
Unit of Work Examples
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Allocated Indirect Cost
Allocated Indirect Cost
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Cost of Materials
Cost of Materials
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Gross Purchases
Gross Purchases
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Purchase or Acquisition Price
Purchase or Acquisition Price
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Auxiliary Centers
Auxiliary Centers
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Main Centers
Main Centers
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Allocation of Indirect Costs
Allocation of Indirect Costs
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Representative Variable
Representative Variable
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Distribution Key
Distribution Key
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Efficiency Analysis
Efficiency Analysis
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Indirect Materials
Indirect Materials
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Representativeness Criterion
Representativeness Criterion
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Operability Criterion
Operability Criterion
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Total Primary Costs
Total Primary Costs
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Causality Criterion
Causality Criterion
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Cost of Equity
Cost of Equity
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Indirect Load Reclassification Table
Indirect Load Reclassification Table
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Study Notes
Accounting for Decision Making - Topic 2
- This topic covers the cost allocation process, analysis of production cost, and functional income account generation.
Cost Allocation Process
- Identification: Derived from financial accounting records, identifying all costs.
- Classification: Categorizing costs as direct or indirect. Direct costs are directly tied to a product, while indirect costs are shared across multiple products.
- Location: Determining the department where costs are incurred, using distribution keys to allocate indirect costs.
- Allocation: Assigning costs to specific products, based on predetermined work units or other relevant factors.
Cost of Materials
- Cost of entry: Includes purchase price (or acquisition price), returns, rappels, and discounts, transportation, insurance, and other acquisition costs.
- Net Purchases: The total cost after accounting for all deductions from the gross cost.
- Cost of departure: Storage costs, procurement department costs, and any costs associated with getting the materials from the storage area to other departments
Functional Income Account
- The functional income statement presents revenues and expenses categorized by function or activity.
- Key components include net sales, cost of sales (or cost of goods sold), gross margin, distributor costs, administrative costs, and operating results.
Cost Allocation Process - Summary
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Summary of the four phases: The four phase process in costing begins with identifying and classifying costs, then locating them in departments. The final phase involves allocating those costs to specific products.
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Cost centers: Real divisions of the company, computing centers, and grouping homogeneous costs are all considered cost centers.
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Distribution key: Tools that allocate indirect costs to cost centers.
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Requirements for distribution key: These include representativeness (a cause-and-effect relationship), operability (economic feasibility), and measurability (units of measure are easily calculated).
Costing Phases: Location
- Example of indirect load reclassification table
3rd Phase: Location (2)
- Secondary distribution of indirect costs
- T1 (Wood), T2 (Metals), T3 (Assembly) are examples of main centers
4th Phase: Allocation to Products
- Includes general manufacturing costs, process costs, and distributes those costs using a work unit to the correct products
Unit of Work or Transfer
- Provides a method for transferring common, indirect costs, either to another center or to a product (allocation methodology).
2nd Distribution
- Operation to carry common indirect costs from secondary to primary locations
- Types include: direct, algebraic, unilateral, iterative, or approximate.
Cost of Materials
- Definitions of Input and Output pricing methods.
- Includes both the cost of entry and cost of departure from the warehouse.
- Discusses warehouse costs.
- Includes a practical example for calculation of consumption, demonstrating how to value raw materials when calculating consumption.
Cost of Materials
- Provides a detailed explanation of treatment of holding / storage costs according to outputs and inputs
- Covers warehouse output cost calculation
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Description
This quiz covers the essential concepts of the cost allocation process within production. It focuses on various classifications of costs, their departments, and the importance of accurate allocation in financial and managerial accounting. Test your understanding of these key concepts and improve your knowledge of production finance.
