Finance and Cost Accounting Overview
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Questions and Answers

Which of the following is NOT considered a type of inventory?

  • Customer orders (correct)
  • Finished goods
  • Raw materials
  • Work in process

Freight-in is added to purchases when calculating net purchases.

True (A)

What is calculated by subtracting purchase returns, allowances, and discounts from gross purchases?

Net Purchases

The value of materials used in production is referred to as _______.

<p>Direct materials</p> Signup and view all the answers

Match the type of manufacturing cost with its description:

<p>Direct materials = Cost of raw materials used in production Direct labor = Wages paid to workers directly involved in manufacturing Factory overhead = Indirect costs associated with manufacturing Cost of goods sold = Total cost of producing goods that are sold</p> Signup and view all the answers

Which of the following items affects the work in process inventory?

<p>Direct labor (C)</p> Signup and view all the answers

Which of the following is an example of a fixed cost?

<p>Rent paid for a factory (D)</p> Signup and view all the answers

A relevant cost is a cost that will not affect decision-making.

<p>False (B)</p> Signup and view all the answers

The total materials available for use is calculated by adding net purchases to the ending raw materials inventory.

<p>False (B)</p> Signup and view all the answers

What is a controllable cost?

<p>A cost that a manager can influence or control.</p> Signup and view all the answers

What is the formula to calculate direct materials used in production?

<p>Net Purchases + Beginning Raw Materials Inventory - Ending Raw Materials Inventory</p> Signup and view all the answers

________ costs are incurred when multiple outputs are derived from one source.

<p>Joint</p> Signup and view all the answers

Match the cost classification to its definition:

<p>Variable Cost = Vary in total but fixed on a per unit basis Indirect Costs = Not directly attributable to a specific cost object Committed Cost = Costs that cannot be easily changed Standard Cost = Costs expressed at a predetermined rate per unit</p> Signup and view all the answers

Which of the following is classified as a non-GAAP cost?

<p>Opportunistic costs (A)</p> Signup and view all the answers

Semi-variable costs consist of both fixed and variable components.

<p>True (A)</p> Signup and view all the answers

Define 'irrelevant costs'.

<p>Costs that do not affect decision-making.</p> Signup and view all the answers

What is the primary concern of finance within a personal context?

<p>Spending and saving earnings (C)</p> Signup and view all the answers

Managerial financial tasks include developing a financial plan and extending credit to customers.

<p>True (A)</p> Signup and view all the answers

Name one area of career opportunity in financial services.

<p>Banking</p> Signup and view all the answers

In finance, the primary objective of businesses is to earn a ______.

<p>profit</p> Signup and view all the answers

Match the following roles in finance with their descriptions:

<p>Financial Manager = Administers the financial affairs of businesses Investment Advisor = Provides advice on investments Cost Accountant = Analyzes cost of production Real Estate Agent = Assists in buying and selling properties</p> Signup and view all the answers

Which of the following is NOT a task performed by financial managers?

<p>Designing clothing lines (A)</p> Signup and view all the answers

Management advisory services aim primarily to sell financial products to clients.

<p>False (B)</p> Signup and view all the answers

What is one responsibility of a financial manager?

<p>Raising money to fund operations</p> Signup and view all the answers

What is the primary purpose of cost accounting?

<p>To measure, record, and report product costs (C)</p> Signup and view all the answers

A job order cost system assigns costs to batches of goods.

<p>True (A)</p> Signup and view all the answers

What are the two major steps in the flow of costs in a job order cost system?

<p>Accumulating manufacturing costs and assigning accumulated costs.</p> Signup and view all the answers

When raw materials are received, they are debited to _______ Inventory.

<p>Raw Materials</p> Signup and view all the answers

Match the following cost components with their respective accounts:

<p>Raw Materials = Raw Materials Inventory Labor = Work in Process Inventory Manufacturing Overhead = Cost of Goods Sold Finished Goods = Finished Goods Inventory</p> Signup and view all the answers

The perpetual inventory system provides outdated information on product costs.

<p>False (B)</p> Signup and view all the answers

What happens to the cost of a job when it is completed?

<p>The cost is transferred to Finished Goods Inventory.</p> Signup and view all the answers

What is the total cost of purchasing the handles and modules?

<p>Php42,000 (B)</p> Signup and view all the answers

Factory labor costs include only the gross earnings of factory workers.

<p>False (B)</p> Signup and view all the answers

What entry is made to record factory labor costs of Php32,000?

<p>Factory Labor 32,000; Factory Wages Payable 27,000; Employer Payroll Taxes Payable 5,000</p> Signup and view all the answers

The total factory labor cost incurred by KAIA-MOTO Manufacturing is Php______.

<p>32,000</p> Signup and view all the answers

Match the following manufacturing costs with their descriptions:

<p>Factory Labor = Wages and payroll-related costs Manufacturing Overhead = Indirect costs associated with production Raw Materials Inventory = Cost of materials for production Factory Wages Payable = Amounts owed to factory workers</p> Signup and view all the answers

Which account is debited when recording manufacturing overhead?

<p>Manufacturing Overhead (D)</p> Signup and view all the answers

What is the total amount related to payroll taxes in the factory labor cost entry?

<p>5,000</p> Signup and view all the answers

Manufacturing overhead can only be recognized through daily entries.

<p>False (B)</p> Signup and view all the answers

What is the primary purpose of a predetermined overhead rate?

<p>To apply manufacturing overhead to specific jobs (D)</p> Signup and view all the answers

Large companies often use a single, company-wide predetermined overhead rate.

<p>False (B)</p> Signup and view all the answers

What was the activity base used by KAIA-MOTO Manufacturing for its predetermined overhead rate?

<p>Direct labor cost</p> Signup and view all the answers

The predetermined overhead rate is based on the relationship between estimated annual overhead costs and expected annual __________ activity.

<p>operating</p> Signup and view all the answers

What is the predetermined overhead rate if a company expects annual overhead costs of Php280,000 and direct labor costs of Php350,000?

<p>80% (D)</p> Signup and view all the answers

Match the activity bases with their usage:

<p>Direct labor costs = Historically used for overhead application Machine hours = Increasingly used for overhead allocation Activity-based costing = Allocates costs based on activities Direct labor hours = Another traditional measure for overhead</p> Signup and view all the answers

Today's manufacturing operations are primarily based on manual labor.

<p>False (B)</p> Signup and view all the answers

What does a company achieve by applying a predetermined overhead rate during the year?

<p>It allows for immediate determination of job costs.</p> Signup and view all the answers

Flashcards

Net Purchases

The total value of raw materials acquired during a period, after accounting for purchase returns, allowances, and discounts.

Total Materials Available for Use

The combined value of beginning raw materials inventory and net purchases.

Direct Materials (Raw Materials Used)

The amount of raw materials transferred from the storeroom to the production facility.

Prime Cost

The cost of direct materials and direct labor.

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Conversion Cost

The combined cost of direct labor and factory overhead.

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Total Manufacturing Cost

The total cost incurred in the manufacturing process, including direct materials, direct labor, and factory overhead.

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Work in Process Inventory

The cost of direct materials, direct labor, and factory overhead used in the production process.

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Finished Goods Inventory

The cost of goods manufactured that are ready for sale.

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Finance

The study and practice of effectively managing money, involving both individual and business aspects.

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Personal Finance

Focuses on individual decisions about spending, saving, and investing personal earnings.

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Business Finance

Deals with how businesses raise money, invest it for profit, and decide whether to reinvest or distribute earnings.

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Financial Services

The sector providing financial advice and products to individuals, businesses, and governments.

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Managerial Finance

The duties of financial managers within businesses, encompassing financial planning, budgeting, credit decisions, investment evaluations, and fundraising.

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Cost Accounting

A branch of accounting that focuses on internal cost information for decision-making within a company.

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Management Advisory Services (MAS)

Professional consulting services aimed at enhancing a client's use of their resources to achieve organizational goals.

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MAS Professionals

Individuals or entities providing MAS must possess the necessary education and experience to offer professional consulting services.

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Variable Cost

A cost that varies in total with the level of activity, but stays fixed per unit.

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Fixed Cost

A cost that stays constant in total within a relevant range, regardless of activity level.

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Semi-variable/semi-fixed Cost

A cost that has both fixed and variable components.

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Step-fixed Cost

A cost that is fixed within a specific range of activity, but changes in steps if the activity exceeds that range.

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Direct Costs

Costs that can be directly traced to a specific product, project, or department.

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Indirect Costs

Costs that can't be easily traced to a specific product or department and are allocated instead.

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Joint Costs

Costs that are incurred when producing multiple outputs from a single process.

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Relevant Costs

Costs that affect decision-making by changing depending on a manager's decision.

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What is Cost Accounting?

Cost accounting measures, records, and reports product costs to determine the total and unit cost of each product. This information is valuable for cost management and financial reporting.

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What is a Cost Accounting System?

A cost accounting system uses manufacturing cost accounts to track expenses in the company's general ledger. It operates under a perpetual inventory system, providing real-time information on product costs.

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What is a Job Order Cost System?

A job order cost system tracks costs for each individual job or batch of goods. It aligns with the physical flow of materials as they transform into finished products.

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How do costs move in a Job Order Cost System?

As materials are used in production, their cost is transferred to the Work in Process Inventory account. Once a job is complete, its cost is transferred to Finished Goods Inventory. Finally, when the goods are sold, their cost is transferred to Cost of Goods Sold.

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What is the first step in accumulating costs?

The first step involves accumulating manufacturing costs. This includes the cost of raw materials, factory labor, and manufacturing overhead. At this stage, these costs are not yet assigned to specific jobs.

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What is the second step in accumulating costs?

The second step involves assigning the accumulated costs to specific jobs. This includes the cost of materials, labor, and overhead used in production, as well as the cost of completed and sold goods.

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How is Raw Materials Inventory Debited?

Raw Materials Inventory is debited when a company receives raw materials. This debit represents the invoice cost plus any freight costs charged to the buyer.

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How is Raw Materials Inventory Credited?

Raw Materials Inventory can be credited for purchase discounts taken, returns, and allowances.

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Raw Materials Inventory

The cost of materials used in production, including direct materials and indirect materials.

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Factory Labor

An account used to track the total cost of labor incurred in the manufacturing process, including wages, payroll taxes, and fringe benefits.

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Manufacturing Overhead

An account used to track the cost of all indirect expenses incurred in the manufacturing process, such as utilities, depreciation, and property taxes.

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Work in Process

An account used to track the cost of goods that are partially completed but not yet finished. It includes the cost of direct materials, direct labor, and manufacturing overhead.

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Finished Goods

An account used to track the total cost of goods that have been completed and are ready for sale.

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Cost of Materials

Cost of materials purchased for production, including direct materials and indirect materials.

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Direct Labor

Cost of labor directly associated with the production of goods (e.g., wages of workers making products).

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Indirect Labor

Cost of labor not directly associated with the production of goods (e.g., wages of factory supervisors).

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What is a predetermined overhead rate?

A predetermined overhead rate is used to allocate manufacturing overhead costs to work in process and specific jobs. It's calculated by dividing estimated annual overhead costs by the expected annual operating activity, which is usually measured in terms of a common activity base like direct labor hours.

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What is the purpose of a predetermined overhead rate?

A predetermined overhead rate helps companies estimate the total cost of a job at the time of completion, even before all the actual overhead costs are known. This allows for accurate pricing and improved decision-making.

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What are common activity bases for a predetermined overhead rate?

Common activity bases used for calculating predetermined overhead rates include direct labor hours, machine hours, or direct labor costs. The choice depends on the nature of the manufacturing process and the relationship between overhead costs and the chosen activity.

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How is direct labor cost used in a predetermined overhead rate?

Direct labor cost is a common activity base for predetermined overhead rates. It means that for every peso spent on direct labor, a certain percentage (the overhead rate) is assigned to the job as overhead.

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Can predetermined overhead rates be different for departments?

Predetermined overhead rates can vary from department to department in larger companies. This allows for more accurate cost allocation by considering specific overhead costs and activities in each department.

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Why are machine hours increasingly used as an activity base?

Traditionally, direct labor costs or hours were used as activity bases, but with increased automation, machine hours are gaining popularity as a more accurate measure of activity and overhead allocation.

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What is activity-based costing (ABC)?

Activity-based costing (ABC) aims to allocate overhead costs more accurately by identifying and analyzing activities that generate those costs. It uses multiple cost pools and drivers to achieve a more precise allocation.

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Can a company use multiple activity bases?

A company may use multiple activity bases if a job is manufactured in several departments, each with its own overhead rate. This ensures appropriate allocation of overhead costs based on the specific activities in each department.

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Study Notes

Finance

  • Finance is the science and art of managing money.
  • Personal context involves decisions on how much to spend, save, and invest.
  • Business context includes how firms raise capital, invest in profitability, and distribute profits to investors.
  • Financial services involve advising and delivering financial products to individuals, businesses, and governments.
  • Career opportunities in finance include banking, personal financial planning, investments, real estate, and insurance.
  • Managerial finance involves the duties of financial managers in various businesses (private/public, large/small, profit-seeking/non-profit).
  • Financial managers administer financial affairs, create financial plans/budgets, extend credit, evaluate expenditures, and raise funds.

Cost Accounting

  • Cost accounting focuses on measuring, recording, and analyzing costs for financial reporting and decision-making.
  • Cost is anything sacrificed to obtain a benefit.
  • Cost classifications can vary based on the purpose of classification and are not mutually exclusive.
  • GAAP costs are relevant for financial reporting and are found in financial statements. These include manufacturing and non-manufacturing costs.

Management Advisory Services (MAS)

  • Management advisory services provide consulting to improve client capabilities and resource utilization to achieve objectives.
  • MAS professionals possess relevant education and experience.
  • The 4Ms (machinery, manpower, methods, materials) are important resources.

Managerial vs Financial Accounting

  • Managerial accounting caters to internal users (owners).
  • Financial accounting caters to external users (BIR, SEC).
  • Managerial reports are special and vary, while financial reports are general.

Work of Management and the Planning and Control Cycle

  • The planning includes
  • Directing and motivating
  • Controlling
  • Deciding

Need for Information

  • Relevant information is crucial for decision-making.
  • Data needs to be processed into information.

Characteristics of Managerial Accounting Reports

  • Managerial accounting reports should be relevant, timely, accurate, clear, and concise.

Areas of MAS

  • MAS focuses on analysis, planning, organizing, and control.
  • Introducing new ideas, concepts, and methods improves management.
  • Improving policies, and procedures, systems, and relationships.

Organizational Structure

  • Organizational structure defines responsibility and authority distribution within an organization.
  • Centralization vs. decentralization describes organizational structure.
  • Line and staff relationships describe how roles interact.

The Chief Financial Officer (CFO)

  • The CFO oversees the accounting department.
  • The CFO is a part of top management and plays an active role in planning, control, and decision-making.

Treasurership vs Controllership

  • Treasurership involves providing capital, investor relations, short-term financing, banking, collections, investment, and insurance.
  • Controllership includes planning and control, reporting, evaluating, consulting, tax administration, government reporting, protection of assets, and economic appraisal.

Cost Accounting Basics

  • Describes cost accounting as a branch in accounting
  • Describes main objective of cost accounting
  • Classifies Costs

Manufacturing Costs

  • Categorizes manufacturing costs into direct materials, direct labor, and manufacturing overhead.
  • Explains prime and conversion costs.
  • Describes non-manufacturing costs or selling and administrative costs

Costs as to Accounting Periods

  • Categorizes costs as capital or revenue expenditures
  • Categorizes costs as product or period costs.

Non-GAAP Costs

  • Describes costs not included in GAAP - such as variable, opportunity, etc

Other Costs

  • Describes avoidable vs unavoidable costs
  • Describes out of pocket and imputed costs
  • Describes opportunity and sunk costs
  • Describes quality costs

Methods of Costing

  • Covers job costing, contract costing, cost plus costing, batch costing, and process costing
  • Explores the differences between job order and process costing

Introduction to Cost Flow Systems

  • Describes how non-cost systems simplify financial statements.
  • Defines inventory types (raw materials, work in process,finished goods)
  • Identifies manufacturing costs.
  • Explains the flow of costs and inventory implications.

Costing Systems

  • Discusses how cost accounting affects financial reporting and decision-making.
  • Describes job order and process costing methods
  • Describes the importance of costing systems for companies.

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Description

Explore the fundamentals of finance and cost accounting through this quiz. Learn about managing money in both personal and business contexts, and understand the roles of financial managers. Dive into cost classifications and their significance in decision-making and financial reporting.

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