Cost Accounting PDF

Cost Accounting Section 1 Lecturer: Dr Mohamed Wahdan  Cost Accounting and Financial Accounting Financial accounting information is designed for decision makers who are NOT directly involved in the daily management of the firm. We call them EXTERNAL users. Cos...

Cost Accounting Section 1 Lecturer: Dr Mohamed Wahdan  Cost Accounting and Financial Accounting Financial accounting information is designed for decision makers who are NOT directly involved in the daily management of the firm. We call them EXTERNAL users. Cost accounting information is designed for managers who MAKE decisions only for their own organizations. 2  Financial versus Managerial Financial Managerial  External focus  Internal focus  Whole organization  Segments or divisions  Historical  Current/projected  Quantitative  Quantitative/qualitative  Monetary  Monetary and nonmonetary  Verifiable  Timely/reasonable estimate  GAAP  Benefits exceed costs  Formal recordkeeping  Formal and informal recordkeeping  Product cost information Is important for: External parties: stockholders, creditors and regulators They need it for: Investment and credit decisions Complies with GAAP Enterprise focus Internal Parties They need it for: Planning, controlling and decision making Evaluating performance Includes upstream and downstream costs 4  Cost Monetary measure of resources given up to attain an objective (such as acquiring a good or delivering a service) Cost Reaction to Changes in Activity Variable cost Fixed Cost $ $ Total Total # of Units # of Units Unit $ Unit $ Within the # of Units relevant range # of Units  Total and Unit Cost Behavior Total Cost Unit Cost Varies in direct Remains constant Variable proportion to throughout the Cost changes in activity relevant range Fixed Varies inversely Remains constant Cost with changes in throughout activity throughout the relevant range the relevant range Product Costs & Period Cost Product costs Direct material—Measurable part of a product Direct labor—Labor used to manufacture a product or perform a service Overhead—Indirect production cost First appear on the balance sheet in inventory accounts Transferred to the income statement when product is sold Period costs Selling and administrative costs Distribution costs Cost to warehouse, transport, and/or deliver a product or service Major impact on managerial decision making Appear on the income statement when incurred Expensed when incurred  Cost classification Categories Association with cost object Direct—traceable to a cost object Indirect—not traceable to a cost object (must be allocated) Reaction to changes in activity Variable Fixed Mixed Classification on the financial statements Unexpired—balance sheet assets Expired—income statement expenses Product—inventoriable costs Prime—direct material and direct labor Conversion—direct labor and overhead Period—expensed 10 1) Modern cost accounting plays a significant role in management decision making. 1.True 2.False 2) Financial accounting is broader in scope than management accounting. 1.True 2.False 11 1) Modern cost accounting plays a significant role in management decision making. 1.True 2.False 2) Financial accounting is broader in scope than management accounting. 1.True 2.False Explanation: Management accounting is broader in scope than financial accounting. 12 3) Cost accounting provides information only for management accounting purposes. 1.True 2.False 13 3) Cost accounting provides information only for management accounting purposes. 1.True 2.False Explanation: Cost accounting provides information for financial accounting as well as for management accounting purposes. 14 4) Management accounting: A. focuses on estimating future revenues, costs, and other measures to forecast activities and their results B. provides information about the company as a whole C. reports information that has occurred in the past that is verifiable and reliable D. provides information that is generally available only on a quarterly or annual basis 15 4) Management accounting: A. focuses on estimating future revenues, costs, and other measures to forecast activities and their results B. provides information about the company as a whole C. reports information that has occurred in the past that is verifiable and reliable D. provides information that is generally available only on a quarterly or annual basis 16 5) Financial accounting: : A. focuses on the future and includes activities such as preparing next year's operating budget B. must comply with GAAP (generally accepted accounting principles) C. reports include detailed information on the various operating segments of the business such as product lines or departments D. is prepared for the use of department heads and 17 other employees 5) Financial accounting: : A. focuses on the future and includes activities such as preparing next year's operating budget B. must comply with GAAP (generally accepted accounting principles) C. reports include detailed information on the various operating segments of the business such as product lines or departments D. is prepared for the use of department heads and 18 other employees 6) Cost accounting: A. provides information on the efficiency of factory labor B. provides information on the cost of servicing commercial customers C. provides information on the performance of an operating division D. All of these answers are correct. 19 6) Cost accounting: A. provides information on the efficiency of factory labor B. provides information on the cost of servicing commercial customers C. provides information on the performance of an operating division D. All of these answers are correct. 20 7) Products, services, departments, and customers may be cost objects. 1.True 2.False 8) Direct cost is traceable to a cost object 1.True 2.False 21 7) Products, services, departments, and customers may be cost objects. 1.True 2.False 8) Direct cost is traceable to a cost object 1.True 2.False 22 9) Classifying a cost as either direct or indirect depends upon: A. the behavior of the cost in response to volume changes B. whether the cost is expensed in the period in which it is incurred C. whether the cost can be easily identified with the cost object D. whether an expenditure is avoidable or not in the 23 future 9) Classifying a cost as either direct or indirect depends upon: A. the behavior of the cost in response to volume changes B. whether the cost is expensed in the period in which it is incurred C. whether the cost can be easily identified with the cost object D. whether an expenditure is avoidable or not in the 24 future