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Cost Accounting Exam Study Guide Review, Exams of Accounting

Cambridge Technical InstituteAccounting

Cost Accounting Exam Study Guide Review

Typology: Exams

2024/2025

Available from 06/26/2025

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Cost Accounting Exam Study Guide Review
1. The science of accounting...: Accounting is the science of measuring,
reporting, and incentivizing performance
2. 4 important roles of financial accounting: 1. attention-directing
2. decision-facilitating
3. decision-influencing
4. Coordination-facillitating
3. attention-directing: people pay attention to improve the things that are
mea- sured
4. decision-facilitating: information improves decisions
5. decision-influencing: motivate employees to work hard, prevent and
detect unethical behavior
6. Coordination-Facilitating: coordinate decisions across unites (ex. sales
lets production know how many units to make
7. cost: a sacrifice in order to achieve a specific purpose
8. Expense: reduction in wealth (hits the income statement)
9. non-expense: conversion of one resource into another
10. expenditure: cost where cash or cash equivalent is the sacrificed resource
11. resource spending: cost where a non-cash item is the sacrificed resource
12. cost object: something to which costs are being assigned/something
that ac- cumulates costs
13. variable cost: cost that increases when you make one additional item
(materi- als, electricity, hourly wages)
14. fixed cost: a cost that does not increase when you make one additional
item (rent, salaries)
15. marginal cost: - what is costs to make one more unit
- calculated as change in total costs if you make one extra unit
16. average cost: - how much the average unit costs
- calculated: add up all costs and divide by the number of units produced
17. cost driver: a variable, such as the level of activity or volume, that causes
costs to change
18. relevant range: the band or range of normal activity (or volume) in which
there is a specific relationship between the level of activity (or volume) and
the cost in question
19. direct costs: can be traced directly to a cost object
20. indirect costs: are not traced to a cost object, often because it is not
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Cost Accounting Exam Study Guide Review

  1. The science of accounting...: Accounting is the science of measuring, reporting, and incentivizing performance
  2. 4 important roles of financial accounting: 1. attention-directing
  3. decision-facilitating
  4. decision-influencing
  5. Coordination-facillitating
  6. attention-directing: people pay attention to improve the things that are mea- sured
  7. decision-facilitating: information improves decisions
  8. decision-influencing: motivate employees to work hard, prevent and detect unethical behavior
  9. Coordination-Facilitating: coordinate decisions across unites (ex. sales lets production know how many units to make
  10. cost: a sacrifice in order to achieve a specific purpose
  11. Expense: reduction in wealth (hits the income statement)
  12. non-expense: conversion of one resource into another
  13. expenditure: cost where cash or cash equivalent is the sacrificed resource
  14. resource spending: cost where a non-cash item is the sacrificed resource
  15. cost object: something to which costs are being assigned/something that ac- cumulates costs
  16. variable cost: cost that increases when you make one additional item (materi- als, electricity, hourly wages)
  17. fixed cost: a cost that does not increase when you make one additional item (rent, salaries)
  18. marginal cost: - what is costs to make one more unit
  • calculated as change in total costs if you make one extra unit
  1. average cost: - how much the average unit costs
  • calculated: add up all costs and divide by the number of units produced
  1. cost driver: a variable, such as the level of activity or volume, that causes costs to change
  2. relevant range: the band or range of normal activity (or volume) in which there is a specific relationship between the level of activity (or volume) and the cost in question
  3. direct costs: can be traced directly to a cost object
  4. indirect costs: are not traced to a cost object, often because it is not

economi- cally or technically feasible (glue, electricity, sandpaper)

  1. Product costs: Costs used in the manufacturing of a product. These costs stay on the balance sheet as assets (i.e., they are capitalized) until they are sold. Then they hit COGS as an expense
  2. Period costs: SG&A costs that generally don't hit the balance sheet and go straight to the income statement. E.g., sales commissions, CEO salary, Advertising costs, etc.
  3. Direct Material (DM): raw materials that will be turned into finished goose (can be traced to individual jobs)
  4. Direct Labor (DL): labor costs that can be traced to individual jobs
  5. Manufacturing Overhead (MOH): all other manufacturing costs (all costs that are indirect or fixed)
  • can be split into Variable overhead or fixed overhead
  1. prime costs: Direct Materials + Direct Labor
  2. Conversion Costs: Direct Labor + Manufacturing Overhead
  3. Raw Materials: "direct material" resources in stock and available for use
  4. Work In Progress (WIP): products started but not yet completed
  5. Finished Good (FG): products completed and ready for sale ,,,,
  6. 4 Methods for Classifying and Estimating Costs: 1. Industrial engineering (measure everything people do to measure and classify costs)
  7. Conference Method (ask experts for the cost function)
  8. Account Analysis Method (use accounting theory to classify costs)
  9. Quantitative Analysis (high-low method; data driven and mathematical)
  10. high low method: 1. find the highest production and lowest production
  11. slope = rise/run = Y2-Y1/X2-X
  12. intercept = y=mx+b
  13. actual costing: - Put into WIP what I actually use
  • Overhead: add it all up and split it up amount jobs at the end of the year
  1. Normal Approach: 1. Calculate Predetermined rates (PDR) = Estimated Over- head/ Estimated base
  2. Incur Manufactured Overhead (Debit MOH account for actual costs and Credit the other Half)

(undersupplied MOH * Pre-adjusted account balances / Total WIP + FG + COGS)

  1. Write-off approach: the difference is written off to COGS
  • Underapplied: MOH debit balance. the write off will increase COGS (actual MOH

Applied MOH) bad surprise

  • Overapplied: MOH credit balance. the write-off will decrease COGS. Happy sur- prise. (actual MOH < applied MOH)
  1. Single Pool: cost allocation only happens one time
  2. Two-Stage Costing: 1. assign overhead costs into two or more pools
  3. apply overhead costs based on the driver usage for each pool (find PDR for each pool with specified drivers)
  4. Imperfect Drivers problems: 1. hidden difference: one category of driver should really be split into two or more
  5. Hidden Driver: there is another OH driver completely ignored by the system
  6. CVP: Cost, Volume, Profit ... how much volume do we need ... to achieve a profit of $X
  7. **Abbreviations
  • C
  • F
  • v
  • Q
  • R
  • p
  • :** À- C = Total Cost
  • F = Fixed Cost
  • v = variable cost per unit (aka marginal cost)
  • Q = quantity of units produced
  • R = Total Revenue
  • p = Selling price per unit
  • À =operating profit (before taxes)
  1. Total Cost (C) Formula: C = F + vQ
  2. Total Revenue (R) Formula: R = pQ
  1. Operating Profit () À Formula: À =R - C
  2. CVP Formula: (p-v)Q = À +F

This feature is an example of a/an role.: This is coordination-facilitating because

the app allows users to coordinate and communicate decisions and information with others.

  1. The CEO of Rob's Burgers requires his employees to send in a monthly report about the performance of their peers. Doing this makes the employees focus on the problems their peers are facing instead of their own problems. This is an example of a/an activity: This is attention-directing because it forces people to pay attention to, and talk about, one issue instead of another.
  2. At the start of every week, Steve, the CEO of Awesome People Inc., sends a company update that includes new and upcoming policies, procedures, and current events. These reports keep employees up to date with information they need to do their jobs effectively. This is an example of a/an activity.: This is decision-facilitating because it helps the employees make better decisions by presenting relevant information.
  3. A new rule has been established at Tom's Investments. For every quarter that an employee's client's portfolio goes up past 8%, the employee's com- pensation will increase proportionally. This rule was set in place to motivate employees to work harder. This is an example of a/an activi- ty.: This is decision-influencing because it changes the behavior of someone, the employees, who are attempting to garner rewards, more pay.
  4. Lowell Engineering is focused on their staff and how well they perform. If an employee performs and scores well on their six-month evaluation, they receive a bonus and after a certain amount of time, a promotion. This is an example of the function.: The answer is decision-influencing because the employees are offered an implicit incentive of a promotion based on the out- comes of their work.
  5. A fitness watch that tracks your steps, heart rate, and calories burned, and beeps at you when your performance is too low is an example of .: The answer is attention-directing because this step counter mon- itors your fitness and forces you to pay attention to the issue at hand, in this case, how many steps you have taken.
  6. Meat Me Here is a new android app for lonely carnivores. These people can log on and meet up with other meat lovers at steak houses in their
  1. New technology links people's thermostats to their smart phones. Every time the temperature in the house drops below a certain temperature you can receive a text message notification. Which of the four functions of management reporting systems is this showing?: The attention-directing function induces people to pay attention to, and talk about one issue instead of another (Bloomfield, Section 1.1). In this instance, the text message is directing the home owner's attention to the temperature within their house while they are not home.
  2. Every Thanksgiving, I roast a turkey. When I put the turkey in the oven, I make sure to set the timer for 6 hours. When the timer beeps after 6 hours, I am reminded of the turkey in the oven. The timer serves as a/an role.: Attention-directing role. This role induces people to pay attention, thereby improving the things that are measured. When the timer goes off, the person's attention is directed towards the turkey in the oven and they can choose to go and check it or ignore it.
  3. Determine whether each phrase represents financial or managerial ac- counting. a. External users (investors, creditors, SEC) b. Both financial and non-financial performance c. Only focus is financial performance d. Defined by GAAP e. Internal reporting (compensation, production decisions, pricing, forecast- ing) f. Defined by management: a. Financial b. Managerial c. financial d. financial e. managerial f. managerial
  4. A system that ensures that employees, suppliers, and customers are com- plying with company policies and procedures is a/an:: Control system. Compa- nies implement control systems to safeguard assets by ensuring that stakeholders are following company policies and procedures.
  1. A system that links management reports to employee compensation is a/an:: Incentive system. Companies use incentive systems to link management reports to employee compensation
  2. A system developed using outdated technology to solve problems that may no longer be relevant is a/an:: Legacy System

**sandwich costs $3.50 to make and the soda cost the bar $0.75.

  1. The next day Frank comes in and pays Charlie the $7 he owes to the bar.
  2. The delivery man stops by to deliver four 12 packs of Coke ($36) and $ of sandwich supplies. No cash is paid at this time.:** 1.

debit cash $2.00 credit revenue $2 (to record revenue generated from selling a coke) debit COGS $.75 and credit Inventory $.75 (to record expense from sale of inventory

debit notes receivable $7 and credit revenue $7 (to record revenue from selling a coke and a sandwich) debit COGS $4.25 and credit inventory $4.25 (to record expense from sale of inventory

  1. debit cash $7 and credit notes receivable $7 (to record receipt of cash from an outstanding note
  2. debit inventory $86 and credit accounts payable $86 (to record purchase of inventory on account)
  3. Which of the following is a product cost (select all that apply)? a. Rent on factory b. Insurance on factory c. Heat on office building d. Raw materials: Rent on factory Insurance on factory Raw Materials (All costs incurred in the production of inventory are considered product costs, regardless of whether they are variable or fixed.)
  4. Fam's "Taste of Italy" restaurant would label wait staff (waiters, waitresses, etc.) salaries that are paid at the end of each reporting period as:: Period Costs are costs that hit the income statement through selling, general, and administrative expenses instead of through cost of goods sold. Wait staff do not produce product, so their salaries are recorded as period costs.
  5. Patrick and Sons is an engineering consulting firm that works with large companies to improve current electrical systems. Fitzpatrick and Sons uses a job-order costing system that allocates

current electrical systems. Fitzpatrick and Sons uses a job-order costing system that allocates overhead on the basis of consultant labor dollars. Simon Fitzpatrick super- vises the electrical work (production) while Valerie Fitzpatrick takes care of sales, advertising, and legal. Of the following, which best describes Valerie Fitzpatrick's salary?: Period Cost

  1. Patrick and Sons is an engineering consulting firm that works with large companies to improve current electrical systems. Fitzpatrick and Sons uses a job-order costing system that allocates overhead on the basis of consultant labor dollars. Simon Fitzpatrick supervis- es the electrical work (production) while Valerie Fitzpatrick takes care of sales, advertising, and legal. which best describes Simon Fitzpatrick's salary?: Fixed Overhead. By nature of being fixed overhead, it is also an indirect cost and a conversion cost. However, Fixed Overhead is the most specific term.
  2. You usually make $100 a day at work. If you take a day off, you do not get paid. The of taking a day off is $100.: The opportunity cost is the sacrifice on an opportunity to generate wealth.
  3. Patty's Pancakes is a breakfast diner that specializes in pancakes, waffles, crepes and French toast. The restaurant uses a job order costing system that allocates overhead on the basis of pancake mix used. Patty is the CEO and oversees the administrative side of the business. Which of the following best describes Patty's salary?: Patty's salary can be considered a period cost because it is a selling general and administrative cost and it is expensed as it is incurred and not included in COGS.
  4. Which of the following is a synonym for 'cost'? a. Expense b. Expenditure c. Accounting d. None of the above: none of the above
  5. What is a prime cost?: The cost of direct labor and direct materials Prime costs are those costs that can be traced directly to the finished product: direct material and direct labor.
  1. Choose the best term used to describe the following event:A magazine company trades its colored printer in exchange for two additional black and

d. High product volume: c. High variable costs are a characteristic of job order costing

  1. Fill in the blanks.

a. A company that builds customizable dining room sets for customers is considered a. b. A company that mass produces the same chair is considered a .: a. Job Shop (unique) b. Process Shop (identical; mass produce)

  1. Sandwich Mart is a local fast food restaurant that specializes in making sandwiches for customers looking to buy fast, cheap sandwiches. They specialize in making sandwiches in bulk. They have six types of sandwiches to choose from. Sandwich Utopia specializes in making expensive, unique sandwiches with the highest quality ingredients. Customers can choose ex- actly what goes into their sandwich. Sandwich Mart and Sandwich Utopia are not direct competitors. Which restaurant is less likely to be concerned about cost efficiency?: Sand- wich Utopia would be less likely to be concerned with cost efficiency because they are a job shop company. Process shops are more likely to be concerned with cost efficiency.
  2. Which of the following is the difference between job costing and process costing? a. Process costing is used when each unit of output is identical, and job costing deals with unique products not produced in batches. b. Job costing is used when each unit of output is identical and not produced in batches, and process costing deals with unique products produced on large scale. c. Job costing is used when each unit of output is identical, and process costing deals with unique products not produced in batches. d. Job costing is used by manufacturing industries, and process costing is used by service industries.: A. Job costing is about unique, individualized products. Process costing is about production in mass.