Exam 4: Cost Management Systems and Activity-Based Costing

A costing system that does not accumulate or report costs of activities or processes

Costs included in work- in- process inventory are direct material, direct labor, and administrative.

For a manufacturing company, product costs first appear on the income statement, then are transferred to the balance sheet.

Cost can be measured by dollars, yen, and euros, as well as other currencies.

A system which identifies how management's decisions affect cost

Tracing or allocating costs to one or more cost objectives such as activities, processes, departments, customers, or products

need cost accounting systems.

The second step in designing and implementing an activity- based costing system includes:

is the process of reassigning cost to a cost object.

County Bank had the following activities, traceable costs, and physical flow of driver units: Traceable Physical Flow of Activities Costs Driver Units Open new accounts \ 90,000 1,000 accounts Process deposits 36,000 400,000 deposits Process with drawals 30,000 200,000 withdrawals Process loan applications 36,000 900 applications The above activities are used by North County branch and South County branch: North South New accounts 200 400 Deposits 40,000 20,000 With drawals 15,000 18,000 Loan applications 100 160 The cost per driver unit for the loan application activity is:

Evaluating the cost of a production process is an example of the strategic purpose of the cost- management system.

Costs that can be eliminated without affecting a product's value to the customer

The following information was extracted from the accounting records of Jabbar Manufacturing Company: Dir ect materials purchased \ 80,000 Direct materials used 59,000 Direct manuf acturing labor costs 10,000 Indir ect manufacturing lab or costs 12,000 Sales salaries 14,000 Other factory expenses 22,000 Selling and administrative expens es 20,000 The prime cost is:

County Bank had the following activities, traceable costs, and physical flow of driver units: Traceable Physical Flow of Activities Costs Driver Units Open new accounts \ 90,000 1,000 accounts Process dep osits 36,000 400,000 deposits Process withdrawals 30,000 200,000 withdrawals Process loan applications 36,000 900 applications The above activities are used by North County branch and South County branch: North South New accounts 200 400 Deposits 40,000 20,000 Withdrawals 15,000 18,000 Loan applications 100 160 The cost per driver unit for the deposit activity is:

Cost allocation is the tracing and reassigning of costs to one or more cost objectives such as departments, customers, or products.

is the part of the accounting system that measures costs for the purposes of management decision making and financial reporting.

Dickerson Corporation had the following activities, traceable costs, and physical flow of driver units: Traceable Physical Flow of Activities Costs DriverUnits Account inquiry (hours) \ 8,000 500 hours Account billing(lines) 8,000 200,000 lines Account verification (accounts) 3,000 2,000 accounts Correspondence (letters) 1,000 200 letters The above activities are used by departments A and B as follows: A B Account inquiry (hours) 50 hours 80 hours Account billing (lines) 25,000 lines 20,000 lines Account verification (accounts) 200 contracts 100 contracts Correspondence (letters) 20 letters 100 letters The cost per driver unit for the account billing activity is:

The Rainbow Company manufactures paint in two processes: Mixing and Heating. Total costs incurred in the Mixing and Heating departments are as follows: Direct Materials Direct labor Mixing \ 60,000 \ 80,000 Heating \ 25,000 \ 50,000 Indirect manufacturing costs were $90,000 for the Mixing department and $180,000 for the Heating department. Rainbow Company manufactures two products, Fantastic Paint and Super Paint. Costs are allocated to these products in the following proportions: Mixing Heating DM DL DM DL Fantastic \% \% \% \% Super \% \% \% \% Indirect cost is allocated in proportion to the direct labor costs with each department. The Mixing department cost allocated to Fantastic is:

Big Valley Corporation has supplied the following information for the year ended December 31, 20X0: Direct labor 16,480 Direct material purchases 19,260 General and administrative exp enses 14,240 Indirect manufacturing costs 16,780 Selling exp en ses 13,520 Beginning direct materials inventory 2,460 Direct materials used 2,900 Big Valley Corporation produces 8,000 units. There was no beginning balance or ending balance work- in- process inventory. Ending inventory consisted of 1,000 finished units. Required: a. Prepare the inventories section of the balance sheet. b. Compute the cost of goods sold.

An example of a strategic decision is deciding on the optimal product and customer mix.