Chapter 1 Introduction to Cost Accounting 15 ‘TRUE-FALSE QUESTIONS Indicate whether the following statements are true or false by inserting i | " ise by inserting in the blank space provide a capital “T” for true of “F” for false . . _1__ 1. Reports Prepared in financial accounting are general-purpose reports, Whereas reports prepared in managerial accounting are usually special-purpose reports, |_2. Managerial accounting internal reports are prepared more frequently than are classified financial statements. 3, Determining the unit cost of manufacturing a product is an output of financial accounting. .__4, Management accounting applies to all forms of business organizations. :___5, Controlling is the process of determining whether planned goals are being met. 6. Managerial accounting information generally pertains to an entity 7. Job order costing system is for allocating costs to group of unique product and is applicable to the production of customer specified products such as the manufacture of special machine. i 8. Process costing is used by companies making one-of-a-kind products. =e . Operati ting is a hybrid costing system often used in repetitive ° ee feeariog Sere finished products have common as well as distinguishing characteristics.| Cost Accounting ement in gathering the data ting procedures help manag: : 1 Sota & dene product costs and thus generate meaningfy} financial statements and other reports. MULTIPLE-CHOICE MULTIPLE-CHOICE 1, Financial statements for external users can be described as a. user-specific, ~b. general purpose. “ ¢. special purpose d. management reports 2. Planning is a function that involves hiring the right people for a particular job. coordinating the accountin: ig information system setting goals and objectives for an entity analyzing financial statements. BoP 3.. Which of the following is not a management function? a. Constraining b. Planning ¢. Controlling d. Directing and motivating 4. A manager that is establishing management function? a. Motivating b. Directing ~e. Planning d. Constraining objectives is performing which 5.. Management accountin @ stockholders Db. creditors ‘¢, managers d. regulatory agencies g information is generally prepared forChapter 1 Introduction to Cost Accounting 6. Managerial accountin, a. service entities b. manufacturing entities c. merchandising entities ~d. all of these 8 is applicable to 7. Which of the followin, -a. creditor b. department manager . cost accountant d. controller g is not an internal user? 8. Managerial accounting is also called ~a. Management accounting controlling analytical accounting inside reporting peep 9. Management accountants would not a. assist in budget planning —b. prepare reports primarily for external users. c. determine coist behavior 17 d. be concerned with the impact of cost and volume on profits 10. Internal reports must be communicated a. daily b. monthly ¢, annually ~d, as needed 11. Which of the following statements about internal reports is not true? a. The content of internal reports may extend beyond the double- entry accounting system. . Internal reports may show all amounts at market values. b . i ctive events. ~~. Internal reports may discuss prospe ; d. Most internal reports are summarized rather than detailedCost Accounting 12. Internal reports are generally a. aggregated, detailed +b. c. regulated d. unreliable. 13. Management accounting information a. pertains to the entity as a whole and is highly aggregated. -b. pertains to subunits of the entity and may be very detailed ¢. is prepared only once a year, d. Is constrained by the requirements of FASB 14, Financial accounting information is used for reporting to -a. External parties b. Investors c. creditos d. managers 15. Which of the following statements about cost accounting is not true? a Is the intersection between financial and management accounting b. Information generated by cost accounting is used by both financial and managerial accounting. : Cost accounting provides product cost information to internal parties such as managers for planning and controlling c.Chapter es vale escent ited a ae COSTS - CONCEPTS AND CLASSIFICATIONS LEARNING OBJECTIVES Upon completion of this chapter, you should be able to * Distinguish between cost, expenses, and losses. Distinguish between direct arid indirect costs, Define the three integral components of a product. Define prime costs and conversion costs. Define variable, fixed, and mixed costs and discuss the effects of changes in volume on these costs. Distinguish between common costs and joint costs Distinguish between capital expenditures and revenue expenditures * Identify the costs for planning, control and analytical processes eoee ee Costs are associated with all types of organizations — business, non-business, service, retail, and manufacturing. Generally, the kinds of costs’ that are incurred and the way in which these costs are classified will depend on the type of organization involved. Our‘ initial focus will be on a manufacturing, but in our discussion we should be aware that, in a conceptual sense, manufacturing encompasses much more than just firms in the industrial sector of our economy. It also encompasses many organizations that are typically viewed as being service in nature, such as movie studios and fast-food outlets. Organizations such as these are involved in “manufacturing in the sense that they create a distinct product for customers or patrons. As we proceed with our discussion, therefore, we should keep in mind that manufacturing is a broad term, and that the costs included under the manufacturing heading have application to a wide range of organizations — many of which may be involved in service-type activities. An understanding of the cost structure of a manufacturing company therefore provides a broad, general understanding of an be very helpful in understanding the cost structures of other types of 1920 Cost Accounting Before cost terminology can be discussed the term cost itself must 7 deca font is the cash or cash equivalent value sacrificed for goods, ane n. We say cash expected to bring a current or future benefit to the organizat en iced ponds ‘quivalent because non-cash assets can be exchanged for the pa Sood ae services. For example, it may be possible to exchange land for som equipment, Costs are incurred to produce future benefits in a profit making firm, future benefits usually mean revenue. As costs are used up in the production of revenues, they are said to expire.( Expired costs are called expenses: In each period, expenses are deducted from revenues in the income statement to determine the period’s profit. -A.loss is a cost that expires without producing any revenue benefit. The focus of cost accounting is on costs, not expenses. CLASSIFICATION OF COSTS L. Costs classified as to relation toa product A. Manufacturing costs/product costs 1. Direct materials 2. Direct labor. 3. Factory overhead B. Non-manufacturing costs/period costs 1. Marketing or selling expense 2. General or administrative expense IL Costs classified as to variability A. Variable costs B. Fixed costs C. Mixed costs TEL. Costs classified as to relation to manufacturing departments A. Direct departmental charges B. Indirect departmental charges TV. Costs classified to their nature as common or joint A. Common costs B. Joint cost uel © @ coy