ACCOUNTING 3221

COST ACCOUNTING
REVIEW FOR FINAL TEST
Below are the key areas of focus in preparing for Test3 (the Final Exam). The bulk of the test
will be based on the lectures, discussions, homework assignments, and in-class exercises.
.
Chapter 17 - Process Costing

Process Costing
o Assigns costs equally to similar units within a particular time period
o Used when 1) Units dont differ 2) Cycle time is short 3) production process is
continuous
Understand concept of
o Equivalent units
o Characteristics of material versus conversion
Be able to work through the process steps either under Weighted Average or FIFO
methods which include:
o Cost identification for beginning inventory incurred in the prior period and costs
incurred during the current period.
o Determination of physical units and equivalent units
o Determine unit cost by dividing cost by the total equivalent units
o Assign the costs based on equivalent units and unit rates to either ending
inventory or transfer out.
Know journal entries and account posting for the different process cost scenarios.
Be able to handle problem with transfer of costs and product from one department to
another (two stage process).

Chapter 18 Spoilage

Spoilage: Units that do not meet standards and are discarded with little or no disposal
value
o Normal: Considered a normal part of production (Product Cost)
o Abnormal: Not considered a normal part of production (Period Cost)
Rework
o Units that do not meet standards but can be repaired and sold as good units
Scrap
o Material that is left over and has a relatively low sales value
Rework for a specific job
o Additional costs charged to the specific job
Rework common to all
o Additional costs incurred are charged to manufacturing overhead
Abnormal rework
o Additional costs are charged to a loss account (Loss from abnormal rework)

Scrap Sale if immaterial

o Relatively small and is sold quickly
o Debit: Cash Credit: Scrap Revenue
Scrap linked to specific job
o Debit: Cash Credit: WIP (Job #)
Scrap common to all jobs,
o Debit: Cash Credit: Manufacturing Overhead
Scrap returned to storeroom
o Debit: Materials Inventory Credit: WIP Job #
Scrap sold
o Debit: Cash Credit: Materials Inventory
Scrap reused
o Debit: WIP Credit: Materials Inventory
Chapter10 Determining How Cost Behave

Cost Function: Mathematical description of how a cost changes with changes in the level
of an activity relating to that cost
o Used to estimate fixed and variable costs
o Assumptions: 1) Costs are linear 2) Costs have a single cost driver
Cause & Effect Criterion: Most important issue in estimating a cost function
o There may be a correlation between two variables without there being a cause &
effect relationship
Cost Estimation Methods
o Industrial Engineering: Analyze relationship between inputs and outputs in
physical terms
o Conference: Estimates cost functions on the basis of analysis and opinions about
costs and their drivers
o Account Analysis: Estimates cost functions by classifying cost accounts as either
variable, fixed, or mixed
o Quantitative Analysis: Utilizes formal mathematical models
Y = dependent variable
X = independent variable/cost driver
A = fixed cost
B = variable cost
High/Low
o Simple to do by hand
o Uses only 2 data points
o May not be representative of reality
Regression
o Difficult to calculate by hand
o Simple using excel
o Can use to evaluate whether a cost driver is good or bad