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Cost Accounting Midterm Review Sheet

The exam covers chapters 1, 2, 3, and 14. The review slides have been posted on
TED by _______. The study material in there is very important (and the practice
multiple choice questions from the review slides may resurface, too). Additionally,
below is a summary of some key information that I think you should know for the
midterm (this is NOT a complete list of what you need to know for the exam):

Chapter 1: Know the basics:

What is strategy (the definition)? A plan for using resources to achieve
sustainable goals within a competitive environment.
What are the two basic kinds of strategies? Cost leadership and
differentiation.
Understand what a critical success factor is.


Chapter 2:

Know what SWOT analysis means (strengths, weaknesses, opportunities, and
threats).
Understand the idea behind value chain analysis (analysis of what processes
involved in bringing a product to market add value).
Know what balanced scorecard (BSC) is, and know the four areas where CSFs
are grouped (financial, customer, internal, learning).
Know the five key benefits of the BSC:
1. It provides a means for implementing strategy.
2. It provides a means for achieving a desired change in strategy.
3. It aligns managers activities with the strategy.
4. It coordinates efforts within the firm to achieve critical success factors.
5. It can be used to determine management compensation.


Chapter 3:

Know the general inventory formula (Beginning Inventory + Transfers in =
Ending inventory + Transfers out)
Know how the inventory formula applies to different inventory
accounts during a period (for example, beginning direct materials inventory
+ direct materials purchases = ending direct materials inventory + direct
materials used). Be prepared to solve for one unknown when given three
known variables.


Chapter 14: The professor mentioned during the review lecture that this chapter
will make up around half of the exam.

Know what a flexible budget is, and key properties of a flexible budget (i.e.
prepared at the end of the accounting period, uses actual sales volume but
budgeted sales price/unit budgeted variable cost/unit and budgeted fixed
cost).
Understand what a standard cost is, and its role in budgets.
Know the formulas for price variance (AQ*[AP-SP]) and quantity or usage
(efficiency) variance (SP*[AQ-SQ]), and be able to use these formulas to
calculate variances.
Know the correct journal entries to make at each step of the accounting
process, including for variances. For example, direct materials purchased
on credit at a higher than standard price/unit will be recorded with a debit to
DM inventory for the standard cost of the materials (standard cost/unit
times number of units), a debit to purchase price variance for the extra
amount paid above standard, and a credit to A/P (accounts payable) for the
total amount owed for the purchase.
Know the journal entries for disposing of variances while either debiting
or crediting COGS.
Make sure that you fully understand Exhibit 14.4 on page 597 of the
textbook (this exhibit also shows up in the midterm review lecture slides).
Understand the relationships between the actual, flexible budget, and
master budget, and how this relates to the variances. You should be able
to calculate all the variances and know whether they are favorable or
unfavorable.


There's another topic that I recommend briefly reviewing if you have time. That is
the basic categorization of variances, and variances of different types.

For example, PIEVO includes the components of variances for financial measures:
Price/Inflation variances, Exchange rate variances, Volume variances, and Other
variances (such as product mix). The variances emphasized in chapter 14 are Price
variances and Volume (or quantity) variances.

Know the breakdown of budget variances. For example, the total flexible budget
variance is equal to the actual operating income minus the flexible budget operating
income.

Cost variances in general can be broken down into total fixed cost variance and total
variable cost variance, and the total variable cost variance can in turn be broken
down into a direct materials variance, direct labor variance, and overhead variance.
Both the direct materials variance and the direct labor variance can be subdivided
into price and usage (i.e. quantity) variances.