Cost Exam 2 Questions & Answers
2024/2025
Objective of a Cost Management System (Cost System) - ANSWERSprovide info about the costs of the
goods/services sold by the firm and the processes used to produce the goods/services
Why calculate the individual product cost? - ANSWERSto compute inventory values and COGS AND to
provide them to the product managers so they can make decisions about pricing, production, and
promotion
Goal in designing a cost mgmt system - ANSWERSensure we make the best trade-off between the cost of
bad decisions and the cost of developing the information
Attributes of a good cost mgmt system (cost system) - ANSWERS- should have a decision focus
- cost info must be useful for its intended purpose
- must meet the cost-benefit test
The basic cost flow model: - ANSWERSBB + TI - TO = EB
Predetermined Overhead Rate = - ANSWERSestimated OH/estimated allocation base
Two-Stage Cost System - ANSWERSbreak up OH costs into 2 pools and compute an OH rate for each pool
3 Basic types of product costing systems: - ANSWERS- job
- process
- operations
Job Costing - ANSWERSrecords costs and revenues for each individual customized unit or identifiable
group of customized units
, Process Costing - ANSWERSdoes not separate and record costs for each individual unit (used when
homogenous units are produced through uniform production steps)
Operations Costing (hybrid of job and process costing) - ANSWERScompany produces different batches of
products (units are homogenous within each batch)
Continuous Flow Processing - ANSWERSa company mass produces a single kind of homogenous product
Which of the following is a principle underlying the design of cost management systems?
- Costing systems may differ in the basic flow of costs from accounts to products.
- All costing systems accumulate costs in the same manner.
- The costing system should be designed so that its benefits exceed its costs.
- Only the first and third statements above.
- All of these. - ANSWERS- The costing system should be designed so that its benefits exceed its costs.
Which of the following manufacturing costs are allocated to products indirectly using an allocation base?
- Direct Materials
- Direct Labor
- Overhead
- DM and DL only
- None of the above - ANSWERSOverhead
Ridgeway Corporation uses direct labor hours to allocate overhead to Work-in-Process. The company's
budgeted overhead is $420,000 and it expects to produce 40,000 vases this period. It takes 2 direct labor
hours to produce one vase. If 60,000 direct labor hours are actually worked during the period, how much
overhead should be allocated to the Work-in-Process inventory?
- $210,000
- $315,000
-$420,000
2024/2025
Objective of a Cost Management System (Cost System) - ANSWERSprovide info about the costs of the
goods/services sold by the firm and the processes used to produce the goods/services
Why calculate the individual product cost? - ANSWERSto compute inventory values and COGS AND to
provide them to the product managers so they can make decisions about pricing, production, and
promotion
Goal in designing a cost mgmt system - ANSWERSensure we make the best trade-off between the cost of
bad decisions and the cost of developing the information
Attributes of a good cost mgmt system (cost system) - ANSWERS- should have a decision focus
- cost info must be useful for its intended purpose
- must meet the cost-benefit test
The basic cost flow model: - ANSWERSBB + TI - TO = EB
Predetermined Overhead Rate = - ANSWERSestimated OH/estimated allocation base
Two-Stage Cost System - ANSWERSbreak up OH costs into 2 pools and compute an OH rate for each pool
3 Basic types of product costing systems: - ANSWERS- job
- process
- operations
Job Costing - ANSWERSrecords costs and revenues for each individual customized unit or identifiable
group of customized units
, Process Costing - ANSWERSdoes not separate and record costs for each individual unit (used when
homogenous units are produced through uniform production steps)
Operations Costing (hybrid of job and process costing) - ANSWERScompany produces different batches of
products (units are homogenous within each batch)
Continuous Flow Processing - ANSWERSa company mass produces a single kind of homogenous product
Which of the following is a principle underlying the design of cost management systems?
- Costing systems may differ in the basic flow of costs from accounts to products.
- All costing systems accumulate costs in the same manner.
- The costing system should be designed so that its benefits exceed its costs.
- Only the first and third statements above.
- All of these. - ANSWERS- The costing system should be designed so that its benefits exceed its costs.
Which of the following manufacturing costs are allocated to products indirectly using an allocation base?
- Direct Materials
- Direct Labor
- Overhead
- DM and DL only
- None of the above - ANSWERSOverhead
Ridgeway Corporation uses direct labor hours to allocate overhead to Work-in-Process. The company's
budgeted overhead is $420,000 and it expects to produce 40,000 vases this period. It takes 2 direct labor
hours to produce one vase. If 60,000 direct labor hours are actually worked during the period, how much
overhead should be allocated to the Work-in-Process inventory?
- $210,000
- $315,000
-$420,000
