Checklist for Cost Accounting ­­ Exam I Make sure that you are comfortable with ALL the homework assignments (graded and ungraded) and any examples that we worked in class! Also, you are responsible for the material presented in any handouts, including readings/articles from The Wall Street Journal. Know your vocabulary terms. Introduction– How can companies enhance the value of their management accounting systems? What roles do management accountants perform? Explain and give examples of a management accountant's scorekeeping, attention­directing and problem solving functions. What guidelines do management accountants use? What do we mean by different costs for different purposes? Cost Terms (Behaviors) and Purposes – What are direct costs? Indirect costs? What is the difference between cost tracing and cost allocation? Discuss the factors that affect direct/indirect cost classifications. What is a cost driver? What is the relevant range, and what is its relationship to the various types of costs? How does a fixed cost behave in total and on a per unit basis? How does a variable cost behave in total and on a per unit basis? How do these costs (in total and per unit) appear on a graph? What about a mixed cost? How do changes in the activity level affect these costs? Be able to determine cost behavior from graphical presentations. What is the gross margin? the contribution margin? Take a factual situation and calculate the gross margin percentage and the contribution margin percentage. Explain these margins in layman’s terms. Be able to prepare a simple income statement. How do you calculate average cost per unit? What is the danger of making decisions based on an average cost per unit calculation? What are conversion costs? Prime costs? Period costs? What is an inventoriable cost? Define the types of inventory. What are the commonly used classes of manufacturing costs? Calculate COGS (cost of goods sold), COGM (cost of goods manufactured), and cost of materials placed into production. Know how inventoriable and period costs flow through a manufacturer’s accounts. Use your knowledge of accounts to find a missing amount (don't panic), the relationships are basically mathematical. Be familiar with the various accounts. When all else fails, set up "T­accounts"! In general, how do we treat overtime premiums and idle time. Cost­Volume­Profit Analysis ­­ Be able to calculate BEP (in units and dollars), also target sales (in units and dollars) with a targeted after­tax income. Calculate CM per unit, CM margin ratio, and the variable cost ratio (VCR). Be able to do this on a per unit basis and total dollars. Calculate BEP in a multiproduct environment (sales mix ratio), also target sales in a multiproduct environment. What are the assumptions underlying cost­volume­profit analysis? When the various costs change (this is referred to as sensitivity analysis), what is the impact on the BEP or profits/losses (if you are in a profit/loss situation)? Use your knowledge of the BEP formula to calculate a missing sales price or missing fixed costs. Also, use a contribution margin income statement to prove your BEP or your target operating income. You should be able to utilize an income statement to derive contribution margin per unit or CM ratio (also VC ratio) ­­ We did this in class. How do we use CVP analysis in decisions? What is the “indifference point”? Take a factual situation and calculate it. Use a graph to depict the BEP, Total costs, Total revenue, fixed costs, variable costs, VC per unit, Revenue per unit, Operating Income and Operating Loss. Take a factual situation and calculate the gross margin percentage and the contribution margin percentage. Explain these margins in layman’s terms. Be able to prepare a simple income statement (This implies determining COGS, Gross Margin, Operating Expenses, etc.).

Job­Order Costing – What is a cost pool? What is a cost­allocation base? In a manufacturing setting, what are the two major cost objects? What are the characteristics of a job­order cost system? A process cost system? Give several examples of both. Reason through the seven steps used to illustrate the general approach to job costing. What are the source documents used in a manufacturing setting to gather the cost information? How has technology impacted these sources of costing information? Why do companies use longer periods of time to calculate indirect­cost rates? What is a normal costing? Discuss the reasons managers prefer such an approach. Be comfortable making journal entries (and using T­accounts) using a job­order costing system. What if some of your information was expressed in terms of percentages rather just numerical totals? Once again, know your cost flows. Know how to estimate a predetermined manufacturing OH rate (indirect cost rate)­­ this is the same concept as a budgeted indirect cost rate (What goes in the numerator? What goes in the denominator? How is OH applied? What does it mean to have underapplied OH and overapplied OH? What is the difference between actual vs normal methods? How is the OH rate calculated under each of these methods? How is over­ or underapplied overhead disposed when the amount is immaterial in relation to COGS? Using the proration approach, how is overhead disposed of when the amount is material in relation to COGS? What variations from normal costing may service­sector companies use? ABC/ABM ­­ What is cost smoothing/peanut butter costing? What usually happens when a company uses cost smoothing? What is product­cost cross­subsidization? Calculate OH using the traditional approach (a single indirect­cost pool) to OH allocation. What are the results of using the traditional approach (a single allocation base) to OH allocation? Why are products usually miscosted under such an approach? When one product is miscosted other products are miscosted, why? What do we call this? What happens when we use a refined costing system? What are the general guidelines for refining a costing system? What is an activity? Calculate OH using the ABC approach. What is a cost hierarchy? What are output unit­level costs? What are batch­level costs? What are product­sustaining costs? What are facility­sustaining costs? Give several examples of each type of these costs. Discuss the steps involved in using the ABC approach. Take a factual scenario and use ABC to calculate the costs assigned to a product in total and on a per unit basis. Discuss when a firm should consider using an ABC approach. How does ABC improve cost management and profitability? What are the limitations of ABC? Be specific! Be able to discuss the differences between the traditional approach versus an ABC approach to designing a cost system, once again, be specific. What are value­added activities and non­value­added activities? Give examples of each.