Cost Accounting Fundamentals describes the key cost accounting concepts that concern the practicing cost accountant, illustrating these concepts with numerous examples. The course is designed for both professional accountants and students, since both can benefit from its detailed descriptions of inventory valuation methods, product pricing techniques, cost analysis methods, and more. Several major cost accounting topics are discussed in depth:
- The nature of cost accounting
- Details of the cost accountant job description
- Methods used to value inventory, including job costing, process costing, standard costing, joint and by-product costing, and accounting for waste products
- The contribution of cost accounting to product pricing, including a lengthy discussion of how much a product costs for pricing purposes, how target costing works, and the mechanics of transfer pricing
- Cost analysis methods, including direct costing, activity-based costing, constraint analysis, and capital budgeting analysis
- How to collect cost-related information
- The variability of costs under various circumstances
- The cost of quality
Upon successful completion of this course, participants will be able to:
- Identify the situations in which we use cost accounting.
- List and recognize the responsibilities and necessary qualifications of the cost accountant.
- Cite the types of costs involved in the study of cost accounting.
- Recognize the methods available for deriving inventory costs and the cost of goods sold.
- Identify when you should use job costing, and compile the cost of a job.
- Recognize when you should use process costing, and use the various methods for compiling process costs.
- Recognize when to use standard costing, create standard costs, and calculate variances from the standards.
- Identify the various methods for allocating joint costs, as well as the effects of allocations on profitability.
- Identify the proper accounting for various types of spoilage, rework, and scrap.
- Recognize the types of costs to include in the formulation of a product price, and the circumstances under which these costs may be included or excluded.
- Identify the process by which target costs are derived and how that target can be met.
- Recognize the process by which target costs are derived and how that target can be met.
- Identify the circumstances under which direct costing can be used as an analysis tool.
- Recognize the process for compiling activity-based costs, as well as how allocation bases, cost pools, and activity drivers are used.
- Recognize the components of constraint analysis and how to use this analysis to improve profits.
- Recall the various methods for reviewing a capital budgeting proposal.
- Cite the methods used to accumulate costs and the circumstances in which they are most useful.
- Identify the extent to which costs can change in reaction to different circumstances.
- Identify the types of costs associated with the quality concept.
Table of Contents
Chapter 1—Overview of Cost Accounting
Cost Accumulation Systems
Chapter 1 Review Questions
Chapter 2—The Cost Accountant Job Description
To Whom Does the Cost Accountant Report?
What Are the Principal Accountabilities of the Cost Accountant?
What Are the Qualifications of a Cost Accountant?
Who Does the Cost Accountant Supervise?
Chapter 2 Review Questions
Chapter 3—Types of Costs
Chapter 3 Review Questions
Chapter 4—Inventory Valuation
Valuation Step 1: The Quantity of Inventory on Hand
The Periodic Inventory System
The Perpetual Inventory System
The Gross Profit Method
Valuation Step 2a: Inventory Costing (Typical Inventory)
The First In, First Out Method
The Last In, First Out Method
The Dollar-Value LIFO Method
The Link-Chain Method
The Weighted Average Method
The Retail Inventory Method
Valuation Step 2b: Inventory Costing (Special Situations)
By-Product and Joint Product Costing
Valuation Step 3: Overhead Allocation
Valuation Step 4: Inventory Valuation
The Lower of Cost or Market Rule
Obsolete Inventory Accounting
Chapter 4 Review Questions
Chapter 5—Job Costing
Overview of Job Costing
When Not to Use Job Costing
Accounting for Direct Materials in Job Costing
Accounting for Labor in Job Costing
Accounting for Actual Overhead Costs in Job Costing
Accounting for Standard Overhead Costs in Job Costing
The Importance of Closing a Job
The Role of the Subsidiary Ledger in Job Costing
Job Costing Controls
Chapter 5 Review Questions
Chapter 6—Process Costing
Overview of Process Costing
The Weighted Average Method
The Standard Costing Method
The First In, First Out Method
The Hybrid Accounting System
Process Costing Journal Entries
Problems with Process Costing
Chapter 6 Review Questions
Chapter 7—Standard Costing
Overview of Standard Costing
Advantages of Standard Costing
Disadvantages of Standard Costing
How to Create a Standard Cost
Historical, Attainable, and Theoretical Standards
How to Account for Standard Costs
Overview of Variances
The Purchase Price Variance
Material Yield Variance
Labor Rate Variance
Labor Efficiency Variance
Variable Overhead Spending Variance
Variable Overhead Efficiency Variance
Fixed Overhead Spending Variance
Selling Price Variance
Sales Volume Variance
Problems with Variance Analysis
The Controllable Variance
The Favorable or Unfavorable Variance
Where to Record a Variance
Which Variances to Report
How to Report Variances
Chapter 7 Review Questions
Chapter 8—Joint and By-Product Costing
Split-Off Points and By-Products
Why We Allocate Joint Costs
How to Allocate Joint Costs
How to Determine Prices for Joint Products and By-Products
Special Concerns with By-Product Costing
Chapter 8 Review Questions
Chapter 9—Waste Accounting
Definition of Spoilage
Accounting for Normal Spoilage
Accounting for Abnormal Spoilage
Accounting for the Sale of Spoilage
Cost Allocation to Spoilage
Definition of Rework
Accounting for Rework
Definition of Scrap
Accounting for Scrap
Impact of Waste on Manufacturing Systems
Chapter 9 Review Questions
Chapter 10—Product Pricing: What Does This Cost?
What Does This Cost?
The Issue of Pricing Duration
The Issue of Overhead Costs
The Issue of Overhead Application
Corporate Overhead Costs
What Does This Cost? Part Two
The Issue of the Bottleneck
What Does This Cost? Part Three
Chapter 10 Review Questions
Chapter 11—Target Costing
The Basic Steps of Target Costing
Value Engineering Considerations
The Cost Reduction Program
The Milestone Review Process
Problems with Target Costing
The Members of a Design Team
The Role of the Cost Accountant in Target Costing
Data Sources for Target Costing
The Product Life Cycle and Target Costing
Chapter 11 Review Questions
Chapter 12—Transfer Pricing
Overview of Transfer Pricing
Market Price Basis for Transfer Pricing
Adjusted Market Price Basis for Transfer Pricing
Negotiated Basis for Transfer Pricing
Contribution Margin Basis for Transfer Pricing
Cost Plus Basis for Transfer Pricing
Cost Anomalies in a Cost-Based Transfer Price
Pricing Problems Caused by Transfer Pricing
The Tax Impact of Transfer Prices
Chapter 12 Review Questions
Chapter 13—Direct Costing
Overview of Direct Costing
Contribution Margin versus Gross Margin
Direct Costing as an Analysis Tool
Direct Costing Pitfalls
Chapter 13 Review Questions
Chapter 14—Activity-Based Costing
The Problem with Overhead Allocation
Overview of Activity-Based Costing
Advantages of Activity-Based Costing
Problems with Activity-Based Costing
The Incremental Cost Reduction Fallacy
The Bill of Activities
System Scope Issues
System Integration Issues
Chapter 14 Review Questions
Chapter 15—Constraint Analysis
Constraint Analysis Operational Terminology
Overview of Constraint Analysis
The Cost of the Bottleneck
Constraint Analysis Financial Terminology
Constraint Analysis from a Financial Perspective
The Constraint Analysis Model
The Decision to Sell at a Lower Price
The Decision to Outsource Production
The Capital Investment Decision
The Decision to Cancel a Product
Comparison of Activity-Based Costing to Constraint Analysis
Chapter 15 Review Questions
Chapter 16—Capital Budgeting Analysis
Overview of Capital Budgeting
Net Present Value Analysis
The Payback Method
Accounting Rate of Return
Capital Budget Proposal Analysis
The Outsourcing Decision
The Capital Budgeting Application Form
Capital Budgeting with Minimal Cash
The Post Installation Review
The Lease vs. Buy Decision
Chapter 16 Review Questions
Chapter 17—Cost Collection Systems
Data Entry Accuracy
Data Entry with Bar Codes
Data Entry with Radio Frequency Identification (RFID)
Special Considerations for Labor Tracking
The Duration of Cost Collection
The Chart of Accounts
The Account Code Structure
The Account Code Format
Accounts for the Cost Accountant
Other Sources of Cost Information
Chapter 17 Review Questions
Chapter 18—Cost Variability
Labor-Based Fixed Costs
Costs Based on Purchase Quantities
Costs Based on Production Batch Sizing
Cost Based on Step Costs
Incorporating Cost Variability into Cost Reports
Chapter 18 Review Questions
Chapter 19—Cost of Quality
Types of Quality
Costs Impacted by Quality
Reporting on the Cost of Quality
Chapter 19 Review Questions
Review Question Answers and Rationales
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