Jude A.

Galwat
1208 AE212

1 How does the cost accounting function assist in the management of a

business?
Answer:
The cost accounting function assist in the management of a business through
calculate and report to management various costs incurred by organization in the
process of making a final product/service. So cost accounting supplies a part of
all the necessary information needed by management to take informed decisions

5. How is cost accounting information used by management?

Answer:
Cost accounting provides the detailed cost information that management needs
to control current operations and plan for the future. Management uses this
information to decide how to allocate resources to the most efficient and
profitable areas of the business.
Cost accounting is used internally by management in order to make fully
informed business decisions. Unlike financial accounting, which
provides information to external financial statement users, cost accounting is not
required to adhere to set standards and can be flexible to meet the needs
of management.

6. Why is unit cost information important to management?

Answer:
Unit costs are synonymous with the cost of goods sold and the cost of sales.
This accounting measure includes all of the fixed and variable costs associated
with the production of a good or service. Unit cost is a crucial cost measure in the
operational analysis of a company.

7. For a manufacturer, what does the planning process involve, and how is cost
accounting information used in planning?
Answer:
Planning process involve the following:
1. Assigning Responsibility, the essence of responsibility accounting is the
assignment of accountability for costs or production results to those individuals
who have the most authority to influence them. It requires a cost information
system that traces the data to cost centers and their managers.
2. Periodically Measuring and Comparing Results actual operating results should
be reviewed periodically and compared to the objectives established in the
planning process. This analysis, which may be made monthly, weekly, daily, or
even hourly in the case of production and scrap reports, is a major part of cost
control because it compares current performance with the overall plan.
 3. Taking Necessary Corrective Action the performance reports may identify
problem areas and deviations from the business plan. Appropriate corrective
action should be implemented where necessary. A significant variance from the
plan is a signal for attention. An investigation may reveal a weakness to be
corrected or a strength to be better utilized.

Cost accounting information used in planning is by the preparation of reports that

management can use to plan and control operations.
9. Define ‘‘responsibility accounting.’’
Answer:
Responsibility accounting involves the internal accounting and budgeting for
each responsibility center within a company. The objective of responsibility
accounting is to assist in the planning and control of a
company's responsibility centers.

11. What are the requirements for becoming a Certified Management Accountant?
Answer;
Certified Management Accountant (CMA) certificate—which is awarded by the IMA
after the candidate completes a four-year college degree, two years of relevant
professional experience in management accounting and financial management, and
a rigorous four-part examination whose topics include business analysis,
management accounting and reporting, strategic management, and business
applications with a strong emphasis on ethics—evidences a high level of
competency in management accounting.

19. How would you describe the following accounts—Finished Goods, Work in
Process, and Materials?
Answer:
Finished - Goods, are goods that have been completed by the manufacturing
process, or purchased in a completed form, but which have not yet been sold to
customers.
Work in Process - work in progress, goods in process, or in-process inventory are a
company's partially finished goods waiting for completion and eventual sale or the
value of these items. These items are either just being fabricated or waiting for
further processing in a queue or a buffer storage.
Materials - A material is a substance or mixture of substances that constitutes an
object.

20. Compare the manufacturing, merchandising, and service sectors. How do

they differ as to the kinds of businesses in each category, the nature of their
output, and type of inventory, if any?
 Answer:
Sector Examples Product or Service Inventory
Account(s)
Service Hotels, Intangible benefits None
accountants, hair such as lodging,
stylists, sports tax preparation,
franchises grooming,
entertainment
Merchandising Bookstores, Tangible products Merchandise
electronics stores, purchased from inventory
sports memorabilia suppliers in
shops, beverage finished form
wholesalers
Manufacturing Segway Physical products Finished Goods,
producers, created by the Work in Process,
manufacturers of application of labor Materials
electronic games, and technology to
home builders raw materials

24. Distinguish prime cost from conversion cost. Does prime cost plus
conversion cost equal the total manufacturing cost?
Answer:
Prime costs are defined as the expenditures directly related to creating finished
products, while conversion costs are the expenses incurred when turning raw
materials into a product.

25. In what way does the accounting treatment of factory overhead differ from
that of direct materials and direct labor costs?
Answer:
According to generally accepted accounting principles (GAAP), manufacturing
overhead must be included in the cost of Work in Process Inventory and Finished
Goods Inventory on a manufacturer's balance sheet, as well as in the Cost of Goods
Sold on its income statement.
Manufacturing overhead (also known as factory overhead, factory burden,
production overhead) involves a company's manufacturing operations. It includes
the costs incurred in the manufacturing facilities other than the costs of direct
materials and direct labor.
Direct labor costs are added to the Work-in-Process account at the end of the work
week. Indirect labor costs are added to the Factory Overhead account.
27. How are non-factory costs and costs that benefit both factory and non-factory
operations accounted for?
Answer:
Non-manufacturing Costs
Non-manufacturing costs refer to those incurred outside the factory or production
department. These are costs are not needed in transforming materials into
finished goods. Non-manufacturing costs include: selling expenses and general
expenses.

28. What is a mark-on percentage?

Answer;
Is a percentage of the manufacturing cost per unit.

29. When is job order costing appropriate, and what types of businesses use it?
Answer:
The job order and process cost accounting systems are the principal systems used
by manufacturing organizations.
33. What are standard costs, and what is the purpose of a standard cost system?
Answer:
Standard costs are costs that would be incurred under efficient operating
conditions and are forecast before the manufacturing process begins.
A standard cost system, which is not a third system but may be used with either
a job order or a process cost system, uses predetermined standard costs to
furnish a measurement that helps management make decisions regarding the
efficiency of operations.

E1-5 Cost flow Explain in narrative form the flow of direct materials, direct labor,
and factory overhead costs through the ledger accounts.
Answer:
Direct materials - cost of items that form an integral part of the finished product.
They refer to the major parts or ingredients. Examples include wood in furniture,
steel in automobile, water in bottled drink, fabric in shirt.
Factory overhead - also called manufacturing overhead, refers to all costs other than
direct materials and direct labor spent in the production of finished goods. Factory
overhead includes indirect materials such as cost of nails, thread, glue, etc.; indirect
labor such as salary of the supervisor; and factory expenses such as rent of the
factory space, depreciation of factory equipment, utilities expense of the factory,
factory supplies.
Direct labor - cost of labor expended directly upon the materials to transform them
into finished goods. Direct labor refers to salaries and wages of employees who
work to convert the raw materials to finished goods.
Direct materials xx
Add: Factory overhead xx
Direct Labor xx xx
Total manufacturing cost xx