Vinita Patel

ACCT 307
ACCT 307 COST ACCOUNTING PROFESSOR MARKOFF
PREPARATORY DISCUSSION QUESTIONS FOR CLASSES 1 AND 2
Each time we have a discussion or problem-solving session, you will be asked to prepare by
doing certain problems and answering questions such as the ones below, and coming to class fully
prepared to discuss your answers with the class. One piece of advice: if you are not fully prepared
to discuss these, you will be LOST and you will find it virtually impossible to follow the conversation.
Also, we cover an awful lot of material each class. Even if you are fully prepared, it often has a
rambling and disorganized feel as we zoom through it. After class (just as soon as you can), go
back and review everything we covered. Many successful students will tell you about rewriting their
notes. Get it organized and make sure you understood (not kinda understood or sorta
understood) I mean understood everything we covered. If we covered it in class, Ill expect you
to understand it up one side and down the other. So, if anything is not absolutely clear, either stop
by or reach me ASAP.
1. The name of this course is Cost Accounting. Whats a cost?
Cost is an amount that has to be paid or spent to buy or obtain something. Cost is the price of
assets.
2. Whats an expense? Is this the same as a cost or something different? If different, HOW are
they different? WHY is it important?
An expense is a cost that occurs as part of a companys operating activities during specified
accounting period.
Expenses are reported on income statement.
Rent, utilities, pay bill are some of the expenses.
Cost is different than expenses. Expenses are relevant for financial accounting, while costs
are relevant for management accounting.
Costs are important to consider because they must be subtract from revenue to find profit.
3. Whats financial accounting? WHY is it important?
Financial accounting is a specialized branch of accounting that keep track of a companys
financial transitions. Using that standardized guidelines the transactions are recorded,
summarized, and presented in a financial report or financial statement such as an income
statement or a balance sheet.
It is important for recording transitions
- Communicating information to external parties.
- Communicating information to internal users.
4. Whats a balance sheet? Whats an income statement? What information do they each
convey?
A financial statement that summarizes a companys assets, liabilities and
shareholders equity at a specific point in time. If presents a companys financial position at
the end of specified date.
A financial statement that measures a companys financial performance over a specific
accounting period. Financial performance is assessed by giving a summary of how the
business incurs its revenues and expenses through both operating and non-operating
activities. It also shows net profit or loss.

5. Whats management (or managerial) accounting? WHY is it important?

The process of preparing management reports and accounts that provide accurate
and timely financial and statistical information required by managers to make day to
day and short term decisions.
Managerial accounting information provides data-driven input to small business
owners decisions, which can improve decision-making over the long term.
6. Whats cost accounting? WHY is it important?
Cost accounting is an area of accounting that involves measuring, recording, and reporting
product cots.
cost accounting determine the costs of products, processes, project, etc. in order to report the
correct amount on the financial statements, and assisting management in making decision
and in the planning and control of an organization.
7. Costs can be described in several different ways. Explain the meaning of each of the
following classifications and WHY each one is important:
a. Behavior variable or fixed
Variable casts costs that vary in total directly and proportionately with changes in the
activity level.
Fixed costs costs that remain the same in total regardless of changes in the activity
level.
b. Traceability direct or indirect
Direct direct cost refer to materials, labor and expenses related to the production of a
product.
Indirect- indirect costs are costs that are not directly accountable to cost object. Indirect
costs may be either fixed or variable.
c. Function product or period
Product costs is the cost of direct labor, direct materials, consumable production
supplies, and manufacturing overhead that are used to create a product.
Period costs is any cost that cannot be capitalized in to prepaid expenses, inventory, or
fixed assets. It is more closely associated with the passage of time than with a
transactional event.
d. Relevance relevant or irrelevant
Relevant costs - are those costs that will make a difference in a decision. Relevant costs
are future costs that will differ among alternatives.
Irrelevant costs is a cost that will not change as the result of a management decision.

8. What is meant by a cost driver? WHY are they important?

Any factor or activity that has a direct cause effect relationship with the resources consumed.

Manufacturers who wants to know their true cost of products, need to know what is driving
their indirect manufacturing costs.
9. What is a cost pool? What is a cost object?
A cost pool is a grouping of individual costs, typically by department or service center.
A cost object is a term used primarily in cost accounting to describe something to which costs
are assigned.
10. Whats allocation mean? WHY is it needed?
The systematic distribution of a limited quantity resources over various time periods,
products, operations, or investments.
11. Whats meant by the term value chain? WHY is it important?
All activities that a business processes with providing a product or service.