Cost Accounting Test

A material abstract is a summary document used in inventory accounting to record the total materials issued during a period, often referred to as a material issue analysis sheet.

In a standard inventory control system, the storekeeper should only issue materials upon receipt of a formal document known as a material requisition.

The First-In, First-Out (FIFO) method assumes that the oldest items are sold first. In times of falling prices, this results in charging the higher (older) costs to the cost of goods sold, which is generally considered conservative.

The Last-In, First-Out (LIFO) method assumes the most recently purchased items are sold first. In times of rising prices, this matches the most recent (higher) costs against revenue, which can reduce tax liability.

The average cost method is most useful when prices fluctuate, as it smooths out the impact of price volatility by calculating a weighted average cost for inventory.

The inflated price method is used to account for natural wastage or shrinkage of materials, ensuring the cost of the remaining usable material is adjusted to reflect the loss.

A bin card is a quantitative record maintained at the bin level to track the movement and balance of specific materials. It does not record the monetary value of the items.

Scrap refers to the incidental material remains generated during a manufacturing process that have little or no value. It is distinct from waste or defective goods.

Normal waste is considered an inherent part of the production process and is therefore absorbed into the cost of the good units produced. Abnormal waste, conversely, is excluded from production costs.

A bill of materials lists all the components, parts, and materials required to manufacture a product. It serves as the basis for a material requisition to withdraw these items from stores.

Abnormal waste arises from unexpected or inefficient events, such as accidents or machine breakdowns. Because it is not inherent to the production process, its cost is charged directly to the profit and loss account rather than the cost of production.

Defectives are units that do not meet quality standards but can be repaired or reworked to become acceptable products. This process incurs additional costs.

Abnormal losses are non-recurring and not part of the normal production process. To avoid distorting the cost of production, these losses are transferred to the costing profit and loss account.

The three major elements of cost are material, labour, and expenses (overheads). Labour is universally recognized as the second element.

Idle time occurs when workers are paid for their time at the workplace but are not actively producing. This is only applicable when wages are based on time rather than output.

Job evaluation is the systematic process of determining the relative worth or value of a job within an organization to establish fair wage structures.

Outworkers are employees or contractors who perform their work at locations other than the main factory or office, such as at a customer's premises.

Labour turnover costs are categorized into two main groups: preventive costs (costs incurred to keep employees) and replacement costs (costs incurred to hire and train new employees).

Job analysis is the comprehensive process of gathering information about a job, including the duties, responsibilities, and the qualifications required for a worker to perform it effectively.

A time card records total hours present, while a job card tracks how those hours are allocated across various specific jobs or tasks performed by the worker.

The formula provided (replacements / average workers * 100) is the standard definition for the replacement method of calculating labour turnover.

Abnormal idle time is caused by factors outside the normal course of business, such as strikes or power failures. Its cost is treated as a period cost and transferred to the costing profit and loss account.

Idle time is categorized based on its cause: normal idle time (unavoidable, like shift changes) and abnormal idle time (avoidable, like machine breakdowns).

An idle time card is used to document the duration and specific reasons for any idle time experienced by a worker during their shift.

The payroll department is responsible for calculating wages, deductions, and preparing the final wage sheet for payment.

The replacement method of calculating labour turnover specifically uses the number of workers replaced divided by the average number of workers.

Time-based wage systems are preferred when quality is the priority, as they do not incentivize workers to rush through tasks to increase quantity at the expense of quality.

In a time wage system, the worker is compensated based on the amount of time they have spent working, regardless of the output produced.

The piece rate system pays workers based on the number of units or quantity of work they successfully complete.

Taylor's differential piece rate system uses two different piece rates: a lower rate for inefficient workers and a higher rate for efficient workers who meet or exceed the standard output.