BEC COST ACCOUNTING
Future CPA, I hope that you enjoy this free study guide and that it helps you to PASS the CPA Exam. If you would like the complete study guide, there is a link on the last page, as well as comments from people who were in your shoes and used these notes as part of their exam review. Feel free to forward this on to anyone else who could benefit from this information. I Wish You Success! Jeff Elliott, CPA PS – are we Friends on FACEBOOK? We should be! Click here: http://tinyurl.com/yd4ffwq
2 I. INTRODUCTION
a. Cost Accounting is a component of GAAP that
records Ending Inventory on the Balance
Sheet for
i. Direct Materials
ii. Direct Labor
iii. Work in Process
iv. Finished Goods
b. Cost Accounting also records for the Income
Statement
c. Cost Accounting vs. Managerial Accounting
•  External Focus
Cost Accounting •  GAAP Managerial •  Internal Focus Accounting •  Not GAAP 3 II. MANUFACTURING COSTS
a. Product Costs (aka Inventory Costs)
i. Prime Costs
1. Direct Materials Used
a. Have become part of product
b. Had a direct impact on product
2. Direct Labor Used
a. Employees who worked on
product and had direct impact
ii. Conversion Costs
1. Direct Labor Used
2. Factory Overhead Applied
Direct Labor Used Exam Trick • Prime Cost AND • Conversion Cost 4 b. Factory Overhead
i. All factory costs except for DM and DL
used in production, including Spoilage
(except for abnormal spoilage, which is a
period cost and not included in OH)
ii. Fixed Factory Overhead
1. (Estimated Costs / Normal Capacity)
2. Uses Normal Activity
3. Examples of Fixed Factory OH
a. Depreciation (Straight Line)
b. Utilities
c. Taxes
4. Under/Over Applied Fixed OH always
goes to COGS
iii. Variable Overhead
1. (Estimated Activity / Actual Activity)
2. Uses Actual activity
3. Examples of Variable Factory OH
a. Depreciation (Units of Prod.)
b. Indirect Materials
i. Supplies
5 ii. Insignificant items
c. Indirect Labor
i. Factory Foreman
ii. Janitors
iii. Machine Maintenance
4. Under/Over Applied Variable OH
a. If Immaterial – Goes to COGS
b. If Material – Goes to WIP,
Finished Goods, or COGS,
based on their Ending Balance
Fixed OH Under/Over Applied •  Always goes to COGS Variable OH •  Immaterial? COGS Allocate based Under/Over •  Material? on WIP, FG, COGS Ending Balances Applied 6 Factory Overhead Actual Factory OH Applied Factory OH (Goes to WIP) Dr. Balance = Under Applied OH Cr. Balance = Over Applied OH (If Fixed OH, Under goes to COGS) (If Fixed OH, Over goes to COGS) (If Variable OH, Under goes to COGS if (If Variable OH, Over goes to COGS if Immaterial. Immaterial. If Material, must be allocated to WIP, If Material, must be allocated to WIP, FG, or COGS based on FG, or COGS based on ending ending balances). balances). Over Applied (Cr Balance)? Under Applied (Dr Balance)? Credit Factory OH for the amount and Debit Factory OH for the amount and Credit WIP, FG, COGS based Debit WIP, FG, COGS based on their ending balances (similar to a weighted on their ending balances (similar to a weighted average). average). WIP xxx V. FOH Over Applied xxx FG xxx WIP xxx COGS xxx FG xxx V. FOH Under Applied xxx COGS xxx 7 MEMORIZE These T Accounts & Solve for any Variable:
Direct Materials Beginning Balance Net Purchases (Plus Freight-­‐In) Direct Materials Used = Ending Balance (Goes to BS) Work in Process (WIP) Beginning Balance (End Bal of Previous WIP) Direct Materials Used Direct Labor Used (Conversion Cost) Factory OH Applied (Conversion Cost) = Ending Balance (Goes to BS) COGM Factory OH Applied: On the exam, they will give you a
rate like 80% to be applied to something like DL. Just take
the rate x DL and plug it into the WIP calc. If you are given
an amount of Indirect Materials put into production and also
given an amount for Manufacturing OH, ignore the Indirect
Materials amount because it is included in the Manufacturing
OH number – it is there to trick you into giving a wrong
answer
Memory Trick: Both WIP and Finished Goods have a COG
credit – one is COGM and one is COGS. You SELL Finished
Goods, so it gets Cost of Goods SOLD (COGS).
Finished Goods Beginning Balance COGM = COGAS = Ending Balance (Goes to BS) COGS (Goes to Income Stmt) 8 Studying for BEC? Get rest of the Study Guide.
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