Cost Accounting headache

You'd think cost accounting would be pretty simple -- you figure out which product line gets to pay for the overhead. You measure how profitable a product line is, and whether it's worth keeping. You quantify whether it's better to make a part yourself, or just buy it from a supplier. Nice, easy decision making, right?

But no, it's not that simple -- not by far. Take this "terms" question from the midterm, for example: Read Q1

While the official, correct answer was D.) all of the above, I don't see what competence and objectivity have to do with the unethical, deliberate falsification of documents. It's not a question of the person not having the skills to do the job - they're just choosing to ignore the rules. Grrr.

And it's not just those kinds of questions -- the "numbers" questions are rough, too, in part because they give you way more information than you need to solve the problems. Though this can be good because it better resembles real life situations, the publishers sometimes trip over themselves in their attempt to mislead you.

Read Q2
The correct answer is E.) None of those four. It's $20,000. You take the $12K starting cash, plus the $16K Accounts Receivable collected, plus the $23,400 (65% of $36K in sales), minus the $48K that's paid out. That leaves you with $3,400 -- an amount below the "Minimum cash balance needed." You borrow whatever you need to make up the difference, and you get $20,000.

According to the book, though, the answer is B, which would mean the bank you took the loan from lets you borrow money only in $10,000 denominations. GRRRR.

Let me give you one more, since cost accounting problems, like all other good things, come in threes. This one's messed up because of all the assumptions you have to get right in order to grasp the situation. Read Q3

I didn't read this question correctly, so I wrongly answered C. I overlooked the fact that somebody in marketing screwed up the sales projection and was off by a whopping 33 PERCENT! -and now the factory is running at capacity.

The correct answer is B, but the logic is a little twisted. Because the factory is at capacity, to do the special order you either have to increase capacity (not an option mentioned) or drop an existing order. But why would anyone drop an order that pays $40 per unit just so they could fill some new order that's paying $32 per unit? You piss off a regular customer in order to get a new one? That's just stupid! But that's what the question is asking. You take the difference in price times the number of units [($40-$32) x 2,000 units] to get that $16K decrease. GRRRR!!

Thumbs down on cost accounting.