🧮 Cost Accounting

What the exam asks

91 questions across 9 topics, every one a calculation with freshly drawn numbers, graded within a small tolerance, with the worked path after you settle it.

• Material Valuation (FIFO / LIFO / Averages)
• Depreciation Methods
• Cost-Center Allocation
• Product Costing & Overhead Rates
• Process Costing & Equivalent Units
• Activity-Based Costing
• Absorption vs. Variable Costing
• Break-Even & CVP Analysis
• Production Program & Short-Term Decisions

Worked examples

One solved posting per topic, with the full calculation. In the trainer the same postings come back with fresh numbers every run, so memorising these answers buys you nothing - the method is the point.

1. Example 1 · Material Valuation (FIFO / LIFO / Averages)

   Nordwind Brew Co. tracks its main raw material, barley malt, in March. The opening stock is 1,300 kg at 3.50 € per kg. On Mar 4, 500 kg are issued to production. Then 700 kg are bought at 3.00 € per kg (Mar 9) and 800 kg at 4.00 € per kg (Mar 14). What is the cost of the material issue of 700 kg on Mar 20 under the FIFO method?

   Opening stock

   1,300 kg at 3.50 €/kg

   Issue Mar 4

   500 kg

   Purchase Mar 9

   700 kg at 3.00 €/kg

   Purchase Mar 14

   800 kg at 4.00 €/kg

   Issue Mar 20

   700 kg

   Answer: 2,450.00 €

   Solution: Under $FIFO$ (first in, first out) an issue is valued from the oldest layers still on stock. After the Mar 4 issue, 800 kg of the opening layer remain, then the two purchase layers follow. The Mar 20 issue takes 700 kg × 3.50 €, so the material cost is 2,450.00 €.

2. Example 2 · Depreciation Methods

   A conveyor system is bought for 70,000.00 € and depreciated over 4 years to a residual value of 20,000.00 € using arithmetic-degressive depreciation, the final year's amount equal to the yearly decrease. What is the depreciation amount in year 4?

   Acquisition cost

   70,000.00 €

   Residual value

   20,000.00 €

   Useful life

   4 years

   Year

   4

   Answer: 5,000.00 €

   Solution: With arithmetic-degressive depreciation the yearly amounts are $N \cdot d, (N-1) \cdot d, \ldots, d$, so their sum is $d \cdot \frac{N (N+1)}{2} = A_0 - RV$. Here $d$ = (70,000.00 € − 20,000.00 €) / 10 = 5,000.00 €. Year 4 depreciates $(N - t + 1) \cdot d$ = 1 × 5,000.00 € = 5,000.00 €.

3. Example 3 · Cost-Center Allocation

   Oakline Furniture allocates support costs with the step-ladder method (German: Stufenleiterverfahren) in the sequence Boiler House → Tool Shop. The Boiler House (primary overheads 32,000.00 €) delivers 370 MWh to the Tool Shop, 2,400 MWh to Assembly and 1,300 MWh to Finishing. The Tool Shop (primary overheads 63,000.00 €) works 120 hours for the Boiler House, 190 hours for Assembly and 150 hours for Finishing. What is the transfer price per Tool Shop hour?

   Primary overheads Boiler House / Tool Shop

   32,000.00 € / 63,000.00 €

   Boiler House output

   370 MWh to Tool Shop, 2,400 MWh to Assembly, 1,300 MWh to Finishing

   Tool Shop output

   120 h to Boiler House, 190 h to Assembly, 150 h to Finishing

   Answer: 193.85 €

   Solution: In the step-ladder sequence, the first center allocates to all later centers, and back-deliveries are ignored: $tp_2 = \frac{\text{primary overheads}_2 + \text{costs received from center 1}}{\text{output to later centers}}$. The Boiler House rate is 32,000.00 € / 4,070 MWh = 7.86 €/MWh, so the Tool Shop receives 370 MWh × 7.86 € = 2,909.09 €. Its transfer price is (63,000.00 € + 2,909.09 €) / (190 + 150) h = 193.85 € per hour - the 120 hours delivered back to the Boiler House are not in the denominator.

4. Example 4 · Product Costing & Overhead Rates

   Velotta Components makes saddles and handlebars. This period it produces 600 saddles (3 min each) and 600 handlebars (7 min each). Variable production overheads of 3,000.00 € are allocated on production time. A handlebar carries direct material of 9.00 € and direct labor of 9.00 €. What are the variable manufacturing costs per unit of a handlebar?

   Produced: saddles / handlebars

   600 / 600 units

   Production time: saddle / handlebar

   3 / 7 min per unit

   Variable production overheads

   3,000.00 €

   Handlebar direct material / labor

   9.00 € / 9.00 € per unit

   Answer: 21.50 €

   Solution: $k_{var} = \text{direct material} + \text{direct labor} + \text{variable overhead rate} \cdot t$. The overhead rate is 3,000.00 € / (600 × 3 + 600 × 7) min = 0.50 € per minute. A handlebar takes 7 min, so its variable manufacturing costs are 9.00 € + 9.00 € + 7 × 0.50 € = 21.50 €.

5. Example 5 · Process Costing & Equivalent Units

   A kayak manufacturer's assembly department starts July with 4,000 kayaks in beginning work-in-process inventory, 40 % complete with respect to conversion costs. During July, 28,000 kayaks are started; ending work-in-process inventory is 6,000 kayaks, 20 % complete. Conversion costs are added evenly. Under the FIFO method, what are the equivalent units of work done in July for conversion costs?

   Beginning WIP

   4,000 units, 40 % complete

   Started in July

   28,000 units

   Ending WIP

   6,000 units, 20 % complete

   Answer: 25,600.00 units

   Solution: $EU_{FIFO} = x_{begin} \cdot (1 - c_{begin}) + x_{started \& completed} + x_{end} \cdot c_{end}$ - FIFO counts only the work done this period. Started and completed: 28,000 − 6,000 = 22,000 units. So EU = 4,000 × 0.6 + 22,000 + 6,000 × 0.2 = 25,600 equivalent units.

6. Example 6 · Activity-Based Costing

   Lumen Candle Works produces its Aroma candle line in batches of 5,000 units and budgets 145,000 Aroma candles (29 batches) for the year. Each Aroma batch requires 1 setup hour. Total budgeted setup costs are 644,000.00 € for 92 setup hours across all product lines. Under activity-based costing with setup hours as the cost driver, what are the setup overheads per Aroma candle?

   Batch size

   5,000 units

   Aroma output

   145,000 units = 29 batches

   Setup hours per Aroma batch

   1 h

   Total setup costs / total setup hours

   644,000.00 € / 92 h

   Answer: 1.40 €

   Solution: $k_{setup} = \frac{\text{setup rate} \cdot \text{setup hours per batch}}{\text{batch size}}$ with $\text{setup rate} = \frac{\text{total setup costs}}{\text{total setup hours}}$ = 644,000.00 € / 92 h = 7,000.00 € per setup hour. Per batch: 1 h × 7,000.00 € = 7,000.00 €; per candle: 7,000.00 € / 5,000 = 1.40 €.

7. Example 7 · Absorption vs. Variable Costing

   Cargoline sells 500 City trailers (price 29.00 €, variable costs 19.00 € per unit) and 1,200 Cargo trailers (price 47.00 €, variable costs 28.00 € per unit). Total fixed costs of the period are 29,000.00 €. What is the profit according to the cost-of-sales method under variable costing (Umsatzkostenverfahren)?

   Price City / Cargo

   29.00 € / 47.00 €

   Variable costs City / Cargo

   19.00 € / 28.00 € per unit

   Sold City / Cargo

   500 / 1,200 units

   Fixed costs of the period

   29,000.00 €

   Answer: -1,200.00 €

   Solution: $\pi = \sum_i (p_i - k_{var,i}) \cdot x_i - K_{fix}$ - under variable costing all fixed costs are period costs, and only the sold quantity matters. Contribution margins: 500 × (29.00 € − 19.00 €) = 5,000.00 € and 1,200 × (47.00 € − 28.00 €) = 22,800.00 €. Profit: 5,000.00 € + 22,800.00 € − 29,000.00 € = -1,200.00 €.

8. Example 8 · Break-Even & CVP Analysis

   Lakeside Outfitters sells cook sets at 45.00 € each with variable costs of 25.00 € per unit and yearly fixed costs of 30,000.00 €. The profit tax rate is 20 %. How many cook sets must be sold to earn an after-tax profit of 128,000.00 €?

   Price / variable costs

   45.00 € / 25.00 € per unit

   Fixed costs

   30,000.00 €

   Tax rate

   20 %

   Target profit after tax

   128,000.00 €

   Answer: 9,500.00 units

   Solution: $x = \frac{K_{fix} + \frac{\pi_{target}}{1 - \tau}}{p - k_{var}}$ - the after-tax target must first be grossed up to a pre-tax profit: 128,000.00 € / 0.8 = 160,000.00 €. Then x = (30,000.00 € + 160,000.00 €) / 20.00 € = 9,500 units.

9. Example 9 · Production Program & Short-Term Decisions

   A stationery producer currently pays variable selling costs of 1.00 € per notebook sold. A distribution partner offers to take over all selling activities for a fixed fee of 1,500.00 € per year, eliminating the variable selling costs entirely. From what yearly sales volume onward is the outsourcing offer worthwhile?

   Variable selling costs (in-house)

   1.00 € per unit

   Fixed fee of the partner

   1,500.00 € per year

   Answer: 1,500.00 units

   Solution: At the indifference volume the saved variable costs equal the new fixed fee: $x \cdot k_{var,sell} = F$, so $x = \frac{F}{k_{var,sell}}$ = 1,500.00 € / 1.00 € = 1,500 notebooks. Above 1,500 units the fixed fee is cheaper than the variable costs it replaces.

Survival notes

• FIFO, LIFO, weighted average: three answers to 'what did that cost', all correct, only one on the exam sheet.
• Reciprocal service centres allocate cost to each other in a loop. So does your study group. The exam wants the equation system, not the group chat.
• Break-even is the volume at which the exam stops hurting. It is higher than you think and the fixed costs were you.

Where it is studied

The course where the Garching Mensa becomes a case study: material costs, overhead rates and one cost centre called 'the coffee machine' that never gets allocated correctly.

Heilbronn: The management campus: the one place where business administration is the main event and not the thing engineers walk past. The leaderboard does not know the difference.

The whole BWL München map →