Product Costs (aka Inventoriable Costs)
Cost assigned to goods that were either purchased or manufactured for resale; are inventoried
Period Costs
all costs that are not product costs (ex. R&D, admin, and selling) and are expensed
Prime Costs=
Direct Material + Direct Labor
Conversion Costs
Direct labor and overhead
Schedule of Cost of Goods Manufactured
Direct Material [Beg Inv + Purchases - End Inv] + Direct Labor + Manufacturing Overhead [ind material + ind labor + depr + utilities + insurance] + Beg WIP - End WIP
Schedule of Cost of Goods Sold
Beg FG + CGM - End FG
Job-Order Costing
each distinct batch of production is called a job or job order; cost acct procedures are designed to assign costs to each job; used when products are manuf in very low vol or one at a time
Process-Costing
accumulates all the production costs for a large number of units of output, and then these costs are avg over all the units; used by comp that prod large #s of identical units
Predetermined Overhead Rate=
(Budg Manuf Ovhd Cost)/(Budg Amt of Cost Driver)
Apply Manuf Ovh Rate
Quantity Used * POHR
Debit WIP and Credit Manuf Ovh
Overapplied Overhead
When Actual Manuf Ovh < Applied Manuf Ovh
Underapplied Overhead
When Actual Manuf Ovh > Applied Manuf Ovh
Difference Bettwen ABC and Traditional
ABC has different cost pools for each activity; traditional just uses 1
Two Stages of ABC
1) Overhead costs are assigned to activity cost pools associated with significant activities.
2) Ovh costs are allocated from each activity cost pool to each product in proportion to its consumption of the activity. Each activity has its own cost driver.
Unit Level Costs
type of activity must be done for each unity of production (ex: the machine-related activity cost pool represents a unit-level activity since every prod unit requires machine time
Batch Level Costs
activities must be performed for each bast of products rather than each unity
Product-sustaining level costs
activities that are needed to support an entire product line but are not performed every time a new unit or batch of prod s produced (ex: R&D)
Facility Level Costs
activities required in order for the entire prod process to occur. (ex: plant management salaries, plant depr, prop taxes)
Committed Cost
results from an organization's ownership or use of facilities and its basic organization structure (ex. property taxes, depr on buildings and equip, costs of renting facilities or equip, salaries of mgmt personnel)
Discretionary Costs
arises as a result of a mgmt decisions to spend a particular amount of money for some purpose (ex: amounts spent on research and development, advertising and promotion, mgmt development programs, and contributions to charitable organizations
5 purposes of budgeting system
1) Planning
2) Facilitating Communication and Coordination
3) Allocating Resources
4) Controlling Profit and Operations
5) Evaluating Performance and Providing Incentives
Management by Exception
devoting management time to investigate significant variances
Sunk Costs
Costs that have already been incurred. They do not affect
cost and cannot be changed by any current or future action. They are
irrelevant to decisions
Relevant Costs
Costs that are relevant to present and future expenditures
Opportunity Costs
The potential benefit given up when the choice of one action precludes a different action
flexible overhead budget
detailed plan for controlling overhead costs that is valid in the firm's relevant range of activity
static budget
budgets based on a particular planned level of activity
Goal Congruence
results when managers of subunits throughout and org strive to achieve the goals set up by top mgmt
Responsibility Center
subunit in an org whose manager is held accountable for specified financial results of the subunit's activites; four common types:
1) Cost Center
2) Revenue Center
3) Profit Center
4) Investment Center
Cost Center
held accountable for costs incurred (ex: painting dept in auto manuf plant)
Revenue Center
manager is held accountable for the revenue attributed to the subunit (ex: sales dept)
Profit Center
manager is held accountable for profit (rev - expenses); (ex: company owned restaurant in a fast-food chain)
Investment Center
held accountable for the profit and the investment capital used by the subunit to generate its profit (ex: division of a large corporation)
Investment Center
held accountable for the profit and the investment capital used by the subunit to generate its profit (ex: division of a large corporation)
Common Costs
costs that are incurred to benefit more than one segment (ex: salary of CEO)
Cost Allocation
assigning costs in cost pool to cost objects
Balanced Scorecard
uses non-financial performance measures of
current activities to drive future financial performance by creating a
balanced perspective on performance measurement.
Four Perspectives of Balanced Scorecard
Financial;
Customer; Internal Operations; and Learning and Growth
distinguish between controllable and
uncontrollable costs
a head chef at a restaurant being able
to influence the hours and efficiency of the kitchen staff, but not
being able to change the wage rates.
Cost
resource sacrificed or forgone to achieve a specific objective
actual cost
historical cost, cost incurred
budgeted cost
predicted amount of cost
cost object
anything for which a measurement of cost is desired (product, assembly line, dept)
cost accumulation
the collection of cost data in some organized manner
cost assignment
tracing and allocating costs
direct cost
costs that are related and traceable to a cost object
cost tracing
assigning of direct costs
cost assignment
tracing of direct costs and assigning of indirect costs
cost materiality
the smaller the amount of the cost, the less likely that it is economically feasible to trace the cost to a particular object
cost driver
a variable that causually affects costs over a given span of time
inventoriable costs
all costs of a product that are considered assets. include dm dl and factory oh, called product costs
period costs
all costs on the income statement other than cost of goods sold
direct materials inventory
materials being held by the company ready to be used in the manufacturing process
work in process inventory
partially worked on but not yet completed product. three types: dm, dl, moh
idle time
wage paid for unproductive time caused by lack of orders, breakdowns etc
overtime premium
the wage rate paid to workers in excess of their regular straight time wage rate
cost plus pricing
cost plus a pre specified margin of profit
output unit level costs
costs of activities performed on each individual unit
batch level costs
costs of activities related to a group of units of products (set up costs)
product sustaining costs
costs of activities undertaken to support individual products or services regardless of the number of batches or units (design costs)
facility sustaining costs
costs of activities that cannot be traced to individual products or services but support the organization as a whole (rend and admin costs) no cause and effect with allocation base
True or False: Joint costs are incurred beyond the split off point and are assignable to individual products.
FALSE
Joint costs are incurred prior to the split off point.
True or False: Joint costing allocates the joint costs to the individual products that are eventually sold.
TRUE
True or False: Separable costs include manufacturing costs only.
FALSE
Separable costs include manufacturing, marketing, distribution, and other costs.
True or False: Classification of main products, joint products, and byproducts can always be done with ease.
FALSE
In practice, distinctions among main products, joint products, and byproducts are not so clearcut.
True or False: Joint costs are the costs of a production process that yields multiple products simultaneously.
TRUE
True or False: The juncture in a joint production process when two products become separable is the byproduct point.
FALSE
The juncture in a joint production process when two products become separable is the split off point.
True or False: Before the split off point, decisions relating to the sale or further processing of each identifiable product cannot be made independently of decisions about the other products.
TRUE
True or False: When a joint production process yields two or more products with high total sales values, these products are called joint products.
TRUE
