1.6 Costing Techniques Flashcards
Absorption Costing
Treats all manufacturing costs (Both fixed and variable) as product costs. Used for financial reporting also called full costing
Gross margin (profit)
The net between sales revenue and absorption COGS
Variable costing
Considers only variable manufacturing costs as product costs
Contribution margin
Net sales minus all variable costs (both variable product and period costs)
Actual costing
After the end of a period, all actual costs for a cost object are totaled and indirect costs are allocated.
Very accurate, but not timely
Normal costing
Charges actual direct cost and direct labor, but applies overhead on the basis of a budgeted rate
Extended normal costing
Uses normalized rates for direct material, direct labor, and manufacturing overhead
Job-order costing
Costs are assigned to specific jobs. Used for producing heterogeneous products
Process costing
Used when similar products are mass produced. Costs are attached as the items pass specific departments or phases of production
Activity-based costing
Attaches cost to activities rather than physical goods
Peanut butter costing
Inaccurating spreading of costs over products or services units that use different resources
Life-cycle costing
Emphasizes the need to prices products to cover all the costs incurred over the life span of a product
Standard costing
System designed to alert management when actual costs differ from target (standards) costs
How are standard costs determined
An objective estimate of what a cost should be
What costing systems can standard costing be used with
Job order and process costing
