305 Midterm Chapter 2 Flashcards
What is product cost?
Cost of producing your product.
What is DM?
Direct Material: All material directly traced to the product. Stuff you can see on the product. EX. Fabric
What is DL?
Direct Labour: All labour used directly in creating the product. They put there hands on what your making. Ex. Assembly
What is MOH?
Manufacturing Over Head: All indirect costs in producing the product. Everything you need to make the product that you cant SEE when looking at the product. Ex. Manager
What are MOH cost examples (6)?
Indirect Materials: Glue
Indirect Labour: Labour used you cant see
Factory depreciation
Factory utilities
Factory Taxes
Factory Insurance
What is Period Cost?
Any cost related to selling the product.
What are dome period cost examples (6)
Selling expenses, admin expenses, office rent, office utilities, advertising, commission, shipping.
Trick for how can you differentiate between if something is a Product Cost vs Period Cost?
Product Cost: Will mention “Factory”
Period Cost: Will mention “Store or Office”
What are Direct Costs?
DM, DL
What are Indirect Costs?
MOH
What is the total manufacturing cost formula?
DM + DL + MOH
What is the prime costs formula?
DM + DL
What is the conversion cost formula?
DL + MOH
What is variable cost?
Costs that change as out put changes. Ex. DM, DL, VOH (with more demand you need more workers and material)
What is fixed cost?
Costs that remain the same as output changes. EX. Rent (FOH factory overhead)
What does it mean that variable costs are fixed per unit?
VC per unit will stay the same, and the total VC changes. SO it is the Same cost per unit BUT will cost more in Total.
What does it mean that Fixed costs are variable per unit?
The total fixed costs stay the same, and the fixed cost per unit goes down or up (changes per unit). SO the more you produce the cheaper it costs for you.
Once you buy DM, DL, and MOH, what is the order of tracking cost?
WIP -> Finished Goods Inventory -> COGS
What is included in the Cost of Goods Manufactured Schedual
+ Beginning DM. x
+ Purchases of DM. x
- Ending DM. (x)
—————————
= DM Used
+ DL X
+ MOH X
—————–
= Total Manufacturing Cost X
+ Beginning WIP X
- Ending Work in Process
———————————————
= COG Manufactured (COGM) X
What is included in the Income Statment?
Income Statement
+ Sales
- Cost of goods sold
—————–
= Gross Profit
- Period Expense
————————-
= Operating Income
When asked for the COGS, What must you first find?
COGM (cost of good manufactured)
What is the formula for the High Low Method?
VC per unit = (Highest cost) - (Lowest Cost) / (Highest Activity) - (Lowest Activity)
FINDS DENOMINATORS FIRST, AND THEN FIND NUMERATOR
What is the Relevant Range?
The range of output the company normally operates at.
If you get a question asking to find the cost outside of Relevant Range, what do you answer?
NONE OF THE ABOVE/INSUFFICIENT
What is the Cost Of Goods Sold Schedual?
+BFG
+COGM
-EFG
—————–
= COGS
Raw Material = Direct material when?
NO indirect materials (IM) are mentioned in question
How do you differentiate if an item is a variable cost vs a fixed cost? (I.e. Cost is per month vs cost is per unit)
Cost is per unit is variable
cost is per month is fixed
What is the variable cost per unit formula?
VC per unit = Variable Production cost per unit + Variable selling cost per unit.
*Variable production cost per unit = Total variable production cost / Units produced.
*Variable selling cost per unit = Total variable selling cost/Units sold.
What is the total cost per unit formula?
Total Cost = Total Variable Cost + Total Fixed Cost
*Total variable cost = (VC per unit * # Units) + TFC
What are the steps for solving High Low method Questions?
(1) Use high low method to solve for VC/Unit
(2) Solve for TFC using algebra (TC = (VC/Unit * # of units) + Total FC. Pick highest activity and corresponding cost and plug into TC equation and solve for TFC with algebra
(3) Answer Questions
What algrebra formula shoud you use when asked to find direct costs of production (prime Cost)?
Direct Cost of Production (Prime Cost) = DM Used + DL
MOH is split between what two things?
Variable overhead cost, and Fixed overhead cost
What algebra formula should you use when asked to find Variable cost of production?
VPC = DM used + DL + VOH
Total product cost is also know as what?
TMC (Total Manufacturing Cost)
What is the total product cost per unit formula
TPC = (VPC per unit * # Units Produced) + TPFC
What is the Total cost per unit formula
TC = VC/Unit *#Units) + TFC
