7. Costing - Methods Flashcards
What are the different methods of job costing?
Variable costing and Absorption Costing
How does job costing deal with spoilage?
Normal Spoilage - charge to OG, attention is not drawn and ignores the opportunity cost
Normal spoilage to a job - charge to the job, draws attention but ignore opp cost.
Abnormal spoilage out of control - charge to the period as an expense, draws attentino to the cost and encourages investigation and improvements. Ignores opp cost.
Abnormal to a job - charge to the job, remainds in WIP inventory for the job. Attention might or may not be drawn to the cost, ignores opp. cost
What are the different methods of process costing?
Weighted average and job costing
How do you calculate equivalent units under the weighted average method?
Total DM Costs or Conversion / Units finished + Costs in WIP
Note: You ony need to apply it for goods completed and goods left in WIP at the end of the period. This is because regardless of what was opening inventory or how many was started in the period, they will either be finished up sit in WIP.
How do you calcaulte equivalent units in the FIFO method
Costs incurred in the period (including costs transfered in) are used to calculate the cost of units - both beginning and wip inventories are convered to an EU basis.
this is better since it accounts for the fact that beginning WIP costs were not fully incurred in the current period.
How does process costing deal with spoilage?
Normal - included in the cost transferred out, increaes COGS, attention is not drawn.
Abnormal - charged to the period, spoilage cost is removed from WIP and assigned to a loss account. Draws attention to investigate and improve quality.
What is traditional costing?
Allocates costs to products based on a predetermined OH rate - using a single cost driver.
Pro: Simple and easy to use and apply.
cons: The most costs that are included in OH and not impacted by the selected cost driver, the less accurate the allocation.
What is ABC
Each unique activity has its own driver that affects costs. ABC uses these as cost drivers to determine OH.
It is more complicated because the more costs you have in the model, the more complex it becomes - needed a very robust accounting system. this would only be beneificial if you have a high proportion of costs and high variance in resources across products, customers and facilities.
What is ABM
It is based on ABC and management can direct decision-making to specific parts of the organization to improve effieicny.
How do you adjust for under or over applied OH?
To adjust for over-applied OH, you would
Dr. MOH - to decrease
Cr. COGS to decrease
Cr. Finished Goods inv - to decrease
When OH is incurred, it is Dr. to MOG, when it is applied, it is credited. Any amount left over in this account is under (debit) and over (credit) applied.
