B1 - Cost Measurement Methods and Techniques Flashcards
Name the three components of product cost.
Direct Materials (DM)
Direct Labor (DL)
Manufacturing Overhead (MO)
Prime Cost = DM + DL
Conversion Costs = DL + MO
Distinguish between product and period cost.
Product Costs
Inventoriable; they become cost of goods sold when sold.
Period Costs
Expensed in the period incurred.
Determine the traditional overhead rate.
Traditional overhead rate = Budgeted mfg. OH costs
Estimated cost driver
Define relevant range.
The relevant range is the range of volume for which the assumptions of the cost driver (i.e., linear relationship with the costs incurred) are valid and in which the actual value of the cost driver exists.
With joint products, what is the treatment of costs incurred before the split-off point?
Costs incurred before the split-off point are sunk costs, not relevant to further processing decisions.
Joint costs are allocated using one of the following methods.
Use % of product total baesd on a ratio of:
- Relative sales value
- Net realizable value
- Physical units
What is the formula for* cost of goods manufactured*?
Beginning WIP
Add: Direct Materials
Direct Labor
Manufacturing Overhead
Less: Ending WIP
= Cost of Goods Manufactured
What is the formula for cost of goods sold?
Manufacturing Entity:
Beginning Finished Goods
Add: Cost of Goods Manufactured
Less: Ending Finished Goods
Cost of Goods Sold
Other:
Beginning Finished Goods
Add: Purchases
Less: Ending Inventory
Cost of Goods Sold
What is the difference between job and process costing?
Job Costing
With job costing, each unit/batch is unique and easily identifiable costs are determined by each job.
Example: We print your resume in our print shop.
Process Costing
With process costing, continuous mass-produced identical units are manufactured, and costs are determined by activity/process/department.
Example: We process crude oil into gasoline.
What is an equivalent unit?
Used in process costing, equivalent units are fully completed and partially completed units during the period.
In applying costs, determine the units, then costs, then apply the cost flow assumption for cost per unit and allocation of costs.
How are the equivalent units and total cost calculated using the FIFO method?
Equivalent units = (Beginning WIP x % to be completed) + Units started and completed + (Ending WIP x % completed)
Total costs = Cost incurred during the current period
How are equivalent units and total cost calculated using the weighted-average method?
Equivalent units = Units completed = (Ending WIP x % completed)
Total costs = Costs in beginning WIP + Costs incurred during the current period
Name the types of spoilage and indicate the appropriate accounting treatment.
- Abnormal:* Charge to income of the current period.
- Normal:* Increase the cost of the product produced (i.e., inventory).
Define activity-based costing (ABC).
ABC is a costing theory that assumes that resource consuming activities cause costs and that costs should be assigned to benefiting products based on the activities performed and the resources consumed.
ABC systems often divide costs into multiple activity centers and identify the activities that drive the costs in each cost center. Costs are then assigned based on the volume of cost drivers at the determined rate per cost driver.
What are the characteristics of effective performance measures?
Effective performance measures:
- Relate to the goals of the organization.
- Balance long and short-term issues.
- Reflect management of kehy activities sometimes referred to as critical success factors in the balanced scorecard.
- Are under the control or influence of the employee.
- Are undersood by the employee.
- Are used to both evalate and reward the employee or otherwise contructively influcence behavior.
- Are objective and are easily measured.
- Are used consistently.
Define transaction marketing.
Customers are attracted for the sake of a single sale.
