B3/B4 Flashcards
How to distinguish what is direct labor
Cost DIRECTLY connected with manufacturing product
Ppl who just work on factories or mechanics are not DL
Job order costing
Alllocating production costs to products & srvices that u can identify separately (ex: furniture manufacturing, special order printing, shipbuilding)
Estimated NRV method to estimate joint costs, what units do u use
Units produced!! Not units sold
NRV per each product/unit = (units produced * selling price) - seperable cost
If you’re given ROA and asset turnover, how to find profit margin
ROA = NI/TA
asset turnover = sales / avg assets
ROA % / asset turnover = profit margin
What do product costs consist of
Direct material, direct labor, factory (manufacturing) overhead
Conversion costs
Labor and overhead
Prime costs
Material and labor
Control chart
Shows performance of a particular process in relation to accceptable upper/lower deviation limits
Pareto diagram
Individual and cumulative graphical analysis of errors by type
Fishbone diagram
Describes a process, contributions to the process, and the potential problems that could occur at each phase
When actual overhead expenses are incurred, do you debit or credit
Debit actual, credit applied (estimated) overhead
Optimal imputed interest rate used in residual income approach
Target return on investment set by company management
Purpose of cost allocation
Measuring income and assets for external reporting
Residual income
RI = NI (from income statement) - required return
Required return = NBV (equity) * hurdle rate
Comformance costs
Prevention & appraisal costs
Nonconformance costs
Internal & external failure costs
Engineered cost
Cost that bears an observable and known relationship to a quantifiable activity base
Have DIRECT association to output (if it doesn’t exactly tie to something like # of units produced, odds are it is not an engineered cost)
Activity based costing definition
Accounting system that collects financial & operating data on basis of underlying nature & extent of cost driver
In joint costing,
Sales price less cost to complete at split off is equal to
Net sales value at split off
Basically this is the additional contribution to income generated by completing the product
Static budget is based on what
Budgeted costs for budgeted output
Regression equations estimates what
Dependent variables
Regression equation estimates dependent variables based on changes in the independent variable
Under variable costing, what costs are assigned to inventory?
only the variable manufacturing costs (direct material, direct labor, variable overhead) are assigned to inventory.
when you have a question about a special order & what the minimum sale price should be, how do you solve?
the minimum price for a special order is the sum of the variable costs of current utilization plus the contribution margin from the next best alternative.
Cost-based pricing is associated with (3 THINGS)
- Price stability.
- Price justification.
- Fixed-cost recovery.
Margin of Safety formulas
Margin of Safety % = (MOS $/ total sales)
MOS $ = Total Sales - BE sales
BE SALES & Units formulas
BE $ = Total FC / CM ratio OR
BE $ = BE UNITS * sale price
BE UNITS = FC/ CM per unit
R-squared (in regression analysis) indicates what
R squared is the coefficient of determination! - note: coefficient of determination measures the goodness of fit, which is:
the proportion of the total variation in a dependent variable (y) explained by independed variable (x)
Monte Carlo simulation
Used to generate individual values for a random variable
Regression analysis
Used to separate costs into fixed and variable components by means of least squares. Minimize the distance b/t trend line and actual observations
Used to estimate the DEPENDENT cost variable based on changes in the INDEPENDENT variable
End Inventory formula
Begin Inv \+ production costs** = MFG costs available - COGS = EI
** production costs include DL, DM, and applied overhead
Absorption costing
Charges product costs (DM, DL, VOH/FOH) as inventoriable costs
formula for DM used
begin DM \+ purchases - purchase returns \+ transportation available = DM available - ending DM = DM used
formula for calculating volume variance
remember standard = “budgeted”
[STD rate X standard quantity allowed**] + [std fixed rate * std production] = budgeted/applied
[STD rate X standard quantity allowed**] + [std fixed rate * actual production] = actual
**standard quantity allowed = # of units actually produced x rate per unit (usually DL hour)
in evaluating costs for decision making, a company usually considers what 3 costs
incremental, differential, avoidable
variable costs are not considered
how are “inventorial costs” classified
as assets (inventory) once they are sold they become "COGS"
quality costs acronym
APIE appraisal cost prevention costs (AP = conformance costs) Internal External (IE = nonconformance)
appraisal costs
quality check, inspection, testing
prevention costs
training employees, search for high quality supplier,
External failure cost examples
Lost customers, warranty costs, liability claims
Profitability ratio that makes it easy to compare companies that differ in size
ROA
Economic value added, what is the formula and what is the purpose
Uses the net operating profit after tax (NOPAT) and compares it to the required return for the capital
EVA= NOPAT - Required Return
Required Return = Investment x WACC
Main disadvantage of using ROI as a performance measure
ROI may lead to rejecting projects that yield positive cash flows
Managers may not want to pursue investments as it could bring down the ROI ratio
Interest rate/hurdle rate used in the residual income approach is characterized as:
Historical weighted average cost of capital for the company
HOWEVER, the OPTIMAL hurdle rate is the target return on investment set by the company’s management
Primary cause of a sales price variance
** note: sales price variance is also known as revenue variance
Usually due to change in unit selling price
