B3-M1 Cost Accounting Flashcards
What is Conversion cost?
Conversion costs include both direct labor and overhead.
Ex. Electricity falls under overhead costs and increase in crude oil prices indirectly impacts the increase of electricity which in turn increases overhead costs.
What is Prime Cost?
Prime cost include direct materials and direct labor
What is product cost?
Total cost of DM + DL + FOH + VH
What is equivalent units of production in cost accounting?
“Equivalent units of production” refers to a calculation used in cost accounting to express the amount of work done on partially completed units in a production process as if they were fully completed units, allowing for a more accurate representation of production costs when dealing with units at different stages of completion throughout a period; essentially, it converts partially finished goods into the equivalent number of fully finished units based on the percentage of work completed on them
What’s FIFO equivalent units formula?
FIFO Method equivalent units = Units completed + Unit “as of completed”
Where as:
“Units as if completed” = Ending WIP x % of completion - Beginning WIP x % of Completed
What is WA method equivalent Units Formula?
WA method equivalent Units = Units completed + Ending WIP x % of completion
Formula for Cost of Good sold (using WIP and FG)
Beginning WIP X
+Materials cost X
+Labor X
+Overhead Applied ________X____
= Total Manufacturing cost XXX
- Ending WIP _______XX___
COG, manufactured XXX
+ Beg FG XX
- Ending FG _____XX__
COG Sold XXXX
What’s the difference between Direct vs. Indirect labor?
Direct labor represents the cost of labor directly associated with the manufacturing of the finished product. The loom operators would qualify as direct labor, while the factory foremen and the machine mechanics would qualify as indirect labor, or overhead.
What’s the difference between Job order costing vs. Process costing
Process costing is used for more standardized products (costs of Goods sold are determined using DM, DL, OH)
Job order costing is used if each job is unique (ex. Accounting firms)
How to allocate overhead costs?
Usually the question would indicate how the company allocates its overhead costs (Usually based on direct labor hours basis).
You need to know the ff:
- Units produced
- Direct labor hours required per unit
- Total labor hours per product
- Pro-ration of hours per product
- Overhead costs divide by total hours for that required product
- Get the unit costs x units produced
How to compute for over/underapplied overhead?
Tips to answer this question:
- Know the amount for the applied vs. budgeted (either one should be provided by the question but usually the actual is provided)
- Know the basis of the “applied” overhead and calculate.
- In calculating applied cost — Std rate x Applied hours
Simply –> Overestimate = Overapplied (meaning Favorable since actual is lower)
Rationale for calculating estimates – actual may not be known during the period so need to estimate and apply OH when calculating product costs
What is
PURE SAD DADS
P = D x A
U = D x S
R = D x A
E = D x S
S - A D
What does it mean if an overhead is overapplied?
Actual overhead < Overhead applied (budgeted)
How to calculate Spoilage?
Normal Spoilage = Should be allocated to good production
Abnormal spoilage = charged to income statement
Total of the two is the total spoilage for the period.
Reminder: Since inspection of units does not occur until the completion of manufacturing, none of the spoilage is allocated to the partially completed units.
How to calculate Activity based costing system?
- Determine the activity (remember – labor hours is NOT Activity!!)
- Prorate based on activity
