BASIC EQUATIONS Flashcards
Direct materials used
=Raw materials beginning inventory + Purchases - Raw materials ending inventory
Cost of Goods Manufactured
= Direct materials used + Direct labour + indirect manufacturing costs (manufactory overhead) + beginning WIP - Ending WIP
Prime Costs
= Direct Material + Direct Labour
Conversion Costs
= Direct labour and Manufacturing Overhead
Total Cost
= Fixed costs + (variable rate
*Units of output)
Cost of Goods Sold
= beginning finished goods + cost of goods manufactured - End finished goods
operating leverage equation
contribution margin/ operating income
high OL- larger portion if costs are variable
low OL - means that larger portion of costs are fixed
3 types of costs that make up our COGM
direct materials
direct labour
manufacturing overhead
Job costing system
one that allocated overhead costs amounts all of the individuals “jobs” or “orders”
uses usage rate POHR (set at beginning of the period
Process costing system
one that allocated overhead costs to each step of the manufacturing process. this is for companies that have continuous production in large quantities, where it doesn’t make sense to trace costs to individual identical units (average is good)
POHR (Predetermined Overhead Rate)
= expected overhead costs/expected activity level
overhead rate
actual total costs/actual usage
write of amount to COGS
decrease NI and Contribution margin
