BEC - B3 Operations MGMT (Cost Accounting and Performance MGMT) Flashcards
Which of the following best described direct labor?
- Prime cost
- Product cost
- Both a period and a prime cost
- Both a product cost and a prime cost
-D: Direct labor is a Prime cost, a Conversion cost, and a Product cost. It is all 3.
Which of the following should be included in a manufactured good’s inventoriable cost?
- Sales commissions
- Abnormal spoilage
Neither.
Inventoriable costs (product costs) should include direct labor, direct material, and applied overhead. Abnormal spoilage is charged against income as a separate component of COGS
How do we calculate prime costs?
Prime costs are the sum of direct materials and direct labor.
-Note 1: Direct materials is more than just raw materials purchases. Direct materials is a SQUEEZE number, found by squeezing out the “Cost of Materials Used (COMU)” in the accounting analysis format.
-Note 2: Purchase returns and allowances are included in the calculation of COMU!! They are a factor that reduces total materials available, which is what you use to squeeze “COMU”.
Which of the following is true about inventoriable costs?
- Exclude fixed factory overhead
- Regarded as assets before the products are sold
- Only include the conversion costs of manufacturing a product
- Only include the prime costs of manufacturing a product
-(B) is true. Inventoriable costs are assets until sold (they are added to the value of inventory - an asset). When they are sold, they become a part of COGS
What are the components of conversion costs?
- Direct labor
- Overhead.
(They include all product costs except direct materials)
What are the characteristics of a relevant range?
- Total fixed costs remain the same
- Variable cost per unit will not change
What are the characteristics of conversion cost pricing?
- Places NO emphasis on the cost of materials used in manufacturing a product
- Places heavy emphasis on indirect (overhead) costs, but disregards consideration of direct materials
