BEC Deck 8-Planning & Measurement Flashcards
Product Cost-
Can be associated with the production of specific revenues (i.e. cost of goods sold). They generally attach to physical product units and are expensed in the period in which the goods are sold. Also known as inventoriable or manufacturing costs.
Period Costs-
Cannot be matched with specific revenue (i.e. accountant’s salary) and are expensed in the period incurred. These costs are also called selling & administrative costs.
Prime Costs-
Are direct labor and direct materials.
Conversion Costs-
Are direct labor and manufacturing overhead.
Overhead Application Rate-
estimated total overhead costs / estimated activity volume
Applied Overhead-
The amount of estimated overhead charges to production. Calculated by multiplying the predetermined overhead rate by the actual number of units used in production.
Summary of Overhead Application-
1) At the beginning of the year, we calculate the predetermined overhead allocation rate. (POR)
2) During the year, we periodically allocate overhead by multiplying the POR by the actual units of the allocation base.
3) At the end of the year we dispose of over/underapplied overhead by taking the difference between actual overhead and applied overhead to Cost of Goods Sold.
A relevant range is a range of production volumes where:
1) the range of activity for which the assumption of cast behavior reasonably hold true; and
2) the range of activity over which the company plans to operate.
3) If (1) is true but (2) is not, then the analysis will not be relevant to the company. If (2) is true but (1) is not, then the assumptions of the model are not satisfied making the analysis invalid.
Absorption Costing-
Assigns all three factors of production (direct material, direct labor, & both fixed & variable manufacturing overhead) to inventory.
Direct Costing-
(also known as variable costing) Assigns only variable manufacturing costs (direct material, direct labor, but only variable manufacturing overhead) to inventory.
Job order costing is used to accumulate costs related to the production of large, relatively expensive, heterogeneous (custom-ordered) items. Costing follows the general rules for manufacturing cost flows and is relatively straightforward:
A)Costs are accumulated in individual work-in-process accounts called job order cost sheets, the total of which is accounted for in the work-in-process control account.
B)Overhead is applied based on a predetermined overhead rate.
C)when goods are completed, costs flow on to finished goods and when sold, costs flow into cost of goods sold.
Process costing-
is used to accumulate costs for mass-produced, continuous, homogeneous items which are often small and inexpensive.
Unit level activities
Activities that must be performed for every product unit.
Batch level activities
Activities that must be performed for each batch of products produced.
Product sustaining level activities
Activities that are necessary to support the product line as a whole such as advertising & engineering activities.
Facility (general operations) level activities
Activities that are necessary to support the plant that produces the products.
The key objectives of process management are to:
1) Increase manager understanding of the cause-and-effect relationships involved between processes & the resources they consume.
2) Promote the elimination of waste to help achieve managerial objectives.
Income reconciliation rule-
Ending Inventory units X fixed cost per unit - Beginning Inventory units X fixed cost per unit
Differences in Net Income from Absorption Costing & Direct Costing can in general be explained by this:
1) Units Sold=Units Produced then N.I. is equal
2) Units sold>Units produced then Absorption N.I. is less than Direct N.I.
3) Units Sold<Units Produced then Absorption N.I. is greater than Direct N.I.
Static budget-
A budget that does not change when actual sales differ from planned sales.
Operating Budget-
Forecasts the results of operations: sales, production expenses, & selling & admin expenses. The principal budgets found within the operating budget are: sales budget, production budget, production cost budgets, and selling and admin expense budget.
Financial Budget-
Forecasts cash flows and projects the financial statements that will result from operations. The financial budget consists of the: cash budget, budgeted (or pro forma) income statement, & budgeted (or pro forma) balance sheet.
Capital Expenditures Budget-
Projects expenditures related to the acquisition or construction of capital (fixed) assets. since acquisition of capital assets often requires an extended planning horizon, the budget often spans multiple fiscal periods.
Correlation analysis-
Measures the strength of the relationship between tow or more variables: a dependent variable and one or more independent variables.
Correlation Coefficient (R)-
Measures the strength of the relationship between the dependent & independent variables. The correlation coefficient can have values from -1 to 1 where:
1) 1 indicates perfect positive correlation (as X increases, so does Y)
2) -1 indicates perfect negative correlation (as X increases, Y decreases)
3) 0 indicates no correlation (you cannot predict the value of Y from the value of X)
Coefficient of Determination (R-squared)-
Indicates the degree to which the behavior of the independent variable predicts the dependent variable. The coefficient of determination is calculated by squaring the correlation coefficient. R-squared can take values from 0 to 1. The closer to 1, the better the independent variable predicts the behavior of the dependent variable.
Regression analysis predicts the value of one factor (the dependent variable) based on the value of one or more other factors (the independent variables).
1) Simple regression—A regression with one independent variable.
2) Multiple regression—A regression with several independent variables.
Regression equation-The relationship between the dependent & independent variables is expressed in the regression equation, which takes the following form:
y=A + Bx where
Y=dependent variable
B=the slope of the line
x=independent variable
Cost equation–the relationship between fixed costs, variable costs, and total costs can be expressed in the regression equation:
y=A + Bx where
y=Total Costs (dependent variable)
A=Fixed Costs (the y-intercept)
B=Variable Cost per Unit (the slope of the line)
x=# of units (independent variable) or
Total Costs=Fixed Costs + (Variable Cost per Unit * # of units)
