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.
