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ACCT323 > Chapter 2: Cost Terms, Concepts, Classifications > Flashcards

Chapter 2: Cost Terms, Concepts, Classifications Flashcards

1
Q

Cost object

A

anything for which cost data is required

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2
Q

Direct costs

A

costs you can trace to a particular cost object in an economic feasible way (in a way where the time and effort is worth it to track)

EX:
- in a classroom (cost of tables and chairs, projectors)

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3
Q

Indirect Costs

A
  1. costs that cant be traced to a particular object in an economically infeasible way
  • EX: Nuts, bolts, threads, glue
  1. Costs that cannot be traced to a cost objectq
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4
Q

where would a uni president salary be a cost object of..
DIRECTLY & INDIRECTLY

A

DIRECTLY: to the university/ their office

INDIRECTLY: to an individual classroom

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5
Q

Types of Manufacturing Costs

A
  1. Direct Materials (DM): raw materials are physically incorporated into the final product [NOTE THAT THREAD, NUTS, BOLTS ARE NOT CONSIDERED DIRECT MATERIALS CUZ NOT WORTH IT TO TRACK]
  2. Direct Labour/Factory Labour: cost of salaries of employees who work directly on the manufacturing of the prodct
  3. Manufacturing Overhead: anything in the fictory that is not direct materials and direct labour is considered manufacturing overhead
    -> Indirect materials, Indirect Labour, Other manufacturing costs (utiliities, property taxes/rent + facilities)
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6
Q

Manufacturing Costs

A

DM + DL+ MOH

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7
Q

Prime Costs

A

DM + DL

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8
Q

Conversion Costs

A

DL + MOH

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9
Q

Product Costs

A

Inventoriable Costs

Costs of inventory (EX: Retailer/Wholesaler-purchase price + shipping costs+ duties etc)

Manufacturer costs are DM+DL+MOH

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10
Q

Product cost stay on balance sheet till sold then they are moved to

A

statement of income under COGS & Revenue

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11
Q

What are period costs

A

all costs that are NOT product costs are period costs

(the costs in different areas not related to products)

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12
Q

Period costs are amthced with the revenue of a specific time period and not included in inventory ever

A

THEY ARE EXPENSES IN THE PERIOD INCURRED!!! the first sheet they appear in is statement of income

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13
Q

Consider the example of a factory, if you have paper towels in the washroom

WHY?

A

THEY ARE A PRODUCT COST! because they are part of manufacturing over head!!!!

BECAUSE IN THIS EXAMPLE, THE COST OBJECT IS THE FACTORY!

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14
Q

How to identify if there is a direct or indirect cost?

A
  1. IDENTIFY THE COST OBJECT
  2. think logically: is this a direct cost or an indirect cost?
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15
Q

IMPORTANT THING TO REMEMBER!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

A

EVERYTHING IN THE FACTORY IS A PRODUCT COST

EVERYTHING OUTSIDE THE FACTORY IS A PERIOD COST!!!

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16
Q

direct & indirect is different from the product & period cost

A
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17
Q

the question about overtime/undertime is not relevant! wont be on the test

A
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18
Q

serevice firms

A

provide a service!

no inventory=no product costs

all costs are period costs and expensed as operating expenses

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19
Q

retailers/holdsalers

A

prior to sales: balance sheet as inventory

at time of sale: income statement as COGS

PERIOD COSTS: same as service firms

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20
Q

Manufacturing Companies

A

Products costs: prior to sale [3 tyes of inventories]
- Raw Materials
- Work in Process
- Finished Goods

At the time of sale: Debit COGS, credit Finished goods

Period costs: same as service companies

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21
Q

Retailers, wholesalers, service companies, manufacturing companies

A

product costs are different

period costs are identical

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22
Q

Cost Accounting

A

measuring recording and reporting product costs

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23
Q

what do companies use cost accounting for

A

determine which products to produce

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24
Q

2 types of cost accounting systems

A

JOB ORDER COST SYSTEM

PROCESS COST SYSTEM

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25
Q

Job order costing

A

company assigns costs to each job/ batch of goods

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26
Q

FEATURE OF JOB ORDER COSTING

A

each job or batch has its own characteristics!!! OBJECTIVE: compute the cost per job

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27
Q

PROCESS COST SYSTEMS

A

manufactures a large volume of similar products, production is ocntinous

EX: like ceral, like petrol, etc.

ACCUMULATE COSTS FOR A PERIOD OF TIME!!!

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28
Q

can a company use both job order and process costing?

A

YES

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29
Q

What is the flow of costs in job order cost accounting?

A

PARALLELS PHYSICAL FLOW OF MATERIALS AS THEY BECOME FINISHEd GOODS

  1. ACCUMULATE manufacturing costs (DM,DL,MOH)
  2. ASSIGN to Work in Process Inventory account
  3. FINISHED GOODS INVENTORY
  4. COGS when sold
30
Q

FLow of job order costing in terms of accounts

A

DR Manufacturing Costs (Expense)
DR Work in Process INventory (asset)
DR finished goods inventory (Asset)
DR COGS (Expense)

  1. DR costs to Raw Materials Inventory
31
Q

How are wages and salaries of non manufacturing employees accounted for

A

PERIOD COSTS -> as SALARIES AND WAGES EXEPENSE

32
Q

How are wages and salaries of manufacturing employees costed?

A

FACTORY LABOR!!! (DL)

  1. Gross earnings of factory workers
  2. EMployer payroll taxes on the earning
  3. Fringe beenfits (sick pay, pensions, vacation pay)

debit costs to factory labor (Asset)
credit costs to factory wages payable (liability)

33
Q

MOH relating to non manufacturing facility?

A

EXPENSED AS PERIOD COSTS

34
Q

If MOH relates to manufactufuing facility

A

DR. MOH
CR. Payables, Prepaid Insurance, Acc Depreciaiton…

35
Q

how to assign manufacturing costs to WIP

A
  1. debit to WIP inventory
  2. Credit to RM inventory, FL, MOH (basically all the manufacturing costs accounts)
36
Q

RAW MATERIALS COSTS
Companies assign raw materials costs to jobs when their materials storeroom issues the materials in response to requests. Requests for issuing raw
materials are made on a prenumbered materials requisition slip. The materials
issued may be used directly on a job, or they may be considered indirect materials.
As Illustration 2-5 shows, the requisition should indicate the quantity and type
of materials withdrawn and the account to be charged. The company will charge
direct materials to Work in Process Inventory, and indirect materials to Manufacturing Overhead.

A
37
Q

companies assign manufacturing overhead to
work in process and to specifi c jobs on an estimated basis through the use of
A PRE DETERMINED OVERHEAD RATE

A

based on the relationship between estimated annual overhead costs and expected annual operating activity, expressed
in terms of a common activity base

estimated annual overhead costs / expected annual operating activity = predetermined overhead rate

38
Q

Actual activity base used x predetermined overhead rate

is assigned to

A

WIP that you split into jobs

39
Q

The use of a predetermined overhead rate
enables the company to determine the approximate total cost of each job when
it completes the job.

A
40
Q

how to assign costs to finished goods?

A

when a job is completed, the FG is debited and WIP inventory is credited

41
Q

Finished Goods Inventory is a control account. It controls individual fi nished goods records in a fi nished goods subsidiary ledger. T

A
42
Q

how to assign costs to cogs?

A

DR COGS
CR finishee dgoods inventory

& whatever other JEs you have to do

43
Q

The cost fl ows in the diagram can be categorized as one of four types:
* Accumulation. The company fi rst accumulates costs by (1) purchasing raw
materials, (2) incurring labor costs, and (3) incurring manufacturing overhead costs.
* Assignment to jobs. Once the company has incurred manufacturing costs,
it must assign them to specifi c jobs. For example, as it uses raw materials
on specifi c jobs (4), it assigns them to work in process, or treats them as
manufacturing overhead if the raw materials cannot be associated with a
specifi c job. Similarly, it either assigns factory labor (5) to work in process,
or treats it as manufacturing overhead if the factory labor cannot be associated with a specifi c job. Finally it assigns manufacturing overhead (6) to
work in process using a predetermined overhead rate. This deserves emphasis: Do not assign overhead using actual overhead costs, but instead
use a predetermined rate.
* Completed jobs. As jobs are completed (7), the company transfers the cost
of the completed job out of work in process inventory into fi nished goods
inventory.
* When goods are sold. As specifi c items are sold (8), the company transfers
their cost out of fi nished goods inventory into cost of goods sold.

A
44
Q

advantages of job order costing

A
  • precise in cost assignment than process costing
45
Q

disadvantage of job order costing

A
  • requires significant data entry
  • difficult to allocate overhead
46
Q

when MOH has debit balance

A

UNDERAPPLIED OVERHEAD!

If actual is greater than applied,
manufacturing overhead is underapplied.
If actual is less than applied,
manufacturing overhead is overapplied.

47
Q

when MOH has Credit balance

A

OVERAPPLIED OVERHEAD

If actual is greater than applied,
manufacturing overhead is underapplied.
If actual is less than applied,
manufacturing overhead is overapplied.

48
Q

Year end balance- how to do adjusting entry

A

MOH debit
COGS credit

49
Q

what are the 3 types of inventories for manufacturing companies before sales?

A
  1. raw materials (materials purchased, waiting for producion)
  2. wip (incokplete goods at end of period)
  3. fg (goods completed and awaiting sale)
50
Q

when you are sleling an object what is the JE

A

dr COGS
cr FG inventory

period costs are same for product and service companies

51
Q

product costs and period costs

A

product costs: incurred only cuz company manufacturer their cost object (as opposed to purchasing)

period costs: expenses incurred cuz company is in business (admin, selling, mktg)

52
Q

what are prime costs

A

sum of all direct materials and direct labor costs

DM+DL

53
Q

COnversion costs

A

cost of concerting raw materials into final product

DL + MOH

54
Q

DL is part of both Prime and conversion costs

A
55
Q

Product costs also referred to as inventoriable costs

A
56
Q

what are period cost

A
  • matched with revenue earned in a time frame and charged to expesne as incurred
  • NON MANUFACTURING

basically these are non inventoriable

57
Q

Activity or volume index

A

identifies activity that causes change in the behavuour if costs

VARIABLE COST
FIXED COST
MIXED COST

58
Q

Vairable costs

A

Costs that vary in total directly and proportionately with
changes in the activity level

same at the per unit level1!!

SO: total variable cost increases! but the variable cost per uni is constant

59
Q

fixed costs

A

Costs that remain the same in total within the relevant
range regardless of changes in the activity level.
* Per unit cost varies inversely with activity:
o As volume increases, unit cost decline, and vice versa

SO: total fixed costs are constant!
but fixed csots per unit decrease steadily!

60
Q

Variable costs are costs that vary in total directly
and proportionately with changes in the activity
level. These costs remain the same per unit at every
level of activity.
* Fixed costs are costs that remain the same in total
within the relevant range regardless of changes in
the activity level. Fixed costs per unit vary inversely
with activity—in other words as volume increases,
unit costs decrease and vice vers

A

!!

61
Q

Throughout the range of possible levels of activity, a
straight-line relationship usually does not exist for
either variable costs or fixed costs
o The relationship between variable costs and changes
in activity level is often curvilinear
o For fixed costs, the relationship is nonlinear – some
fixed costs will not change over the entire range of
activities, others may change at different levels of
activity

A
62
Q

Costs that have both a
variable and a fixed cost
component
Sometimes called semi
variable cost
Change in total but not
proportionately with
changes in activity level
Behaviour of mixed costs

A
63
Q

cost behaviour analysis 41-48

A
64
Q

Current assets: manufacturing firm will carry at least three
(3) different inventories, other industries will normally
report one inventory

Income Statement: cost of goods sold section reflects
manufactured cost of goods

A
65
Q

income statement

A

The income statement for a manufacturer is similar to
that of a merchandiser except for the cost of goods
sold section

66
Q

Merchandiser COGS

A

Beginning Merchandise Inventory + Cost of Goods Purchased - Ending Merchandise Inventory = COGS

67
Q

Manufacturer COGS

A

Beginning Finished Goods Inventory + COGM - Ending FG Inventory = COGS

68
Q

Work in Process – partially completed units
* Total Manufacturing Costs – sum of direct material costs, direct
labour costs, and manufacturing overhead incurred during the
current year

A
69
Q

In a manufacturer’s balance sheet, three inventories may be
reported: (1) raw (direct) materials, (2) work in process, and (3)
finished goods. In what sequence do theses inventories generally
appear on a balance sheet?

A

3,2,1

70
Q
A

ACCT323 (6 decks)

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