Chapter 3 - Accounting Flashcards
What is the difference between direct cost tracing and cost allocation?
Where a cost can be directly assigned to a cost object the term direct cost tracingis used. In contrast, direct cost tracing cannot be applied to indirect costs because they are usually common to several cost objects. Indirect costs are therefore assigned to cost objects using cost allocations.
What are cause-and-effect allocations or driver tracing?
Where allocation bases are significant determinants of costs the terms cause-and-effect allocations or driver tracing are used.
Whats the difference between a direct costing system and an absorption costing system
A direct costing system assigns only direct costs to cost objects whereas an absorption costing system assigns both direct and indirect costs to cost objectives.
Absorption systems can be divided into ___
Absorption costing systems can be sub-divided into traditional costing systemsand activity-based costing (ABC) systems.
Why assign costs to products?
1.For internal profit measurement and external financial accounting requirements in order to allocate the manufacturing costs incurred during a period between cost of goods sold and inventories 2.To provide useful information for managerial decision-making requirements
What are plant-wide (blanket) overhead rates?
A blanket overhead rate or plant-wide rateassigns indirect costs (overheads) to cost objects using a single overhead rate for the organization as a whole. The overhead costs are assigned to products by multiplying the plant-wide rate by the units of the selected allocation base (direct labour hours) used by each product
What are the two stages of the two-stage allocation process?
In the first stage, overheads are assigned to cost centres. In the second stage, the costs accumulated in the cost centres are allocated to cost objects using selected allocation bases.
