Chapter 4 Flashcards
unit-level product costing
overhead costs are assigned to products using predetermined overhead rates
predetermined overhead rate =
budgeted annual overhead / budgeted annual driver level
applied overhead =
overhead rate x actual driver usage
unit-level drivers
factors that measure the demands placed on unit-level activities by products
unit-level activities
activities performed each and every time a unit of a product is produced
5 most commonly used unit-level drivers
units produced direct labor hours direct labor dollars machine hours direct material dollars
overhead variance
the difference between actual overhead and applied overhead
under-applied overhead
actual > applied
must add more OH
COGS should be DR
(or FG, WIP and COGS if material)
over-applied overhead
actual < applied
must decrease OH
COGS should be CR
(or WIP, FG, and COGS if material)
Immaterial variance
assign to cost of goods sold
Material variance
allocate among work-in-process inventory, finished goods inventory, and cost of goods sold
departmental rates
costs assigned to individual production department, creating departmental overhead cost pools
unit-level drivers used to compute predetermined overhead rates for each department
overhead is assigned to products by multiplying the departmental rates by the amount of the driver used in the respective departments
non-unit-based drivers
are factors, other than the number of units produced, that measure the demands that cost objects place on activities
non-unit-related overhead costs
plantwide and department rates assume that a product’s consumption of overhead is directly related to units produced
consumption ratio
proportion of each activity consumed by a product
product diversity
products consume overhead activities in different proportions
–caused by differences in product size, setup times, batch size, etc.
activity inventory
a simple list of activities identified
activity attributes
nonfinancial and financial information items that describe individual activities
activity dictionary
lists the activities in an organization along with desired attributes
primary activity
consumed by the final cost object
secondary activity
consumed by intermediate cost objects
activity-based costing system
assign the cost of resources to activities
cost of an activity is the resources consumed by the activity
if the resource is split between more than one activity, determine a resource driver
–assign the cost of secondary activities to primary activities
resource drivers
are factors that measure the consumption of resources by activities
steps of activity-based costing system
- assign the cost of resources to activities
- assign the cost of secondary activities to primary activities
- identify cost objects and specify the amount of each activity consumed by them
- calculate primary activity rates
- assign activity costs to cost objects
- classifying activities into categories aids in product costing because the cost behavior differs by level
time-driven ABC
eliminates the need to identify resource drivers, eliminating the need for much of the detailed implementation interviews
- -calculate total operating cost of a department or process
- -calculate capacity cost rate by dividing the total resource cost by the practical capacity of resources supplied
- -estimate the time to perform one unit of activity
activity cost =
capacity cost rate x time to perform one unit of activity x total activity output = activity rate x total activity output
unit-level activities
are those that are performed each time a unit is produced
batch-level activities
those that are performed each time a batch is produced (setups, inspections, etc.)
product-level activities
are those activities performed that enable the various products of a company to be produced
facility-level activities
are those that sustain a factory’s general manufacturing processes
