Chapter 4: Cost Management Systems Flashcards
How do companies allocate costs?
Direct materials and direct labor can be easily traced, so they are assigned
Manufacturing overhead, and indirect cost, cannot be easily traced and is allocated
How is activity based cost system developed?
Step 1: identify activities and estimate the total indirect costs
Step 2: Identify the allocation base with each activity and estimate the total quantity for each allocation base
Step 3: Compute the predetermined overhead allocation rate for each activity
Step 4: Allocate indirect cost to the cost object
How can companies use activity-based management to make decisions?
- Determine pricing and product mix
-computing target prices in target cost
How can activity-based management be used in service companies?
-Costing and can be used to determine the cost of service as well as product
-The same for step to develop activities causing can be used to make management decisions
How does just in time management systems work
-Systems are inventory management systems in which a company produces products just in time to satisfy customer needs
-suppliers deliver materials just in time to be in production
-finished units are completed just in time for delivery to customers
How does just-in-time management system use just-in-time costing?
-Inventory accounts are combined into single raw and work-process-inventory are combined into single raw and in-process-inventory account.
-Direct labor and manufacturing overhead or combine into a conversion costs account
- Summary journal after units are completed
How do companies manage to quality using quality management system?
There are four steps of quality costs:
-prevention: Costs incurred to avoid poor quality goods or services
-appraisal: Cost incurred to detect poor quality materials, goods or services
-internal failure: Cost incurred when a company the corrects poor-quality goods or services before delivery to customers
-external failure: Cost incurred after the company does not detect poor quality goods or services, and then makes things right with the customer.
businesses should invest up front in prevention and appraisal costs to reduce internal and external failure
Activity
Task, operation or procedure
Quality time management system
A system that helps managers improve the business performance by providing quality products and services
Target cost
The maximum cost to develop produce and deliver the product or service and earn the desired net profit
target sales price minus desired net profit
Raw and in process inventory
A combined account for raw materials inventory and work in process inventory used in just in time management system
value engineering
Reevaluating activities to reduce cost while satisfying customer needs
Activity based costing system
Focuses on the cost of activities as building blocks for allocating indirect cost of products and services
Target price
The amount customers are willing to pay for a product or service
Full product cost
The cost to develop, produce, and deliver the product or service
