Cost Accounting Flashcards
Prime Costs
In a manufacturing company these are the direct materials and direct labor.
These make up 8090% of total manufacturing costs
conversion Costs
In manufacturing companies, the sum of direct labor and manufacturing overhead. Purpose: convert direct materials into final product.
Some managers focus on conversion costs because they say “ you can manage conversion costs. Direct material costs are mostly outside our control)
Product costs
In manufacturing companies, costs assigned to units of production and recognized (expensed when product is sold. They follow the product through inventory. They consist of direct and indirect costs.
Period Costs
In manufacturing companies, these are the Nonmanufacturing Costs and are expensed as incurred.
Direct Materials
Feasibly identified directly at a relatively low cost
Direct labor
workers who can be identified directly, at a reasonable cost with the product
Manufacturing overhead (factory burden, burden, factory expense, overhead)
Indirect labor (supervisors, maintenance workers, and inventory storekeepers) Indirect materials (lubricants for machinery, repair parts, and light bulbs, those that are not a part of finished product but are necessary to manufacture it) Other--Depreciation, taxes on factory assets, incurance on factory building and equipment, heat, light, power, and similar expenses)
Marketing Costs
A period cost. Costs required to obtain customer orders and provide customers with finish products.
Advertising, sales commissions, shipping costs, and marketing departments’ building occupancy costs.
Administrative costs
Costs required to manage the organization and provide staff support
executive and clerical salaries (secretary); costs for legal, financial data processing and accounting services; building space for administrative personnel.
Cost allocation
Assigning indirect costs to products, services, people, business units
Cost object
any end to which a cost is assigned
Cost pool
Collection of costs to be assigned to the cost objects. Costs we want to assign to cost objects.
Cost of Goods Manufactured and Sold Statement
Does not show up in external reporting but necessary for managers.
Beginning WIP \+Direct material costs* (See other card) \+Direct Labor \+Manufacturing Overhead =Total Manufacturing costs incurred -Ending WIP = COGM \+Beginning Finished Goods inventory =Finished goods available for sale -Ending finished goods inventory =COGS
COGM and Sold Statement: Direct Materials
Beginning inventory \+ Purchases =Direct materials available -Ending inventory =Direct material put into production
Variable Costs
Costs that change within their relative range (to a certain point). Remain constant per unit and vary in total.
Cost of the product
Marketing and Administrative
Product Costs
Fixed costs
Costs that do not change within their relative range (to a certain point). Remain constant in total but vary per unit as activity changes.
Semivariable costs (mixed costs)
Fixed and variable components
Step Costs (semi-fixed costs)
Costs that increase with volume in “steps”
Ex: one supervisor for 4 firefighters, 2 for 5-8, and so forth as number of firefighters increase. Salaries expense will increase in steps.`
Full Cost
Sum of all costs of manufacturing and selling a unit of product (includes both fixed and variable costs)
Full absorption cost (traditional income statement)
All variable and fixed manufacturing costs are product costs. (used to compute a product’s inventory value under GAAP). This excludes nonmanufacturing costs like marketing and administrative costs.
Cost driver
Anything that forces, or causes, a cost.
Contribution margin
Sales price-Variable costs per unit
Allows them to asses the profitability of products before factoring in fixed costs (which are more difficult to change in the short run).
Common approaches for determination of product costs
Full absorption costing (GAAP)–traditional income statement. Fixed and variable manufacturing costs are product costs. All others are period costs.
Variable costing–contribution margin income statement) – only variable manufacturing costs are product costs. all others are period.
Managerial costing–managements determines which costs are associated with the product and should be considered product costs.
Value Added income statement
outlines costs linked to three segments of value chain: production, marketing ,and distribution. Determining value is added to the product in each business function. Goal: maximize value added activities and minimize nonvalue-added activities.
Cost
sacrifice of resources: opportunity costs and outlay costs.
Expense
Cost that is charged against a revenue in an accounting period.
