Cost Accounting Flashcards
What is ABC Costing
This is looking at multiple cost drivers to see what drives the costs of the business
Example : Product A requires 20 hours from engineering and 200q feet of floor space. Product B requires 100 hours from engineering and 600 square feet of floor space
Engineering hours and floor space are cost drivers
The assumption in ABC is that there are multiple cause and effect relationship driving the costs of products
How do you reduce costs in ABC costing
- identify activities that do not add value and eliminate them
What are activities
these are the processes that create products
Example - painting the product
What are cost drivers
This is how different activities drive costs
Example: how many labor hours it takes to paint the product
What are cost centers
This is a department that accumulates costs which are then assigned to products
What are cost pools
these are a group of costs that are associated with a specific cost center
What are value added activities
These are processes that contribute to the products value, meaning it makes the product more valuable to the customer
What are non-value added activities
These are activities that do not contribute to a products value
what is job costing
This is the process of accumulating and applying costs to the production of late or unique items
The costs are accumulated in product -specific WIP accounts
Overhead is applied at a pre-determined rate
When the product is finished, the costs flow into finished goods and when sold the costs flow into COGS
What does it mean when factory overhead is OVER applied
This happens when MORE overhead costs are applied to a product than are actually incurred - factory overhead is over- applied
When this happened - product costs have been OVER stated and COGS will be decreased to correct it.
What does it mean when factory overhead is UNDER applied
This is when LESS overhead costs are applied to a product than actually incurred.
When this happens product costs have been UNDER stated and COGS will be increased to correct it
What is process costing
Process costing is used to assign costs to mass-produced and similar products
what are some of the biggest risks of moving operations off-shor
cultural and language issues
What are shared services
This is when one department in a business provides a service that was previously performed in multiple departments of the business
It creates efficiencies by consolidating the activity into one department
What is a static budget
This is the master budget - the comprehensive plan for all activities
It is based on budgeted costs which are based on budgeted output
