cost accounting part 3 Flashcards
What is the Predetermined Overhead Allocation Rate (POAR)?
POAR = Estimated total overhead cost / Estimated total units in the allocation base.
What is the allocation base in overhead calculation?
The allocation base is generally a cost driver that causes overhead, such as direct labor hours or machine hours.
How is Overhead Applied calculated?
Overhead Applied = POAR * Actual activity.
What is the difference between Actual total overhead and Overhead Applied called?
The difference is called variance.
What happens to material variance at the end of the year?
Material variance is transferred to one of the inventory accounts where it is specifically attributed.
What happens to smaller variances at the end of the year?
Smaller variances can be transferred directly to Cost of Goods Sold (COGS).
Name a method of overhead allocation.
Methods include activity-based costing, single versus dual methods, plant-wide versus department methods, and absorption versus variable costing methods.
How can overheads be segmented?
Overheads can be segmented where one part is charged at one rate and another at a different rate, often based on department.
Describe traditional pricing in businesses.
Traditionally, pricing was labor-intensive, had low overheads relative to direct costs, and operated in a relatively uncompetitive market.
Describe the new environment for pricing in businesses
The new environment is capital-intensive, machine-paced production with a high level of overheads relative to direct costs and a highly competitive international market.
What is the traditional price formula?
Price = Cost + Markup.
What are the three C’s of pricing?
Cost, Customers, and Competitors.
What is a Relevant Cost?
Future costs that are relevant to the decision currently faced.
Define Differential Cost.
The difference between two alternative decisions being made.
What is Opportunity Cost?
Income foregone by choosing one alternative over another.
What is a Sunk Cost?
A cost that has already been incurred and will not change, such as rent that cannot be refunded.
What is a Make or Buy Decision?
The decision of whether to make a product in-house or buy it from an outside supplier based on relevant avoidable costs.
What are the considerations in a Special Order Decision?
Consider capacity, potential loss of goodwill, and the impact on fixed costs if production capacity is not fully utilized.
