cost accounting (theories) Flashcards
what term is used to refer to the cost of changing direct materials into finished manufactured product?
conversion cost
under this system, the product costs are determined as they occur simultaneously with the manufacturing operation, but the total of product cost is only known as the operation has been completed.
ACTUAL COSTING
The product costs are determined in advance from analysis and forecasts made before the production begins.
STANDARD COSTING
combination of actual and standard costing
NORMAL COSTING
under this method, only direct materials are recorded as part of the inventory while DL and FOH costs are charged as an expense.
THROUGHPUT COSTING
this methods treats all variable costs as part of the inventory and all fixed costs as period cost.
DIRECT (VARIABLE) COSTING
all product costs are capitalized in the inventory once incurred and will be charged as an expense when the inventory is sold to the customer.
FULL ABSORPTION COSTING
this method assigns FOH costs to products in a more logical manner than the traditional way of simply allocating costs on the basis of direct labor hours or machine hours.
ACTIVITY BASED COSTING
it is applicable to companies producing heterogenous products. It is also applicable for work done based on customer’s specifications.
job order costing
it is used when the units are not separately distinguishable from one another during the manufacturing process.
process costing
it is a combination of job order and process costing method.
hybrid costing
the inventory costs are recorded at recent or new prices while the inventory sold is recorded at older prices.
FIFO
the inventory is recorded in terms of older prices and the cost of goods sold is recorded at recent prices.
LIFO
this system requires maintenance of records called stock cards.
perpetual system
it requires the physical counting of inventories on hand at the end of the accounting period to determine the total inventories.
periodic system
it includes direct materials and direct labor
prime cost
what are the three types of inventories in a manufacturing company?
raw materials, work in process, and finished goods inventory.
combination of DL, DM, and FOH
manufacturing/product cost
referred to as inventoriable costs
product cost
the recording of application of factory overhead cost to jobs would include a debit to
work in process
the benefit given up when one alternative is chosen over another.
opportunity cost
costs that is present under one alternative but is absent in whole or in part under another alternative.
differential costing
costs that affect the decision making of the management.
relevant costs
costs or expenses that require the payment of money as a result of their incurrence. It is also called “explicit costs”.
out of pocket money costs
costs which is doesn’t involve an actual cash outlay. Also known as “implicit cost or hypothetical cost”
imputed cost
cost that are always results of decisions taken in the past. this cannot be changed by any decision in the future.
sunk cost
if the manager has the power to influence or authorized the incurrence of such cost is considered as_____
controllable cost
these are costs which cannot be influenced by the action of the person in whom control of the center is vested.
uncontrollable cost
these are also called as “escapable cost”
avoidable cost
are increase or decrease in the total cost of a production run for making one additional unit of the item.
marginal cost
are costs which do not change with the level of activity within the relevant range. these costs will be incurred even if there are no units produced.
fixed cost
are costs that change in direct proportion to the level of production.
variable cost
it is a graphical technique of separating fixed and variable components of mixed cost.
scattergraph method
it is a statistical technique that investigates the association between dependent and independent variables.
least-square regression method
also known as chargeable expenses
direct expenses
also known as factory burden cost
factory overhead
also known as a commercial cost
period cost
types of fixed cost which are costs may be altered, reduced or eliminated in the short term.
discretionary fixed cost
types of fixed cost which is that it cant be significantly reduced even for a short period of time.
committed fixed cost
types of expenditures which are costs that are directly charge as an expense because it benefit only the current period.
revenue expenditures
are costs that arise from floods, riots, accidents, earthquake, fire, and shut down of machinery
abnormal cost
the relationship between cost and activity is termed as
cost behavior
this department responsible for carrying out the labor policies laid down by the top management.
personnel department
responsible for the accumulation of the total hours worked spent by each worker on a job, product, and processes
timekeeping dept.
two important activities of the timekeeping department
time keeping, time booking
in this method a log book or time register book is maintained by the timekeeper.
attendance register method
in this method a token or disc is given to each worker bearing his identification number.
token or disc method
each worker is given a time card
time recording clocks
this machine recorder has a number of holes which represents each worker’s identification number.
dial time records
it refers to the analysis of time of each worker in terms of department, operation, process or jobs.
time booking
responsible for the computation of the total gross earnings
payroll department
responsible for collecting, classifying and assigning all costs to jobs, productions, and processes.
cost accounting department
wages are determined on the basis of time worked spent by workers irrespective of the quality of work done.
time based wage plan
wages are determined on the basis of output produced by the workers without considering the time spent in performing the job.
piece based wage plan
each worker is paid based on a minimum hourly rate regardless if an established quota of production is not met. however, workers are given a bonus for the additional piece of output if they exceeded the established quota.
modified based wage plan
other term of bonus or incentive schemes
premium bonus plan
two types of incentive plan
individual incentive plan, group incentive plan
the regular time pay is charged to
work in process account
employer contributions relating to other employees (administrative and sales function) are charged to
expense
it is the total compensation of employee which includes the regular pay and other benefits
gross earnings
it is earnings of an employee who are paid per production output or on an hourly worked
wages
it is an earnings paid to an employee who received a fixed amount per month or semi monthly
salaries
what are the labor time losses?
idle time, machine set up time, labor cost of reworking defective units
other labor related costs charged to FOH
- overtime premium
- sss, philhealth, and pagibig contribution of employer
- fringe benefits
- shift premium pay
- incentive plans
The document that serves as the basis for recording direct labor on a job cost sheet is the____
time ticket
labor costs significantly influence the ____
conversion cost per unit
indirect labors cost are charged to____
factory overhead
it is the time wasted in which the workers spend their time without giving any production
idle time
it refers to a loss of time, which is inherent in production or cannot be avoided.
normal idle time
refers to a loss of time due to power failure; avoidable machine breakdown, time loss due to inefficiency of workers
abnormal idle time
it is the time for non-productive hours paid to workers while the machines are being prepared for new jobs.
machine set-up time
it is an additional labor cost paid to workers to correct defective unit of products
labor cost of reworking defective units
when overtime premium is charged to a specific job, it should be debited to
work in process account
shift premium pay of factory supervisor is charged to
administrative expenses
shift premium of factory laborer is charged to
FOH
it is the amount paid to the employee after the employer makes a deduction for income tax and other statutory amounts.
net pay
it refers to plant or department’s capability to produce without any interruptions.
theoretical (maximum/ideal)
it gives no allowance for human and non-human errors
theoretical (maximum/ideal)
it refers to plant or department’s capability to produce with an allowance for internal factors
practical
it refers to the level based on expected capacity utilization for the budget period.
expected/budget
most commonly used capacity
normal
it is practical capacity less loss of productive capacity due to external factors
normal
it means dividing the plant into segments or departments or cost centers to which expenses are charged.
departmentalization of factory overhead
two types of departments
producing dept. and servicing dept.
what are the 3 method of service department costs allocation
- direct method
- step (sequential) method
- algebraic (reciprocal) method
it ignores interdepartmental services
direct method
it is also known as simultaneous solution method, cross allocation method, matrix allocation method
algebraic (reciprocal)method
it is a method that recognizes the interrelationship among all departments
algebraic (reciprocal)method
the sequence of allocation will start with the service department that provides the most number of services to other service departments.
step (sequential) method
refers to indirect manufacturing costs that have been assigned to a job or product using the predetermined overhead rate.
applied FOH
the difference of actual overhead incurred and total applied factory overhead called
variance
the applied FOH cost exceeds the actual FOH cost
over-applied FOH
the applied FOH cost is less than the actual FOH cost
under-applied
if the difference is immaterial the variance is closed to____
COGS
if the difference is material the variance is closed to____
COGS
finished goods
work in process
it occurs when the actual amount of factory overhead incurred in the period is different from the standard amount (applied) that had been budgeted
spending variance
it occurs when the actual hours worked during the period is different from the estimated number of hours is used in determining the factory overhead rate.
idle capacity (volume) variances
it uses single overhead rate to allocate all of its FOH costs to jobs, products or departments
plant-wide overhead rate
it provides more accurate costing of jobs and products because it uses different overhead rates for charging FOH costs.
departmentalization
Factors that cause changes in resource usage, activity usage, costs and revenues are called?
driver
it is a document sent to the purchasing department
purchase requisition form
it is an authorization signed by the purchasing agent sent to a vendor
purchase order
it is a document prepared by the receiving department
receiving report
it is a document authorizing the material storekeeper to deliver materials to the department presenting the requisition form
material requisition form
is a list of materials needed to produce a product
bill of materials
it is a document prepared when some materials requisitioned were not used in the production and are returned to the material storeroom staff
return materials report
responsible for the purchase of materials and supplies.
procurement or purchasing department
what are the necessary forms needed in purchasing the materials?
purchase requisition form
purchase order
is defined as a systematic control over purchasing, handling, storing and use of materials to minimize wastes, loss of materials
material control system
under this method, materials on hand are reviewed on periodic cycle and orders are placed to maintain the desired level of inventory.
order cycling method
this method is used by the company that has products with different sizes and values
ABC analysis
it is advisable to companies which sell non-perishable goods.
two-bin system
this method is appropriate for companies that sell perishable items, and seller of small and inexpensive items.
minimum-maximum system
an order is placed automatically when the level of inventory reaches the predetermine order point.
automatic order system
focuses on two important factors which are the quantity of materials to be purchased and timing of its purchase.
material planning
this will trigger the placement of a purchase order for additional units of materials.
order point
formula of order point
(usage x lead time) + safety stock
it refers to the estimated quantity of materials maintained to avoid running out of stock
safety stock
it is also known as buffer stock
safety stock
formula of safety stock
(max. usage - ave. usage) x lead time
formula of normal maximum inventory
order point - (normal usage x lead time) + EOQ
formula of absolute maximum inventory
order point - (minimum usage x lead time) + EOQ
it is an equation which determines the optimum purchase order of inventory at a minimized total cost
economic order quantity (EOQ)
the two most important factors of EOQ
ordering cost
carrying cost
it includes freight costs; the salary of the staffs in the purchasing, receiving, inspection and recording departments; cost of paper forms; communication cost
ordering cost
it includes handling or storage costs, interest, insurance, property taxes, loss due to spoilage, theft, deterioration
carrying costs
it is a planned cost for a unit of product or services rendered.
predetermined cost
are cost incurred to acquire or improve assets that are to be used for more than one year.
capital expenditures
is the process of arranging the components of costs in logical groups having regard to their nature and purpose.
classification of cost
this method ignores other data points because it only considers only two data points
high-low points method
it means any event, action, transaction or work sequence that incurs costs when producing a product
activity
it is a set of costs attributed to a distinct type of activity.
activity cost pool
it mean any factors or activities that have direct cause and effect relationship with resources consumed
cost drivers
are responsibility centers, product or services to which costs are assigned
cost objects
is the budgeted activity cost divided by total activity base usage
activity rate
it is a document used to record the labor hours worked, labor rate per hour and the total labor costs for each particular job.
time ticket
it is the planned unit cost of the product, component or service produced in a period.
standard cost
it is a systematically predetermined cost
standard cost
formula of price or rate variance
price or rate variance= (Actual price-standard price) x actual quantity
formula for quantity/usage/efficiency variance
quantity/usage/efficiency variance= Actual qty.-standard qty) x standard price
two types of direct materials variance
material price variance
material quantity variance
formula for material price variance
(AQ x AP) (AQ x SP)
formula for material quantity variance
(AQ x SP) (SQ x SP)
formula for raw materials inventory in PRICE VARIANCE DETERMINED AT THE TIME OF PURCHASE
Actual qty purchase x standard price
formula for accounts payable in PRICE VARIANCE DETERMINED AT THE TIME OF PURCHASE
Actual quantity purchase x actual price
formula for WIP in PRICE VARIANCE DETERMINED AT THE TIME OF PURCHASE
Standard qty x std price
formula for raw materials inventory when used in PRICE VARIANCE DETERMINED AT THE TIME OF PURCHASE
actual qty used x standard price
the favorable variance should be (credited/debited)
credited
the unfavorable variance should be (credited/debited)
debited
FORMULA FOR RAW MATERIALS INVENTORY IN PRICE VARIANCE DETERMINED AT THE TIME OF USAGE
ACT. PRICE X ACT. QTY PURCHASE
FORMULA FOR RAW MATERIALS INVENTORY WHEN USED IN PRICE VARIANCE DETERMINED AT THE TIME OF USAGE
ACTUAL PRICE X ACTUAL QTY USED
TWO TYPES OF DIRECT LABOR VARIANCE
LABOR RATE VARIANCE
LABOR EFFICIENCY VARIANCE
FORMULA FOR LABOR RATE VARIANCE
(AH X AR) (AH X SR)
FORMULA FOR LABOR EFFICIENCY VARIANCE
(AH X SR) (SR X SH)
these losses are unavoidable, inherent and usual in the production of products.
normal losses
these losses are avoidable, unexpected, and unusual or it arises due to inefficiency in operation. these losses are treated as period costs and charged as an expense.
abnormal losses
it is the main or primary output of the joint production process.
joint products
the incidental products that have lower value in joint production process
by-product and scrap
the cost of materials, labor, and foh incurred in the joint process up to split-off point are known as
joint cost
it is the point at which joint process outputs are first identifiable as individual products.
Split-off point
any costs incurred (additional materials, labor, and foh) after split-off to process further the product to become saleable is known as
further processing cost or separable costs
this method also requires that all main products are saleable at split-off point
relative sale value/sales value at split-off method
the advantage of this method to the physical output method is that it considers both the quantity of units produced and its sales value
relative sale value/sales value at split-off method
under this method, joint cost is allocated to main products based on the sales value at split-off less all cost necessary to dispose the products.
net realizable value at split-off
under this method, joint cost is allocated to main products based on the hypothetical sales value less further processing costs and disposal costs after the split-off point
net realizable value after split-off
under this method, products produced from the same process should be charged a proportionate share of the total joint costs based on the number of units produed.
physical output method
formula for average unit cost in joint process
total joint cost divide total units produced
formula for weighted physical units
number of units produced x weight factor
formula for cost per weight factor
total joint cost divide total weight factor
this type of losses are treated as period cost and charged as an expense
abnormal loss
these losses are transferred to FOH or WIP
normal losses
it is salable “as is” and no costs are added before it is sold
Scrap
when the value of the scrap is relatively low or immaterial, is there an entry?
none, no entry is made until the scrap is sold
entry upon sale of scrap material is
debit cash/account receivables
credit other income/scrap revenue
under charged to specific job, what is the entry to record the sale of the scrap
debit Cash
credit WIP
under the common to all jobs, what is the entry to record the sale of the scrap
debit cash
credit FOH
when the scrap materials are reused as DM in the production, what is the entry to record scrap return to the storeroom?
debit materials
credit FOH
when the scrap materials are reused as DM in the production, what is the entry to record the reuse of scrap
WIP debit
Materials credit
in____, the costs (materials, labor and foh) are accumulated per department or cost center for a period of time using a cost of production report.
process costing
this product flow each item manufactured goes through the same set of operation
sequentially
in this product flows certain portions of the work are done simultaneously and then brought together in a final process or processes for completion and transfer to finished goods inventory.
parallel
in this product flows the product moves to different departments within the plant, depending upon the desired final product.
selective
in this method, to compute units cost only current month costs are included in the computation of costs per equivalent units
fifo
it shows how total product costs are allocated between the work in process inventory end and completed and transferred out to the next department or to finished goods.
cost of production report
it is used as a benchmark to allocate departmental costs.
EUP
it is composed of total units actually completed and ending inventory units, restated in completed units using the stage of completion.
EUP
it shows the flow of units through a department during the period and the computation of EUP
quantity schedule
in this method, it does not commingle (combine) costs of the beginning inventory units and started this month units.
FIFO
in this method, it assumes all cost of materials, labor, and oh, whether from beginning inventories (costs from preceding period) and those incurred this period are lumped together and assigned to completed units.
WAVE
In this method, the stage of completion of beginning inventory completed units is ignored.
WAVE
it is composed of beginning inventory costs, the current month cost incurred by the department. it shows the computation of cost per equivalent units of production (unit cost) of materials and conversion costs and its total costs.
cost schedule/ costs to account for
it accounts for the disposition of costs charged to those units that are completed and transferred to next department or finished goods inventory, to work in process at the end of the period and the spoiled units.
cost accounted for (cost reconciliation/assignment)
