Cost Measurement Flashcards
What is considered a fixed cost
As advertising is the same for three of the four months, it is considered a fixed costs in terms of dollar sales. As it was higher in one month, that is considered a discretionary increase.
Sales salaries appear to vary by 1k per salesperson, but in terms of dollar sales, this would be considered a fixed cost.
How is WIP and the different costs for a job calculated?
Given WIP balance beginning and ending - DM, DL, OH, and Finished goods transferred from WIP
DM + DL + OH = Job cost
Beg WIP + DM + DL + OH - Transfer out = End WIP
What are prime costs
Equal to direct material plus direct manufacturing labor
Does NOT include overhead
What would be the best allocation base for allocating the indirect costs of the distribution function
The number of shipments as there could be a cause and effect relationship between the number of shipments and distribution costs.
NOT dollar sales volume as the dollar value of the sale would not necessarily be related to the distribution costs.
Note the customer phone calls would probably be more closely related to the customer service function.
How do you calculate fixed cost from a mixed cost?
Compare costs with the units sold to see fixed and variable component. The change in shipping costs divided by the change in units sold is equal to the variable cost.
If the total variable cost is computed, and subtracted from the shipping costs, the result if the fixed cost.
How are costs allocated under the direct method?
Total utilities are 9k and service provided is split 10% to maintenance, 30% to dept A, and 60% to dept B
Service dept costs are allocated directly to the producing depts based on relative services provided, and services to other service depts are ignored. Even though 10% of the utilities dept services were used by maintenance, the 10% is ignored and no utilities cost if allocated to maintenance. The 9k of utilities cost is allocated to dept A and B based on relative service performed: 30/90 to A and 60/90 to B where 90 = 30+60.
Dept B would allocate 6k of utilities cost.
What is backflush costing
Alternative to typical product costing systems. This is normally used in high speed automated environments. Delays journal entries until after the physical sequence has occurred.
What is direct costing
Direct or variable costing is a method of inventory costing in which all variable product costs are treated as inventoriable costs and fixed manufacturing overhead is treated as a period cost.
Operation costing
Refers to a hybrid costing system that blends characteristics of both job order and process costing systems. It is usually applied to batches of similar products where each batch of product is a variation of a single design and requires a sequence of selected operations/activities. An operation costing system would track WIP inventory.
Process costing
Sequential costing system in which the cost of a product/service is obtained by assigning costs to masses of similar units as they are produced and then computing unit costs on an average basis. There would be a tracking of WIP inventory with a process costing system.
What are joint costs and how are they allocated
Joint products that are not salable at split off point require additional processing to make them marketable. To allocate joint costs to this type of product, a hypothetical sales value, representing the relative sales value at split off is calculated. This is done by subtracting the after split off processing costs from the price at point of sale.
What are principles of activity based costing (ABC)
Based on two principles.
1 - activities consume resources
2 - these resources are consumed by products, services, or other cost objectives (output).
ABC allocates overhead costs to products on the basis of the resources consumed by each activity involved in the design, production, and distribution of a particular good.
ABC is likely to result in major differences when the firm manufactures multiple products.
ABC results in a more accurate allocation of costs, products are less likely to be cross subsidized.
How is the manufacturing cost per equivalent unit calculated under the weighted avg method of process costing
Current costs + cost of beginning WIP inventory
When computing equivalent units of production under the weighted avg method, the work done last period on beginning WIP is considered.
Note FIFO method considers current costs only.
How to calculate direct material equivalent units?
Dept 1 flows to Dept 2
Units to account for = Beginning WIP + Transfer in from Dept 1
BWIP = 14k
Current production = Transfer to finished goods - BWIP = 80-14
Direct material equivalent units in the Dept for the current month are those that the units spoiled and units completed.
What is the benefit of investments in computer integrated manufacturing (CIM) as well as for TQM programs
Reduction in the costs of spoilage, reworked units, and scrap.
Note working capital is expected to be reduced as investments shift from current to fixed assets.
Actual or potential market share changes may trigger investments in CIM.
How do you calculate allocation of joint costs using estimated net realizable value (NRV)
Estimated NRV allocates joint costs using the estimated sales values of the joint products after further processing, less the separable processing costs.
Sales value - separable processing costs for A = 72k and 18k for B. The joint costs assigned to A is 80% of the total 60k = 48k
How do you calculate DM charged to a job? Job is only one remaining in WIP at end of month. Given BWIP and ending DM, DL, OH, and to finished goods.
Calculate the ending WIP = BWIP + DM + DL + OH - to finished goods
Then of ending WIP, breakdown into components of = DM + DL + OH
Period cost
Cost that is expensed in the period in which it is incured
Opportunity cost
Benefit given up to pursue some course of action
Product cost
Assigned to such goods to move the costs to cost of sales when they are sold and to value inventory for FS purposes
Relevant cost
One that is relevant to a particular decision
Reciprocal allocation method
Linear algebra or reciprocal allocation method recognizes reciprocity among service depts by explicitly including the mutual services rendered among support depts
Step down allocation method
Allocates service dept costs to other service depts and production depts usually starting with the service dept that provides the most service to other service depts. This method allows for partial recognition of services among service depts.
Direct allocation method
Allocates the cost of service depts directly to the production depts without any intermediate allocations to other service depts.
Dual rate allocation method
A refinement of either the direct or step down methods, depending upon how it is applied.
Variable and fixed costs are allocated to depts in a two step process, variable costs on current use and fixed costs on a long term maximum capacity basis.
How is factory overhead determined
It is averaged over production in both job order costing and process costing. The actual costs associated with factory OH are generally not known until after the accounting period, a predetermined OH rate is calculated based on an estimate of OH cost. This rate is then used to apply OH to production for both job order and process costing.
The difference between the two methods is that job order costing allocates the applied OH to the number of units in each job (generally a small number of units) while process costing allocates OH to the number of units in each processing center (generally a much larger number of units).
How do you calculate the $/DLH using high low method
4000 - refer to question!!
