Cost Measurement Flashcards
A system for allocating costs to groups of unique products–each job becomes a cost center for which costs are accumulated
Job-Order costing
The production expected to be achieved over anumber of periods or seasons under normal circumstances–must be used to allocate fixed MOH costs
Normal capacity
Service department allocation method that allocates the costs of each service department to each of hte producing departments based ona relative level of the apportionment base *ignores use of service by other service departments
Direct method
Method that allocates service department costs to toher service departments as well as production departments *ignores the fact that reciprocal services are used between some service department
Step method
Method that adjusts for reciprocal services provided amont the service departments
Reciprocal method
Costing method that is applicable to a continuous process of production of hte same or similar goods
Process costing
The amount of work equivalent to completing one unit from start to finish
Equivalent Units of Production
Inferior goods either discarded or sold for diposal value
Spoilage (scrap)
Inferior goods reworked and sold as normal products
Defective units
A costing system that omits recording some or all of hte journal entries to trac the purchase and production of goods. Goods are costed after they have been completed
Backflush costing
Costs that are easily traceable to specific units of production and include DL and DM
Prime costs
Costs taht include DL and MOH–costs of converting direct materials to fiished products
Conversion costs
Activities which customers perceive as increasing hte worth of a product or service and for which customers are willing to play (includes only production actiities)
Value-added activities
Activities that increase the cost of a product but do not increase its value to customers (ex. materials ahdnling and rework)
Non-value added activtiies
When one product picks up costs that were caused by another product, distorting product costing information
cross-subsidization
A form of management that integrates ABC with other concepts such as aTotal Quality Management and target costing to produce a management system that strives for ecellence through cost reduction, continuous process improvement, and productivity gains
Activity-Based Management (ABM)
Two or more products produced together up to a split-off point where they become separately identifiable–they cannot be produced by themselves; they incur common costs before the slit-off point
Joint products
A decision that should be based onincremental revenues and costs beyond the slit-off point
Sell or process further decision
Products that have little market value relative to the overall value of hteproducts being produced–joint costs are usually not allocated to these and any NRV that results from these just serve to decrease the joint production costs
By-products
A mathemtaical expression of how a cost changes with changes in the level of activity
–can be measured on a graph with the x-axis measuring the level of activity and the y-axis measuring the corresponding costs
Cost function
A cost estimation method that derives estimates from analyzing the physical relationships between inputs and outputs
–time consuming and costly!
Industrial engineering (work-measurement) method
A cost estmation method in which estimates are derived from analysis and opinions about cost relationships by individuals from various departments
–quick, but not as reliable as quantitative methods
Conference method
A cost estimation method that estimates cost functionas by analysizing ledger accounts and designating them as containing fixed, variable, or mixed costs
–widely used but needs to be done by people who understand the process
Account analysis method
Cost estimation method that derives cost functions by usin mathematical models (ex. scattergraph, high-low, regression analysis, correlation analysis, cumulative average time model, and incremental unit-time learning model)
Quantitative methods
A graphical approach to computing the relationship between two variables (dependent variable on Y-axis, and indepnedent on x-axis)
–lacks precision
Scattergraph method
Computes hte slope for the variable rate based on the highest and lowest observations and then the fixed cost is derived by using either hte highest or lowest observation
–can be inaccurate if high/lows are outliers
Slope=change in cost between high/low points
change in activity b/t high/low points
HIgh-Low method
Determines thecuntional relationship between varaibles witha measure of probable error. Fits a regression line between the observation points such that hte sum of hte squared vertial differences between the regeression line and hte individual observations is minimized
*linearity is underlying assumption
y-a+bx
Regression analysis
Measures how well the regression line fits hte observed data–better the closer it is to 1
Coefficient of determination (R2)
Meaures hte relationship between 2 variables as either being positive (direct) or negative (indirect)
Coefficient of correlation
A type of cost function that occurs when the cost increases in discrete amounts periodically as the level of activity increases–nonlinear
Step functions
A model that attempts to capture hte effect of learning curves by the cumulative average time per unit declining by a constant percentage each time the quantity of units produced doubles
Cumulative average-tiem model
A nonliear cost function model that attempts to explain learning cutves by calculating hte incrementatl unit time needed ot produce the last unit which declines by a constant percentage each time the cumulative quanitty of units produced doubles
Incremental Unit-time learning model
Activities which customers perceive as increasing the worth of a product or service and for which customers are willing to pay
Value added activities
