Cost Measurement and Assignment Flashcards
Cost Measurement and Assignment
State the relationship between variable costing (VC) income and absorption costing (AC) income.
Cost Measurement and Assignment
Sales=Production (no change in inventory) No diff in income
Sales > Production (inv decreases) VC inc > AC inc
Sales
Cost Measurement and Assignment
Define Conversion Cost
Cost Measurement and Assignment
Conversion Cost = DML + Applied Factory Overhead
Cost Measurement and Assignment
Define Prime Costs
Cost Measurement and Assignment
Prime Costs = Direct Materials + Direct Labor
Cost Measurement and Assignment
State the difference between product cost and period cost
Cost Measurement and Assignment
Product cost- cost that attaches to the physical units
(Direct materials, direct manufacturing labor, manufacturing overhead)
Period cost - does not attach to the physical units
Cost Measurement and Assignment
Define Total Cost (WIP balance)
Cost Measurement and Assignment
Total Cost= Direct Labor + Direct Materials + MOH
Cost Measurement and Assignment
Define on how to determine the Fixed Cost Component from the High - Low Method.
Cost Measurement and Assignment
Fixed Cost Component= Total Costs (High)- Var Costs (Low)
Cost Measurement and Assignment
Define the High- Low Method
Cost Measurement and Assignment
High Low Method- Computes the slope for the variable rate based on the highest and lowest observations.
Slope= Change in COST between high and low points / Change in activity between high and low points
Cost Measurement and Assignment
Describe the Direct Method allocation of costs
Cost Measurement and Assignment
Direct Method allocation of costs
Service Department costs are allocated directly to the producing departments based on RELATIVE services provided. SERVICES to other SERVICE departments are ignored.
Cost Measurement and Assignment
Define Throughput Contribution
Cost Measurement and Assignment
Throughput Contribution = Revenue - Direct Materials per unit
Cost Measurement and Assignment
Define Cost of Goods Sold (Manufacturing Firm)
Cost Measurement and Assignment
Beginning Finished Goods
Add: Cost of Goods Manufactured
BEG WIP
\+ Raw materials used (Beg Raw Mat+ Rw Mat Pur- ERW)
\+ Direct Manufacturing Labor
\+ Factory Overhead
- Ending WIP
Less: Ending Finished Goods
Equals : Cost of Good Sold (COGS)
Cost Measurement and Assignment
True or False
Conversion Costs are the costs of converting direct materials into finished products.
Cost Measurement and Assignment
True
Conversion Costs are the costs of converting direct materials into finished products.
Cost Measurement and Assignment
True or False
In conversion cost, only direct manufacturing labor is included.
Cost Measurement and Assignment
False
In conversion cost, direct manufacturing labor AND manufacturing overhead is included.
Cost Measurement and Assignment
Define Applied Variable Overhead
Cost Measurement and Assignment
Applied Variable Overhead = (Estimated variable OH costs)/ (Estimated actual activity level)
Cost Measurement and Assignment
Define Applied Fixed Overhead
Cost Measurement and Assignment
Applied Fixed Overhead= (Estimated fixed OH costs) / (Normal capacity)
Cost Measurement and Assignment
Describe the Reciprocal method
Cost Measurement and Assignment
Reciprocal Method - Uses simultaneous equations to allocate costs to production departments, resulting in the most accurate allocation of costs when service departments provides services to other service departments.
Cost Measurement and Assignment
Define the Step Method
Cost Measurement and Assignment
Step Method - Allocates service department costs to other service departments as well as the production departments, starting with the service departments that provide the most services to other service departments.
Cost Measurement and Assignment
Define Direct Labor Usage (DLU)
Cost Measurement and Assignment
DLU = Standard Labor Rate x (Act. Hours- Std. Hours)
Cost Measurement and Assignment
Define Traditional Costing
Cost Measurement and Assignment
Traditional Costing- Uses only variable and fixed or total overhead costs pools and allocates costs based on overall measures (DLH, DMH)
Cost Measurement and Assignment
Define Activity Based Costing (ABC)
Cost Measurement and Assignment
Activity Based Costing
1) Activities consume resources and resources are consumed
2) Allocates OH costs to products on the basis of the resources consumed by each activity involved in design, production, and distribution of product.
Cost Measurement and Assignment
List the advantages of Activity Based Costing (ABC)
Cost Measurement and Assignment
Advantages of ABC
1) Cost drivers: those activities that have a direct cause/ effect relationship to the incurrence of a particular cost.
2) Results in a more precise determination of product costs than traditional costing methods.
3) Better pricing and production decisions by management.
Cost Measurement and Assignment
What are the important aspects of a good cost system?
Cost Measurement and Assignment
Importance of a good cost system
1) Cost system should reflect accurately the costs of production.
2) Cost information influences pricing, inventory levels, and allocation of productive resources
3) Direct method inaccurate when service departments provide significant amounts of services to other service departments.
4) Consider the use of step method or reciprocal method.
Cost Measurement and Assignment
Describe the Net Realizable Value (NRV) method for joint costs.
NRV method for joint costs
ALLOCATE joint costs using the ESTIMATED SALES VALUES of the joint products after further processing, LESS the seperable processing costs.
Cost Measurement and Assignment
Describe the FIFO method for determining Equivalent Units of Production (EUP)
FIFO method for determining Equivalent Units of Production (EUP)
Units Completed (units started and completed) - Equivalent Units in BI + Equivalent Units in EI = Equivalent unites using FIFO
Cost Measurement and Assignment
Calculating FIFO EU (Method 1)
Calculating FIFO EU (Method 1)
Work to Complete BWIP
+ Units started and Completed
+Work to Date EWIP
= Equivalent Units (FIFO)
Cost Measurement and Assignment
Calculating FIFO EU (Method 2)
Calculating FIFO EU (Method 2)
Work to complete BWIP
+ Units started
- Work to complete EWIP
= Equivalent Units (FIFO)
Cost Measurement and Assignment
What are the two methods to account for Units to Account for?
Cost Measurement and Assignment
Two Methods to account for Units to Account for.
Method 1
BWIP + Units Started = Units to Account for
Method 2
Units Completed + EWIP = Units Accounted For
Cost Measurement and Assignment
Describe the steps for Process Costing (FIFO/ Weighted Average)
Cost Measurement and Assignment
Process Costing (FIFO/ Weighted Average)
- Visualize the physical flow of units
- Compute the equivalent units of production
- Determine the costs allocate
- Compute unit costs
- Allocate total costs to Goods Completed and Ending WIP
Cost Measurement and Assignment
Describe the Relative Sales Value at split - off
Cost Measurement and Assignment
Relative Sales Value at Split Off
The sales price at point of sale reduced by cost to complete after split-off
Cost Measurement and Assignment
Describe the Absorption method income statement
Cost Measurement and Assignment
Absorption method income statement
Sales - Cost of goods sold (includes Fixed MOH) = Gross Profit (margin) -Sales and admin expenses = Operating Income
Cost Measurement and Assignment
Describe the Variable Costing Income Statement
Cost Measurement and Assignment
Variable Costing Income Statement
Sales - Variable Expenses = Contribution Margin - Fixed Expenses (includes Fixed MOH) = Operating Income
Cost Measurement and Assignment
Describe Equivalent Units of Production - FIFO
Cost Measurement and Assignment
Equivalent Units of Production - FIFO
Completed Units
+ Equivalent Units Ending Inventory
- Equivalent Units Beginning Inventory
= Equivalent Units of Production (FIFO)
Cost Measurement and Assignment
Describe Equivalent Units of Production- Weighted Average
Cost Measurement and Assignment
Equivalent Units of Production- Weighted Average
Completed Units transferred to the next department
+ Equivalent Units in ending WIP inventory
= Equivalent Units of Production (Weighted Average)
Cost Measurement and Assignment
Weighted-average method of process costing in the computation of manufacturing cost per equivalent unit considers:
Weighted-average method of process costing in the computation of manufacturing cost per equivalent unit considers:
Current Costs + cost of beginning WIP inventory
Cost Measurement and Assignment
Describe the step method
Step Method
- Figure which services are allocated first.
- Connect the operating data with the service departments.
- Perform first allocation using all operating data.
- Perform allocation using only operating data from production departments AND ADDING SERVICE TO SERVICE COST TO THE BASE.
Cost Measurement and Assignment
Describe Weighted Average Method (to determine cost per equivalent unit)
Equivalent units of production and cost per unit are based on all work (this periods and last periods) done on units completed PLUS all work done to date on the unit in EWIP.
- Calculate Equiv Units (Units completed +EWIP)
- Calculate Cost of Materials (Beg WIP + Units Started)
- Total Costs incurred divided by Equivalent Units of Production = Cost per Equivalent Unit
Cost Measurement and Assignment
Describe the difference between the weighted average method versus the FIFO method
Difference between the weighted average method versus the FIFO method.
Weighted Average- Determines EUP based on the work done on the units in ALL periods.
FIFO method- Uses only the work done in the current period.
Cost Measurement and Assignment
Describe the Equivalent unit cost of materials using FIFO method
Equivalent unit cost of materials using FIFO method
Cost of materials used during the month/ # of equivalent units of production.
Cost Measurement and Assignment
Joint Products- Sales Value @ Split Off
Product Sales Value @ Split Off Ratio x Joint Costs = Allocated JC
X1 $4,000.00 4000/5000 x $3,000.00 = $2,400.00
Y1 $1,000.00 1000/5000 x $3,000.00 = $600.00
Total $5,000.00 $6,000.00 $3,000.00
Cost Measurement and Assignment
Describe the difference between By- product treatment vs. Joint Product treatment.
By- Product- the selling costs is netted against the selling price thus reducing gross margin
Joint- Product- selling cost would be deducted below the gross margin as a selling expense.
Cost Measurement and Assignment
What is the predetermined OH rates for Variable OH costs?
Variable OH= Est. variable OH costs/ Estimated actual activity costs
Cost Measurement and Assignment
What is the predetermined OH rates for Fixed OH costs?
Fixed OH= Est. fixed OH costs/ Normal capacity
Cost Measurement and Assignment
Describe the value of by- products in the Production method.
Value of by- products in the Production method.
The NRV of the by- products produced is deducted from the cost of major products PRODUCED.
Cost Measurement and Assignment
Describe the value of by- products in the Sale method.
Value of by- products in the Sale method.
Net revenue from by- products sold (gross revenue from by-product sales minus separable costs incurred) is deducted from the cost of major products SOLD.
