Cost Measurement Techniques Flashcards
standard costing system
focuses on target costs that are attainable when a system is operating efficiently (but NOT under ideal conditions)
Other Facts about Standard Costing System
1) it is the foundation for variance analysis
2) It is not an acceptable method for U.S. GAAP reporting
Activity-based costing
1) includes and adds all value-adding activities such as the design function to a product’s cost
2) attempts to match all costs to their drivers in a manufacturing system
What methods have always focused exclusively on the manufacturing process
1) Traditional process
2) job order
3) standard cost accounting
Raw materials are turned into a final product and the material, labor, and factory overhead are included in arriving at a cost figure
Activity based costing is likely to be used when
1) many steps in the process and
2) overhead is a significant cost
job-order costing is used
costs to specific, unique or individual products and services
ex. custom cabinets, medical services, bridge
process costing is used
when products are mass produced
Difference between Variable Costing and Absorption Costing (fixed manufacturing overhead)
Variable Costing - fixed manufacturing overhead is expensed immediately as a period cost
Absorption Costing - fixed manufacturing overhead are treated as a product cost and added to the cost of inventory
Reporting difference between Variable and Absorption costing
Variable Costing - NOT GAAP and used for Internal decision making
Absorption Costing - is GAAP and used for External Reporting
Two principals of activity based costing
1) consume resources
2) resources are consumed by products, services, or other cost objectives (output)
Costs that add no value to activity based costing
1) Scrap
2) Rework
3) Packaging
