Cost mgmt Flashcards
Cost of quality elements
Cost of conformance (money spent to avoid failures)
Cost of non-conformance (money spent due to failures)
Cost of conformance elements
Preventive costs (to prevent errors)
Appraisal costs (asses the quality)
Preventive costs
New or better equipment
Training
Documentation processes
More time to do it right
Appraisal costs
Testing
Inspections
Destructive testing loss
Time to do it right
Cost of non-conformance elements
Internal failure costs (Failures identified by project team)
External failure costs(Failures identified by customers)
Internal failures costs
Rework
Scrap
External failure costs
Liabilities
Lost business
Work to be done under warranty
Cost drivers
Scale
Entrepreneurship
Technology
Complexity
Predetermined OH rate
Estimated OH rate costs/Estimated total base units
Process costing methods
FIFO
Weighted average method
Cost tracking systems
Process
Operation
Job Order
Program
Job order costing
Costs are assigned to particular units or batches of finished goods.
Used with production processes that are discrete
Process costing
Costs are assigned to units of finished goods indistinguishable from each other and produced in a continuous process.
Process costing formula
Total costs / Equivalent units of work performed to the units produced.
Operation costing
A hybrid costing system that uses features of both job costing (direct material) and process costing (conversion costs: DL + OH).
Normal costing
DM(actual) + DL(actual) + OH(bdgt)
Over-applied overhead
Excess of applied overhead over actual overhead incurred
Under-applied overhead
Deficiency of applied overhead over actual overhead incurred
Upstream actiivites
Activities that occur prior to production
e.g. r&d and design
Downstream activities
Activities that occur after production
e.g. Marketing, customer service and distribution
How to calculate Prime costs
DM used (Available DM - Ending DM) + DL used
Allocation formula
Sales Value Ratio(Sales value of X / Sum of all production value) x Joint Cost
——- —————————————————————
Two Oil 300 x $20 = $6,000/$15,000 x$10,000 = $4,000
Six Oil 240 x $30 = 7,200
Distillates
120 x $15 = 1,800
———-
$15,000
Absorption (full) costing and variable (direct) costing differ fundamentally in their treatment of ________ costs.
fixed
Joint costs using gross market value
Product Gross Market Value (GMV)
——– ————————–
Alfa $ 4(10,000 lbs.) = $40,000
Betters $10 (5,000 lbs.) = 50,000
——-
Total gross market value $90,000
=======
Joint cost to be allocated = Joint cost - Cost inventoried as byproduct
= $93,000 - $3 x 1,000 lbs. of Morefeed
= $93,000 - $3,000
= $90,000
GMV of Alfa Joint cost allocated to Alfa = ----------- x Allocable joint costs
Total GMV
= ($40,000 / $90,000) x $90,000
= $40,000
The purpose of a quality audit conducted in a TQM implementation is
- evaluate progress in developing a strategic quality plan,
- identifying improvement opportunities, and
- comparing the firm’s strengths and weaknesses to competing firms.
Traditional cost accounting systems problem
High-volume products are overcosted, while low-volume products are undercosted.
Appraisal costs
The costs of quality that are incurred in detecting units of product that do not conform to product specifications
The most economic way to achieve quality
Prevention costs
Total cost that is debited to the Work in Process
DL + DM + AMOH
Burden
Overhead
Burden rate
POHR
If POHR not used, then
actual OH is applied to production
For materials equivalent units of materials (Equi. units matls.)
Units completed - Ending WIP(completed)
Cost per equivalent unit materials
(Beg. Matls. + Matls. used)/Equi. units matls.
Direct allocation is
allocation of the costs of each service department directly to production departments
Step-down allocation is
The allocation of service department costs in sequence to all departments that receive the service, whether they are other service departments or production departments.
Using the FIFO method, how to calculate equivalent unit conversion cost
Conversion costs/ Equivalent units of work for conversion costs
Using the FIFO method, how to calculate Equivalent units of work for conversion costs
To complete WIP + Units started and completed (started in production - ending WIP) + ending WIP completed
Using the weighted-average method, what are the equivalent units for the materials unit cost calculation
Completed and transferred + abnormal spoilage + EWIP
A company’s operations include a high level of fixed costs and produce a variety of products. What type of costing system should be recommended?
Activity-based costing
Overhead costs are accumulated in cost pools related to separately identified activities in the manufacturing process. This allows for a better allocation of fixed overhead costs.
