Cost_Accounting - 2 Flashcards
Which variables are used to calculate Direct Material Used?
Beginning raw materials inventory DR
+ Purchases (plus freight-in) CR
- Ending raw materials inventory (goes to BS)
= Direct materials used CR ⇒ goes to WIP
What variables are used to calculated Cost of Good Manufactured (WIP)?
Beginning Balance WIP (End Bal of Previous WIP)
+ Direct Materials Used - DR
+ Direct Labor + OH Used/Applied DR
= WIP available to be finished
- Ending Balance WIP (Goes to BS)
= Cost Good Manufactured (completed) ⇒ goes to Inv finished good
What variables are included in COGS (Finished Goods) calculations?
Beginning Balance Finished Good
+ Cost Good Manufactured from WIP
= Finished good available to sale
- Ending Balance Finished Good (Goes to BS)
= COGS CR
What are Cost Functions - High-Low Method?
- Measure how costs change relative to activity levels
- High-Low Method = Change in Cost (High-Low pts) / Change in Activity (High-Low pts)
Relevant cost
- Relevant costs are expected future costs that are important or pertinent to the decision under consideration and will be affected by the decision. They are usually used in reference to long-run, nonrecurring decisions, such as capital budgeting decisions.
- Future costs, whether fixed or variable (or opportunity costs), that are the same for the considered alternatives (i.e., that will not change regardless of which alternative is chosen) are irrelevant to the decision.
- Past costs, or sunk or historical costs, are costs that have already been incurred; these costs are irrelevant to the decision-making process because they will not change regardless of which decision is made.
What is the difference between Cost Accounting and Managerial Accounting?
Cost Accounting - External Focus- GAAP
Managerial Accounting - Internal Focus- Not GAAP
Overhead rate
Overhead rate is the rate used to charge overhead costs to work in process. It is based on estimated total overhead costs relative to some cost driver. Common cost drivers include units produced, direct labor hours (DLH) worked, direct labor costs incurred, and machine hours worked. The cost driver used to compute the rate should have a high correlation to the overhead costs.
Estimated Total Overhead Costs
Total (Based on a Flexible Budget)
Overhead = ——————————
Rate Estimated Activity Level
Fixed Overhead + (Variable Rate x Std. Activity Level)
= ——————————————————
Standard Activity Level
Budgeted Fixed OH Budgeted Variable OH
= —————– + ——————–
Standard Activity Standard Activity
Level Level
= Fixed OH Rate + Variable OH Rate
Cost Allocation
Cost allocation is assigning one or more costs to one or more subunits (departments, divisions, cost centers) of an organization according to some logical measure of use, such as the benefits received; the assigning of the costs of service departments to production departments for inclusion in inventory and cost of goods sold.
Aspects of service cost allocation:
- Choosing the cost object, i.e., the cost to be allocated. This is usually the cost of a service provided to another unit.
- Choosing and accumulating the costs that relate to the cost object (the direct materials, direct labor, and overhead of the unit supplying the service).
- Choosing the basis of allocation, e.g., physical identification, benefits received (usage level), ability-to-bear: e.g., number of employees, payroll dollars, square-footage, units of service used (e.g., kw/hr of electricity, computer time, repair man-hours, etc.).
- Choosing the method of allocation: direct, step, or reciprocal.
Imputed costs
Imputed costs are implied costs; they are not known with certainty and must be estimated.
Joint Cost - Allocation methods
- Joint costs are costs incurred prior to the split-off point in a process that simultaneously produces two or more products, each with significant sales value. Costs must be allocated to the main (joint) products, which necessitates the use of a systematic allocation method (e.g., relative sales value at split-off, physical measure, estimated net realizable value method, or constant gross-margin percentage). Byproducts of incidental sales value may also be produced, but joint costs are not allocated to byproducts - byproduct will reduce joint cost
- Joint costs should be ignored for any internal decisions including the decision on whether to process a joint product beyond the split-off point.
- Allocation methods: Four methods are commonly used for allocating joint costs:
1. Relative sales value at split-off = sale value , seperable cost
2. Physical output
3. Net realizable value (NRV)
4. Constant gross margin NRV
Joint cost - Relative sales value at split-off
Relative sales value at the split-off point method: Here, joint costs are assigned to individual products in proportion to the sales value of each product relative to the sales value of all products at the split-off point.
Joint cost - Net realizable value method
Net realizable value method: Here, joint costs are assigned to individual products in proportion to the net realizable value of the joint products as of the split-off point (defined as the net realizable value—the final sale price less all costs to complete the product in its final form).
Regression analysis
- Regression analysis is a means of measuring the relationship between an independent and dependent variable so that knowledge of a change in one can be used to predict the anticipated change in the other.
- If only one independent variable exists, the analysis is known as simple regression.
- Multiple regression consists of a functional relationship with multiple independent variables (e.g., cost may be a function of several cost drivers).
Simple linear Regression equation
The simple regression equation for a linear cost function is y = a + bx
Where
- *y =** estimated total cost
- *a =** constant, the portion of the cost that is fixed over the relevant range
- *b = the slope**, the amount by which the cost changes based on changes in the level of activity over the relevant range
- *x =** the level of activity as measured by the cost driver
Coefficient of Correlation R
The coefficient of correlation measure the strength of the linear relation between dependent and independent variable:
- R= 1 – Strong direct relationship
- 1>R>0 – Direct relationship, not as strong
- R=0 – No relationship
- 0>R> -1 – indirect relationship not as strong
- R= - 1 – Strong indirect relationship
Note
The coefficient of correlation is similar in concept to the coefficient of determination discussed above in “method of least squares.” The coefficient of determination cannot have a negative value, as can the coefficient of correlation, because the coefficient of determination is based on squared deviations (i.e., if you square a negative number, the result is positive).
