Decision Making Flashcards
product cost
direct material (DM) (physically included in final product) direct labor (DL) (direct material from raw state to finished goods) overhead (include indirect material and labor, payroll taxes, fringe benefit, manufacturing employees, rent, depre on assets, shop supplies, )
DM
DL
OH
prime cost
direct material and direct labor
DM+DL
conversion cost
direct labor and overhead
DL+OH
product cost
manufacturing cost
normal spoilage
period cost
non manufacturing cost
selling, general, and admin exp
marketing cost, freight out, rehandling cost
exp in period incurred
(abnormal spoilage)
EXCLUDED from product cost
relevant cost
anticipated future cost that differs among alt. plans
avoidable cost
cost that will not be incurred if planned act. is changed or discontinued.
marginal cost
add. cost incurred owing to one more output unit
overhead cost
estimated OH cost/estimated DL $/hrs
cost of sales for MERCHANDISING company
one that purchases from outsiders the products that it sells
beg inventory \+purchases =goods avail for sale -end inventory = cogs
direct material used:
beg DM inventory
+ DM purchased
-end DM inventory
=DM used
cost of goods manufactured:
DM used \+DL \+OH =cost added to production \+beg WIP inventory -end WIP inventory =COGmanufactured
cost of goods sold
beg finished goods \+cost of goods manufactured =cost of goods avail for sale -ending finished goods =cost of sales
cost of job
aka manufacturing cost
aka product cost
aka inventoriable cost
=
DM
+DL
+MOH
actual MOH incurred
includes indirect materials
fixed overhead application rate is equal to
expected fixed costs divided by expected volume
break even sales
=fixed cost/contribution margin ratio
margin of safety
=total sales-break even
MOH
includes all cost besides DL and DM
normal spoilage
included in DM
abnormal spoilage
included in period cost.
under variable or direct costing
all fixed costs as well as all selling, general, and administrative costs are recognized as expense as incurred (period cost)
The variable costing method is used for internal or managerial purposes and is not permissible under GAAP.
costs of production are immediately expensed. Since variable costing recognizes expenses that would otherwise be capitalized, net income is lower under variable costing than under absorption costing
under absorption costing
fixed manufacturing overhead is included in inventory rather than expense, increasing income in that period
GAAP are required for external reporting purposes and require use of the absorption costing method
costs of production are added to inventory and expensed only when the inventory is sold
Since absorption costing recognizes previously inventoried expenses that variable costing does not recognize, net income is higher under absorption costing
variable cost
break even - fixed cost
=DM+DL+VOH
predetermined variable factory overhead application rate
Estimated variable factory overhead/Estimated machine hours
special order, whats lowest price to accept
variable cost + opportunity cost of next best option
the variable cost of each unit plus the opportunity cost of forgoing the alternative use of production capacity.
gross profit
sales - COGS
Return on Sales
(Amount of Sales) - (Variable Costs) - (Fixed Costs)
selling price
cost + desired margin
contribution margin ratio
(sale - variable cost)/sale
which product to sell
one that creates highest contribution margin ratio
(sale-variable cost)/sale
COGS =
DM + conversion cost
