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Accounting 202 > Exam 2 > Flashcards

Exam 2 Flashcards

1
Q

Process costing

A
  • mass production of identical items
  • cost for each production process (or department)
  • ex: paint and chemical manufacturers, limestone quarry, cereal manufacturers, lumber mill
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2
Q

Job Costing

A
  • unique custom products or small batches of different products
  • total cost for that job
  • ex: custom home builders, furniture manufacturer, hospitals, professional firms
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3
Q

flow of costs in a manufacturing company

A

raw materials, direct labor, manufacturing overhead -> work in process inventory -> finished goods inventory -> cost of goods sold (income statement)

everything else on the balance sheet

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4
Q

used to determine the cost of a job

A

job cost record

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5
Q

allocating manufacturing overhead

A
  • MOH is an indirect cost
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6
Q

allocation

A

a way of dividing up the MOH and assigning it to the jobs

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7
Q

adjusting COGS

A

overallocated -> decrease COGS

underallocated -> increase COGS

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8
Q

Actual overhead (recording transactions)

A

Debit - Manufacturing Overhead

Credit - Accounts payable

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9
Q

Direct Materials and labor (recording transactions)

A

Debit - WIP

Credit - Wages Payable, inventory

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10
Q

Allocated Overhead (recording transactions)

A

Debit - WIP

Credit - MOH

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11
Q

recording journals (T)

A

Actual - Left

Allocate - Right

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12
Q

depreciation (recording transactions)

A

Debit - manufacturing overhead

Credit - accumulated depreciation

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13
Q

plantwide overhead allocation rate

A
  • Based on estimates made at the beginning of the year
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14
Q

cost distortion

A

results in some products are overcosted and some are undercosted by the cost allocation system

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15
Q

refining cost system

A

As companies diversify their product lines and manufacturing processes, a single plantwide overhead rate may not be useful

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16
Q

departmental overhead rates

A
  • Separate predetermined manufacturing overhead rates for each department
  • useful when:
    o Departments incur different amounts and types of MOH
    o Different jobs or products use the department resources to a different extent
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17
Q

Activity based costing

A
  • ABC

- focuses on activities instead of departments

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18
Q

ABC steps

A

1) Identify the primary activities and estimate a total cost pool for each
2) Select an allocation base for each activity
3) Calculate activity cost allocation rate
4) Allocate costs: Activity cost rate x Actual amount of activity allocation base

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19
Q

cost heirarchy

A

System used by companies to assist in establishing activity cost pools

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20
Q

unit level activities (cost heirarchy)

A
  • activities and costs incurred for every unit

* Examples: inspecting and packaging each unit

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21
Q

batch level activities (cost heirarchy)

A
  • activities and costs incurred for every batch, regardless of the number of units in the batch
  • Example: machine set-up
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22
Q

product level activities (cost heirarchy)

A
  • activities and costs incurred for a product, regardless of the number of units or batches of the product produced
  • Examples: cost to research, develop, and market new products
23
Q

facility level activities (cost heirarchy)

A
  • activities and costs incurred regardless of volume of production
  • Example: depreciation, insurance, property tax, and maintenance on the production plant
24
Q

activity based management

A
  • ABM

- Using ABC to make decisions to improve profitability

25
Q

Cost of implementing ABC

A
  • may be significant

- could be lower if accounting and information systems people develop a good system

26
Q

Benefits of ABC are higher when

A

a company has high indirect costs and produces many different products that use differing amounts of resources

27
Q

Warning signs that cost system is outdated

A
  • Managers don’t understand costs
  • Companies lose bids they expected to win
  • Competitors price similar products much higher or lower
  • Company has reengineered or diversified products and still using old system
28
Q

Risk of cost distortion is high (ABC)

A
  • Many different products using many different resources
  • High indirect costs
  • High volumes of some products, low volumes of others
29
Q

value engineering (cutting ABC costs)

A

° Improve value-added activities

° Eliminate or Reduce non-value-activities

30
Q

Value-Added Activities (cutting ABC costs)

A

customers are willing to pay for because these activates add value

31
Q

Non-Value-Added Activities (cutting ABC costs)

A
  • waste activities

- do not enhance the product

32
Q

variable costs

A
  • Total variable costs change in direct proportion to changes in volume
  • Variable cost per unit remains constant
  • y = vx
  • starts at 0
33
Q

fixed costs

A
  • Total fixed costs remain constant with changes in volume
  • Fixed costs per unit of activity varies inversely with changes in volume
  • y = f
34
Q

mixed costs

A
  • Total mixed costs increase as volume increases (but not proportionately)
  • Total mixed costs can be expressed as a combination of the variable and fixed cost equations:
  • y = vx + f
35
Q

relevant change

A

• The normal range of operating activity.
• Band of volume where
- Total fixed costs remain constant
- Variable costs per unit remain constant
- The cost equation remains valid
• Managers must be sure that planned activity is within the relative range

36
Q

Committed Fixed Costs

A
  • Fixed costs that cannot be changed in the short-term .

* Examples: depreciation, signed lease

37
Q

Discretionary Fixed Costs

A
  • Fixed costs that can be changed in the short-term.

* Examples: Advertising, training

38
Q

account analysis

A
  • Managers use judgment and experience
  • Classify various accounts as mixed, variable, and fixed
  • Subjective
39
Q

scatter plots

A
  • uses historical data to break mixed costs into fixed and variable components
  • helps managers visualize the relationship between cost and volume
  • where line through dots intersects y axis is fixed cost
40
Q

high low method

A
  • Also uses historical data, but only the highest and lowest activity points
  • Use scatterplot to determine if a linear relationship exists; then, use high-low method to estimate the cost equation
  • disadvantage: only uses two data points. doesnt account for outliers
41
Q

regression

A
  • most accurate, statistical fit of total cost line (best fit line)
  • R^2
42
Q

contribution margin income statement

A

organizes costs by behavior rather than function (GAAP)

43
Q

contribution margin income statement equation

A 
sales
- variable costs
-------------------------
Contribution margin
- fixed costs
-------------------------
operating income
44
Q

Functional (GAAP) income statement equation

A 
sales
- COGS
-------------------------
Gross margin
- operating expenses
-------------------------
operating income
45
Q

traditional income statements organize costs by

A

function

46
Q

purpose of classifying costs as variable or fixed

A

to allow management to better assess performance given a level of activity that differed from budget

47
Q

cost volume profit analysis (CVP)

A
  • powerful tool that helps managers make important business decisions
48
Q

calculation margin per unit

A

once a company reaches breakeven each additional unit sold increases profitability by this amount

49
Q

breakeven point

A

where operating income = 0

50
Q

CM ratio deff

A

% of sales $ that is available to cover fixed costs and provide a profit

51
Q

cushion

A

how far sales can decrease before incurring a loss

52
Q

operating leverage def

A
  • measures risk
  • sensitivity of profits to change in sales volume
  • higher when fixed costs are higher
53
Q

CVP graph

A

breakeven point where revenue and cost intersect

54
Q

companies with many different products

A

should use CM ratio and breakeven point in sales dollars rather than units

Accounting 202 (4 decks)

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