L3 Flashcards
cost accumulation methods
job or (process costing)
cost measurement methods
how do we measure costs (actual, normal, or standard costing)
overhead application methods
volume-based or activity-based
Which volume-based cost driver should be used for the volume-based approach?
it should be measured in terms of a common input factor not output factor such as direct labor hours or machine hours because output can be problematic (different products require different amounts of overhead)
activity based approach
allocates overhead based on cause-and-effect relationships
under allocated OH
if allocated OH < actual OH
How to account for over or under allocation of OH
Proration approach and write-off approach
proration approach
difference is allocated btw. COGS, WIP, and finished goods based on their relative sizes
Write-off approach
the difference is simply written off to COGS
What is a problem with the traditional volume-based approach?
Allocates too much overhead to high volume products (overcosting) and too little overhead to low volume products (undercosting)
overcosting
a product consumes a low level of resources but is allocated high costs per unit
undercosting
a products consumes a high level of resources but is allocated low costs per unit
