MA 7 Costing - Methods Flashcards
3 product costs
DM, DL and allocated MOH
3 stages in production
Raw Materials
WIP
Finished goods
How to calculate COGM (value of goods transferred from WIP to finished goods)
Opening WIP + DL used + DM used + MOH allocated - ending WIP
How to calculate COGS
Opening finished goods + COGM - closing finished goods
Define job costing
Allocating costs based upon the job - used for unique items
Define process costing
taking total costs divided by units produced - used for items which are identical
Define variable costing for inventory - can it be used for ASPE/IFRS? What format of statement will be used?
Only variable MOH costs are applied to inventory. All fixed costs and non-MOH costs are expensed as incurred. Not to be used for ASPE/IFRS, only internal decision making. Contribution margin format to be used.
Define absorption costing for inventory - can it be used for ASPE/IFRS? What format of statement will be used?
Variable and fixed MOH costs are applied to inventory. All fixed costs and non-MOH costs are expensed when sold (in COGS) . Required to be used for ASPE/IFRS, external reporting format to be used.
Normal spoilage treatment (not specific to particular job)
charge to OH
cost removed from WIP account and charged to MOH account
Normal spoilage treatment (specific to particular job)
cost remains in job and not attributed to MOH
Abnormal spoilage treatment (not specific to job)
expense in the period as incurred
removed from WIP and expensed to a loss account
Abnormal spoilage treatment (specific to job)
charge to particular job
What method of costing does process costing use?
Absorption
Define EU (equivalent units)
A way of referring to all units in reference to the number of fully completed units they represent. For example, two units 50% complete equals one EU.
How is DM tracked for process costing vs conversion costs
Seperately as DM is added at the beginning of the process usually
Two methods to cost EU
weighted average and FIFO
EU produced formula for weighted average
EU Produced = Units transferred to next process OR finished goods + EU in ending WIP
DM costs per EU WA formula
Total DM costs / Units finished + EU DM WIP
Conversion costs per EU WA formula
Total conversion costs / Units finished + EU conversion costs WIP
5 step guide to process costing
- compute units to be accounted for
- compute output in terms of EU
- compute costs to account for
- compute cost per EU
- assign total costs to units completed and to ending WIP
FIFO method of costing
costs incurred during the current period (including costs transferred in) are used to calculate the cost of units completed during the current period. Both beginning and ending WIP inventories are converted to an EU basis. Accounts for the fact that opening WIP not fully complete in current period.
Two methods of allocating MOH
Traditional and Activity-Based Costing
How is traditional costing allocated?
Based upon a single driver (labour hours/DM etc)
How is ABC allocated?
Multiple drivers - allows for better review of costs
5 steps for ABC
- identify cost objective
- identify activities and drivers
- assign indirect costs to cost pools
- calculate activity rates
- assign indirect costs to cost objectives
Where is over or under allocated MOH journaled to?
WIP/Finished Goods/COGS - mostly COGS
Joint products - are they traceable to a single product?
No. At some point the processes split and products may be refined
Physical output method of joint costing
Allocated based upon a physical measure such as weight
Sales value at split-off method
Costs assigned based upon relative sales value at split-off
NRV method
Costs allocated based upon Sales price of FINAL product less separate costs
How is waste for items before split-off point calculated?
Joint costs
How is waste for items after split-off point calculated?
Separable costs
How are service costs calculated in the direct allocation method?
Allocated to operating departments based upon quantity of allocation base, before considering allocation from other service departments
How are service costs calculated in the step-down allocation method?
Under the step-down allocation method, service department costs are allocated to both operating and service departments, beginning with the service department that provides the most services to other departments. The costs of service departments are allocated one at a time, in a “step-down” manner
How are service costs calculated in the reciprocal allocation method?
Under the reciprocal allocation method, service department costs are allocated simultaneously from all service departments to both operating and service departments. The costs of service departments are allocated one at a time, in a “step-down” manner.
