ma part a Flashcards
Managerial accounting purpose
determining the costs of an organization’s products and services, planning future activities, comparing actual results to planned results
Direct vs Indirect
Direct: costs that can be cost effectively traced to a cost object and consist of direct materials and direct labor
Indirect: costs that cannot be cost effectively traced to a cost object
Direct materials
materials that are crucial parts of a finished product
Direct labor
refers to employees who directly convert materials to finished goods
Factory overhead
includes all manufacturing costs that are not direct materials or direct labor (indirect costs!)
indirect costs
Indirect materials: materials used in manufacturing that cannot be cost-effectively traced to finished goods
Indirect labor: labor needed in manufacturing that cannot be cost effectively traced to finished goods
Other indirect costs: factory utilities, factory rent, depreciation on factory buildings and equipment, factory insurance, and proprerty taxes on factory buildings
Prime costs
consists of direct material and direct labor costs
Conversion costs
costs incurred in converting raw materials to finished goods. Consist of direct labor and factory overhead
Product costs
production costs necessary to create a product and consist of direct materials, direct labor, and factory overhead
Period costs
nonproduction costs linked to a time period
Nonmanufacturing costs
Reported on the income statement as either selling expenses or general and administrative expenses
Raw material inventory
Cost of materials a company acquires to use in making products
Work in process inventory
consists of the costs of direct materials, direct labor, and overhead for partially completed products
Finished goods inventory
costs of direct materials, direct labor, and overhead of completed products ready for sale
Computing cost of goods sold
add cost of goods manufactured (COGM) to beginning finished goods inventory and then subtract ending finished goods inventory
Costs of goods manufactured
total cost of direct materials, direct labor, and factory overhead for finished goods
Schedule of cost of goods manufactured: manufacturing activities
direct materials
direct labor
Overhead
cost of goods manufactured
Job order costing
Each costumized product is manufactured separately
Process operations
the mass production of large quantities of similar products in a continuous flow of steps
Cost flows
Wip -> finished goods -> COGS
Overhead process
- Set predetermined overhead rate: estimated overhead costs / estimated activity base
- Apply estimated overhead to jobs
- Record actual overhead; Actual overhead are recorded with debits to OH
- Close underapplied or overapplied overhead
Underapplied overhead
actual overhead is more than the overhead applied
Overapplied overhead
actual overhead is less than applied overhead
Process Costing Demonstration
Step 1: Determine Physical Flow of Units
Step 2: Compute Equivalent Units of Production
Step 3: Compute Cost per Equivalent Unit
Step 4: Assign and Reconcile Costs
Equivalent Units of Production
number of whole units that could have been started and completed given the costs incurred in the period
Equivalent units completed and transferred out + equivalent units in ending work in process
Cost per EUP
total cost / EUP
Cost volume profit (CVP)
predict how changes in costs and sales levels affect profit
Fixed costs
When volume of activity changes: do not change, example: rent
Variable costs
Change in proportion to changes in volume of activity, example: direct materials
Mixed costs
Include both fixed and variable cost components
Contribution margin
sales - variable costs
contribution margin per unit
selling price per unit - variable costs per unit
contribution margin ratio
contribution margin per unit/selling price per unit or contribution margin/sales
Break even point
Sales level at which total sales = total costs, resulting in 0 income
Break event point in dollars = fixed costs / contribution margin ratio
Margin of safety
Expected sales - break even sales
Sales mix
proportion of sales volume for each product
weighted average contribution margin per unit (WACM)
combines the per unit contribution margins of each product by their weights in the sales mix
WACM Break even point in units
fixed costs / weighted average contribution margin per unit
Degree of operating leverage (DOL)
useful measure to assess the effect of changes in the level of sales on income
Contribution margin / income
Change in income
DOL * change in sales (%)
