Midterm 1 Flashcards

1
Q

Cost Accounting Definition

A

the process of collecting, analyzing, and reporting financial and nonfinancial information related to the costs of acquiring or using resources in an organization

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2
Q

Strategy

A

specifies how a firm matches its own capabilities with the opportunities in the marketplace

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3
Q

cost leadership

A

providing high quality products at the lowest cost possible

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4
Q

product differentiation

A

providing unique or differentiated products that appeal to customers

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5
Q

Questions asked by Management

A

Who are our most important customers, and how can we be competitive and deliver value to them?

What substitute products exist in the marketplace, and how do they differ from our own?

Will adequate cash be available to fund the strategy or will additional funds need to be raised?

What is our most critical capability?

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6
Q

Value

A

the usefulness a customer gains from a company’s product or service

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7
Q

Value Chain

A

sequence of steps is necessary to create value

Inbound Logistics, Operations, Outbound Logistics, Marketing Sales, Services

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8
Q

Supply-Chain

A

Production and Distribution functions of the Value Chain

Supply chain activities transform natural resources, raw materials, and components into a finished product that is delivered to the end customer

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9
Q

Key Success Factors

A
Cost and efficiency
Quality 
Time
Innovation
Sustainability
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10
Q

The Five Step Decision-Making Process

A
  1. Identify the problem and uncertainties
  2. Obtain information
  3. Make predictions about the future
  4. Make decisions by choosing alternatives
  5. Implement the decision, evaluate performance, and learn

Planning through 1-4 and take control on step 5

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11
Q

Cost object

A

anything for which a cost measurement is desired

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12
Q

Cost Object BMW Example

A

Product: BMW Car

Service: Telephone hotline providing info and assistance to BMW dealers

Project: R&D project on GPS systems for cars

Customer: South Motors, a dealer

Activity: Setting up machines for production or maintaining production equipment

Department: Assembly, Quality Control, Customer service

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13
Q

Cost accumulation

A

collection of data in an organized way by means of an accounting system

Examples: Raw materials + Production + Quality check + Packaging = accumulated cost

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14
Q

Cost assignment

A

General term that encompasses the gathering of accumulated costs to cost an object in two ways

  • Tracing accumulated costs with direct relationship to the cost object
  • Allocating costs with indirect relationship
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15
Q

Direct Costs

A

Can be conveniently and economically traced to a cost object. These expenses go into directly producing goods/providing services

Ex: Direct Labor, Direct materials, manufacturing supplies

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16
Q

Indirect Costs

A

Cannot be traced easily, instead requires judgement . General business expenses that keep you operating

Ex: Rent, Utilities, General office expenses

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17
Q

Factors that affect Direct/Indirect Costs

A
  • Materiality of the cost
  • Available info-gathering technology
  • Design of operations

Electricity is direct for whole factory while it’s also indirect for each department

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18
Q

Cost driver

A

variable, such as level of activity or volume, that casually affects cost at a given time span

of miles, # of units, square feet that increases costs

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19
Q

Variable costs

A

remain unchanged in total, for a given time period, despite changes in the related level of activity of output produced
More output = lower cost per unit

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20
Q

Merchandising companies

A

purchase and sell tangible products without changing basic form
- merchandise inventory

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21
Q

Manufacturing companies

A

purchase materials and components and convert them to finished products

  • Raw materials
  • Work in Process
  • Finished goods
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22
Q

Service companies

A

provide services (intangible) like legal advice or audits

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23
Q

Raw materials

A

resources in-stock and available for use

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24
Q

Work-in-process (WIP)

A

Products started but not let completed

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25
Finished goods
products ready for sale
26
Direct Materials
acquisition costs of all materials that will become part of the cost object
27
Direct Labor
Compensation of all manufacturing labor that can be traced to cost objects
28
Overhead Costs
factory costs that are not traceable to the product in an economically feasible way Includes lubricants, indirect manufacturing labor, utilities, and supplies
29
Inventoriable Costs
Costs of a product that are considered assets in a company's balance sheet when costs are incurred and that are expensed as cost of goods sold only when the product is sold All manufacturing costs are inventoriable costs for manufacturing companies
30
Period Costs
All costs in the income statement other than COGS. Treated as expenses of the accounting period that they occurred
31
Used Inventory Formula
Beginning Inventory + New Inventory - Ending Inventory
32
Prime Costs Formula
Direct Materials + Direct Labor
33
Conversion Costs
Direct Labor + Overhead
34
Overtime Labor
Considered part of indirect overhead costs
35
Costs of Goods Sold Formula (Other)
Beg Inv + Purchases + Freight-In Costs - End Inv
36
Direct Materials Inventory Formula
DM Beg + DM Purch - DM Used
37
Fixed Over Head Costs Formula
Total MO - Var MO
38
WIP Formula
Beg WIP + Total MO Incurred - Cost of Goods Manuf
39
Objective for Cost-Volume-Profit Analysis
To see how profits will change as the units sold of a product or service changes Understanding the relationship among the selling price, variable costs, and fixed costs
40
Operating Leverage
Describes the degree to which to which fixed costs exist in a company's cost structure How sensitive your company is to fixed costs Contribution Margin / Operating Income
41
Effects of multiple products on CVP
Use weighted average contribution margin of a product Assumes a constant mix of different levels of total unit sales
42
Assumptions for CVP
Number of units sold is the only revenue and cost driver Total costs consist of fixed and variable costs Revenue and costs behave and can be graphed as a linear function Selling price, variable cost per unit, and fixed costs are ll known and constant Single product (unless weights are known) Time value of money is ignored
43
Job-costing system
Cost object is a unit or multiple units of a distinct and unique product or service Each job uses different amounts of resources
44
Process-costing system
Cost object is masses of identical or similar units of a product or service
45
Flow of costs in job costing
Purchase materials and other manufacturing inputs Conversion into work in process inventory Conversion into finished goods inventory Sale of finished goods
46
Journal Entries
Every job/product is unique, so journal entries are made at each step of the process Supposed to reflect the actual state of business, its inventories, and its production process All product costs are accumulated in the work-in-process account (DM used, DL incurred, Factory overhead allocated) Actual indirect costs (overhead) are accumulated in the manufacturing overhead account Actual overhead never posted in WIP
47
Why are Traditional Cost Systems used
Manufacturing processes were mainly labor intensive Allocated through company-wide overhead rate
48
Labor Intensive Process
Overhead costs are small Overhead allocations may be inaccurate, but the amounts are relatively insignificant
49
Automated Process
Overhead costs are large Inaccurate overhead allocation can lead to misleading product cost information
50
Activity Based Costing
Taking a closer look at the manufacturing process to understand what exactly drives OH costs
51
Cost pool
cost of economic resources needed or consumed in performing an activity Ex: personnel, supplies, salaries
52
Cost object
any product, service, customer, activity, or organizational unit to which costs are accumulated for some management purposes Ex: any item for which you are separately measuring costs
53
Types of Production Activities
Unit Level Batch Level Facility Level Product Level
54
Unit Level
Performed for each unit Inserting a component Labeling each unit produced
55
Batch level
Performed for each batch of product Setting up equipment Inspecting a batch
56
Facility Level
Required for the entire manufacturing process to occur | Factory Utilities, Rent, Security
57
Product Level
``` Performed to support each type of product Ex: Fitbit, iPhone, Caramel Frappuccino Designing the product Engineering the product Marketing or advertising the product ```
58
ABC effects on Employees
May lead to cost-cutting, which could be lay-offs Impacts employee personal lives and morale Could lead to employees being less cooperative which leads to inaccurate data
59
ABC effects on Management
They seek to use ABC to improve the value of products and increase the firm's competitiveness and profitability
60
Two types of ABM
Operational | Strategic
61
Operational ABM
Performing activities more efficiently to lower costs Use techniques like business engineering, total quality management, performance measurement, and activity analysis
62
Strategic ABM
Increase demand for certain activities and increase profitability Achieved by eliminating non-essential activities and selecting the most profitable customers
63
Value-Added Analysis
Eliminating activities that add little to no value reduces resource consumption and allows the firm to focus on activities that will increase customer satisfaction High-value added Low-value added
64
High-Value Added
Significantly increases the value of the product or service to customers Essential to the process Accuracy or effectiveness would be effected if eliminated Contribute to customer satisfaction Ex: Designing a product, Order Processing, Delivering product
65
Low-Value Added
Consumes time, resources, or space but adds little to no value and does not contribute to satisfying the customer Duplicates work Produces an unnecessary or unwanted output Performed by request of an unhappy customer Ex: Setting up Machines, Moving Inventory, Storing, Inspecting
66
Customer Profitability Analysis
ABC is useful for satisfying customers (advertising, sales calls, delivery, billing, and other customer services) Customers are the cost objects Activities are the customer services needed to complete the sale and satisfy the customer CPA helps identify most profitable customers and market towards them and away from unprofitable customers
67
Process Costing Objective
To match manufacturing COSTS to UNITS produced Costs are accumulated according to processes or departments, NOT jobs Units move along a conveyor belt through the departments – as units travel through the departments, they acquire costs
68
Account WIP
Shows the dollar value of all materials, labor, and overhead that has been issued to production but has not yet produced a finished good.
69
Production Cost Report
summarizes the physical units of a department, the costs incurred during the period, and the costs assigned to units completed and to units in ending work-in-process inventories.
70
Weighted Average
Assumes all beginning WIP was produced this period Incorrect assumption but acceptable when prices (e.g., cost of labor, cost of raw materials, etc.) do not fluctuate from period to period
71
FIFO
FIFO takes into account that this period’s beginning WIP was produced last period (at last period’s prices). More accurate accounting for unfinished inventory when prices change dramatically from period to period Follows FIFO like in financial accounting.
72
Handling of partially completed beginning WIP
WA: No separate treatment FIFO: Separates the units in the beginning WIP (and their costs) from the units started and completed during the period
73
Ease of calculation and appropriateness
WA: Easier; best in situations where WIP is small and prices/costs are stable FIFO: More difficult; best in situations where prices/costs fluctuate; better for “control” purposes
74
Backflush Costing
simplified approach to determining cost that charges current production costs directly to finished goods inventory using a standard unit cost (without accounting for WIP and/or flow in and out of WIP) For companies that have little to no raw materials, WIP, or finished goods No process costing needed