Module 2 Flashcards
Manufacturing Company
Primary Activity: Convert raw materials into finished products
Inventory: 1. raw materials 2. WIP 3. Finished goods
Customer: Consumer, merchandiser, manufactures
Examples: Mars, PEPSI, Nike
Merchandising
Primary Activity: adds value to finished product
Inventory: merchandise inventory
Customer: consumer, merchandiser
Examples: Target, Amazon, Walmart
Service
Primary Activity: Provides intangible service
Inventory: no inventory or v little
Customer: consumers
Examples: AT&T, Lawyers, Accountants, Barbers
Value chain
all of the activities a company incurs that adds value to its products or services; Total Cost
Inventoriable Product Costs (= COGS Expense)
costs incurred during the production or purchase phase of the value chain; held on the balance sheet until sold
Direct costs
traced directly to the product / cost object
direct material
primary raw materials that become a physical part of the finished product
manufacturing overhead
all manufacturing costs other than direct materials or direct labor
Cost object
anything for which managers want a separate measurement of cost
Period Costs (= SG&A or operating expense)
ll other costs along the value chain; expensed in the period in which they are incurred (straight to income statement)
indirect costs
relates to the product / cost object but cannot be traced directly to it
direct labor
cost of compensating employees who physically convert raw materials into the finished product
conversion costs
costs to convert direct materials into a finished product; direct labor and manufacturing overhead
value chain =
total cost
conversion costs made of
direct labor + manufacturing overhead
manufacturing overhead made of
indirect materials, indirect labor, other manufacturing costs
Period cost examples
R&D, marketing, distribute, customer service
Job costing: type of product
unique, large or custom-built items made in small batches
Job costing: cost of product
usually high costs per item
Job costing: assignment of cost to products
specific costs are accumulated by job or batch
Examples of a typical company using job order costing
Boeing airplanes, custom home, autos, high-end products, service (accountants and lawyers)
- Schedule Production
document: production schedule
journal entry: none
never record estimates
- Purchase raw materials
document: bill of materials, raw materials record
journal entry: raw material inventory and $ or accounts payable
When do product costs go on income statement?
when finished goods are sold
Predetermined overhead rate =
(estimated total MOH cost ($)) / (estimated cost driver (activity))
Overhead applied to job =
(job’s actual use of cost driver) * (PDMOH rate)
We always close MOH to …
COGS Exp and is done once per period
Debit balance in MOH =
under-applied MOH; actual > applied
Credit balance in MOH =
over-applied MOH; actual < applied
Under- or over-applied MOH can also be prorated between these three accounts …
- WIP
- Finished Goods
- COGS Exp
Inputs of WIP inventory
Actual DM + Actual DL + Applied MOH
Ending WIP inventory (job costing)
cost added so far to jobs in process
Ending WIP inventory (process costing)
units remaining * average unit cost
COGM (job costing)
Total cost of completed jobs
COGM (process costing)
units completed * average unit cost
Process costing: WIP inventory account for …
every process
Job costing: WIP inventory account for …
only one WIP inventory account
Job costing: Inputs
DM, DL, and MOH
Process costing: Inputs
DM, DL, MOH, and COGM from previous processes
Accumulated job costs to date
are used to determine the cost of units completed ant the cost of goods remaining in WIP ending inventory
Average Unit cost
used to determine the cost of the units completed COGM and the cost of goods remaining in WIP ending inventory
Process costing steps
Step 1: flow of physical units
Step 2: Equivalent Units DM and Conversion Costs
Step 3: Determine total cost to account for
Step 4: Determine the cost per equivalent unit
Step 5: assign costs to units completed (COGM) and units remaining in WIP inventory
