Module 8 - Cost Concepts and OH Allocation Flashcards
What are manufacturing costs vs non-manufacturing costs?
Manufacturing costs: Direct materials, Direct Labour, Mfg. Overhead
Non-Manufacturing: Overhead, Marketing, Admin
What are Period vs Product Costs?
Period: costs matched against revenue on a time period basis
Product: costs matched against revenue on a product basis
What are the 3 cost behaviours?
Fixed Costs: won’t change with prod volume
Variable Costs: Directly paired to prod volume
Mixed Costs: Fixed Cost + variable component (ie energy for factory)
What is the profit equation?
Profit=Revenue-Costs
What is the contribution margin?
Contribution that each unit makes towards fixed costs and profit
How is cost information used?
Set the price for goods/services, budget, B/C analysis, Alternative selection, Improvements
How does cost information inform decision making?
- helps ID whether to buy or lease products or equipment
- Captial budgeting
- Make vs outsourcing
- Marketing and growth
How does cost information help with production planning and control?
- Production planning
- Performance Evaluation
- Continuous improvement and pursuit of efficiency
What is function-based costing?
Tie all costs to departments, then assign based on production drivers (machine hours, labour hours)
What is activity based costing?
Costs assigned based on activities, then assignments based on resource drivers and activity drivers. More time consuming
What is the basic structure of function based costing?
Overhead -> Driver tracing and allocation
1. Determine unit level driver
2. Estimate the capacity the driver measures
3. Estimate overhead cost
What are the limitations of plant or departmental rates?
May distort costs (ratio non-unit related to overhead costs to overhead costs is large, high degree of product diversity)
What is the general procedure for activity based costing?
- ID activities
- Assign Costs to activities
- Assign activity costs to other activities
- Assign Costs to products
