MT 1 Flashcards
What are prime costs
Sum of direct materials costs and direct labor costs
what are conversion costs
Sum of direct labor costs and manufacturing overhead costs. it is the cost of converting raw materials into a final product
What are period costs
costs that are matched with the revenue of a specific period rather than inventory as part of the cost to a saleable product (ex selling and administrative expense)
What are variable costs
costs that vary in total directly and proportionally with changes in the activity level
What are fixed costs
cost that remain the same with in the relevant range
What are mixed costs
Costs that have both variable and fixed components. They change in total but not proportionally with changes in the activity level.
What is the variable cost per unit formula used to calculate mixed costs under the high low method
Change in total cost at high vs low activity level divided by change in total activity at high vs low activity level
How is COGS calculated as a manufacturer
Beginning finished goods inventory + COGM - ending finished goods inventory = COGS
What are the two equations used to find COGM
Beginning WIP Inv + Total Manufacturing costs = Total Cost of WIP Inv
Total cost of WIP Inv-Ending WIP Inv = COGM
What is the formula for predetermined overhead rate
estimated OH costs divided by estimated annual operating activity (DLH, MH)
What is under applied overhead and the journal entry required at the end of the period (COGS Method)
OH assigned to WIP inventory is less than the OH incurred.
Dr COGS
Cr OH
What is over applied overhead and the journal entry required at the end of the period (COGS Method)
OH assigned to WIP inventory is greater than the OH incurred.
Dr OH
Cr COGS
What does a Debit in OH mean
A debit means that OH has been underapplied, less OH than actually occurred
What is the proration method and the three accounts it affects
assigns under or over applied overhead costs to WIP Inventory, Finished goods inventory, and COGS
What are the four steps of activity based costing
Step 1: Identify and classify the major activates and assign OH to cost pools
Step 2: Identify the cost drivers
Step 3: Calculate the activity based OH rate
Step 4: Assign overhead costs to products
What is the Activity based overhead rate equation
estimated OH per activity/ estimated use of cost drivers per activity
What are unit level activities
activities performed for each unit of production
what are batch level activities
activates that are performed every time a company produces another’s batch of a product (ex machine set up)
What are product level activities
activities performed every time a company produces a new type of product (R&D)
What are facility level activities
activities required to support or sustain an entire production process
What are the limitations to ABC
-expensive
-more complex than traditional costing
-some arbitrary allocations remain
