Operations Management Flashcards
Cost Objects
resources activities that serve as the basis for management decisions
Prime cost
direct material + direct labor
Conversion Cost
Direct Labor+ Mftrg Overhead applied
Cycle of Inventory- All on the B/S. Part of Inventory
RM–WIP–FG
Product costs
Inventoriable costs. sit on the b/s they are not expensed until the product is sold
Product vs. Period
Period costs do not go on the b/s they are expensed and do not go on the b/s. Admin expenses etc
Nonmanufacturing Costs
costs that do not relate to the manufacturing of a product. These costs are expensed in the period incurred. This is treated as a period cost
Cost accounting measures PIE
- Product costing
- Income
- Efficiency
Tracing costs to cost object
- Product
- Department
- Geographic Area
Product cost
has to be in the factory
Cost drivers can be
dollars
hours
When traditional accounting used, application of overhead is accomplished in 2 steps
Step 1: Calculate Overhead rate : Budgeted overhead costs/ Estimated cost driver
Step 2: Applied overhead= Actual cost driver X Overhead rate
Variable Cost
Constant per unit. Total costs varies with the number
Fixed Cost
- Total fixed costs does not change
- FC vary per unit
Fixed Cost & Variable- Long-Run Characteristic
Any cost can be considered variable
Semi-Variable Cost
a little bit mixed with fixed and variable
Cost of Goods Manufactured Formula
Beg WIP \+ DM \+DL \+Manufacturing Overhead -WIP Ending = COG Manufactured
Materials used
Beg. RM \+Purchases (Including freight in) = RM Available -End. RM = Raw Materials used
Cost of Goods Sold
Beg. FG \+Cog Manufactured = Cost of Goods available for sale -FG Inventory Ending =Cost of Goods sold
Product cost is the sum of
DM
+DL
+Mftg Overhead
Job Order costing
used when there are relatively few units produced and when each unit is unique or easily identifiable
Overhead Applied
Rate X Actual $
Process Costing
We average the cost bc we are mass producing homogeneous units. Every unit is exactly the same
Goal of production report
to keep track of the physical units and the costs associated with all the units
Equivalent Units
Calculation is made by taking into account the partially completed units and by making use of equivalent units
FIFO
3 elements
1) WIP Beg. (how much work did we do this time, the amount of work that has to be done this period)
2) Units started and completed this period
( Units completed and transferred out)
3) WIP ending
Calculation using Weighted Average
1) Units completed and transferred out (always 100%)
2) Work in process ending
Cost per Unit under Weighted Avg. Method
Beginning Costs+ Current Costs
/ Equivalent Units
Cost per Unit under FIFO Method
Current Cost Only
/ Equivalent Units
Normal Spoilage vs. Abnormal Spoilage
NS- Included in the inventory cost B/S
AS- Should not occur, Should not be included in the standard
Abnormal Spoilage is what type of expense
period expense, goes separately on the income statement as a period expense
Activity based Costing
Traditional system single cost driver, direct labor hours. Single rate to apply
Activity Based
Uses multiple over head rates by department. Improves the cost allocation
Cost Drivers
Traditional One “Volume”
ABC- Multiple
Activity Centers
Cost pools
Value Chain
series of activities in which customer usefulness is added to the product. Support activites directly support value-added activities
Non-Value added Chains
These don’t increase product value or service. For example surplus inventory
Advantages of ABC costing
If the product uses a particular demand then it gets a lot of overhead. this will remove must of the cost distortion caused by traditional volume based overhead systems
Joint product Costing
two or more products that are generated from a common cost “Main Products”
By-Product
minor or relatively small value
Split-off point
point in the production process where the joint products can be recognized as individual products
Net Realizable Value
Must back out separable costs
Price elasticity of demand
(Q2-Q1/Q1) / (P2-P1/P1)
2= New Price or New Quatity
1= Old Price & Old Quantity
