P1: 4.4 Costing Techniques Flashcards
1
Q
Gross Margin
A
- gross profit
- equals to sales rev - absorption cost of goods sold
- represents the amount available to cover s&a expenses
2
Q
Variable costing
A
- direct costing
- only variable manufacturing cost as product cost
- not allowed for external reporting
3
Q
Contribution margin
A
= net sales revenue - all variable costs
- represents the amount available to cover fixed cost
4
Q
Actual costing
A
- most accurate
- least timely and most volatile
- all actual cost are totaled, indirect costs are allocated
- large fluctuations from period to period
5
Q
Normal costing
A
- charges actual direct materials and direct labor to specific product or production department but applies overhead on the basis of a budgeted rate.
6
Q
Absorption costing
A
- full costing
- treats all manufacturing costs as product costs
- for external financial reporting
7
Q
Extended normal costing
A
- extends use of normalized rates to direct material and direct labor so that three major input categories use normalized rates.
8
Q
Job order costing
A
- is appropriate when producing products with individual characteristics or when identifiable groupings are possible.
- cost are attached to specific jobs. Each job will result in a single identifiable end product.
- ex. Custom built products like ship building or a sign shop.
9
Q
Process costing
A
- used when similar products are mass produced on a continuous basis.
- costs are attached to specific departments or phases of production.
- since cost is attached to streams of products rather than individual items, process costing uses average cost for all units. Weighted average and FIFO
- WIP must be restated in terms of equivalent units of production (EUP)
10
Q
Activity Based costing
A
-ABC first assigns resource cost o activities. These activity cost are then assigned to physical goods.
- opposite of peanut butter costing (spreading cost over products that use different amounts of resources)
- difference between traditional volume based costing and ABC:
- Under volume based, a single pool collects all indirect and total cost and is then allocated to production.
- Under ABC, every activity that bears on the production process has its own cost pool. The cost in each pool is assigned based on a cost driver specific to the activity.
11
Q
Life cycle costing
A
- the process of pricing products to cover all the cost incurred over life of product.
- cost incurred before production like R&D and product design (upstream costs)
- cost incurred after production such as marketing and customer service (downstream costs)
12
Q
Standard costing
A
- system designed to alert management when the actual costs of production differ significantly from budgeted “standard” costs.
- predetermined attainable unit cost. Not just an average of past cost but an objectively determined estimate of what a cost should be. Like “par” on golf course.
- can be used with both job order a process costing systems.
- ### there is usually a difference between budgeted overhead and actual. If immaterial then allocated to COGS. if material, then should be prorated between COGS And WIP and FG inventories.
13
Q
Flexible budgeting
A
- is the calculation of the quantity and cost of inputs that should have been used up given the achieved level of production.
- supplements the static budget, which is the company’s best projection of resource consumption and levels of output that will be achieved for upcoming period.
14
Q
Management by exception
A
- the practice of giving attention primarily to significant deviations from expectations (favorable or unfavorable)
- created when the variance exist between budgeted vs actuals. That variance is calculated.
15
Q
Target costing
A
- practice of calculating the price by adding the desired unit profit margin to the total unit cost. Adjunct concept of target pricing.
