P1.D.1 Measurement Concepts Flashcards
Fixed Costs & Relevant Range
P1.D.1 Measurement Concepts
- Total fixed costs = constant
2. Fixed costs per unit decrease as levels of activity increase
Variable Costs & Relevant Range
P1.D.1 Measurement Concepts
- Total variable costs change with level of activity
2. Variable cost per unit = no change
What two methods are used for separating mixed costs?
P1.D.1 Measurement Concepts
- Regression Method
2. High-Low Method
What are cost objects?
P1.D.1 Measurement Concepts
Is anything to which a cost can be traced or assigned to. Ex: depts., products, services, etc.
What is a cost driver and what types are there?
P1.D.1 Measurement Concepts
Cost measures that cause costs to increase.
- Activity-based cost drivers
- Execution cost drivers
- Volume-based cost drivers
- Structure-based cost drivers
Actual Costing
P1.D.1 Measurement Concepts
- Actual direct material
- Actual direct labor
- Actual manufacturing overhead
Suitable for job order costing systems
Normal Costing
P1.D.1 Measurement Concepts
- Actual direct material
- Actual direct labor
- Standard manufacturing overhead
Suitable for job order costing systems
Standard Costing
P1.D.1 Measurement Concepts
- Standard direct material
- Standard direct labor
- Standard manufacturing overhead
Suitable for job order and process costing systems
Operating Income with Variable and Absorption Costing
P1.D.1 Measurement Concepts
- A is greater than V when P is greater than S
2. A is less than V when P is less than S
Variable (Direct) Costing
P1.D.1 Measurement Concepts
- Classifies fixed manufacturing overhead as period costs.
- Does not conform to GAAP
- Sales - COGS = Contribution Margin
Absorption (Full) Costing
P1.D.1 Measurement Concepts
- Classifies fixed manufacturing overhead as product costs
- Conforms to GAAP and is used for external and tax reporting
- Sales - COGS = Gross Profit
Joint Product Costing
P1.D.1 Measurement Concepts
Shares common costs up to split-off point.
By-Product Costing
P1.D.1 Measurement Concepts
Part of a common process but has little value after split-off point.
Physical Quantity Method
P1.D.1 Measurement Concepts
Allocates joint costs using relative proportion of joint products to the total quantity produced at split-off point.
Physical Quantity Method Benefits & Limitations
P1.D.1 Measurement Concepts
Benefits
1. Easy to calculate and measure
Limitations
- Physical measure isn’t value based
- Joint products have different measures; ie: gallons, kilos, etc.
Gross Market Method
P1.D.1 Measurement Concepts
Allocates joint costs using relative proportion to market value of joint product to total market at split-off.
Gross Market Method Benefits & Limitations
P1.D.1 Measurement Concepts
Benefits
- Simple to compute.
- Value based
Limitations
1. Market value may be unavailable
Net Realized Value Method
P1.D.1 Measurement Concepts
Allocates joint costs using relative proportion of market value of joint product to total market value after additional processing.
NRV method is generally used instead of the sales value at split off method when selling prices for one or more products at split off do not exist.
Net Realized Value Benefits & Limitations
P1.D.1 Measurement Concepts
Benefits
1. Considers probable value of joint product after additional processing rather than at split-off point.
Limitations
1. Other joint products may not be processed further
Constant Gross Profit (Gross Margin) Method
P1.D.1 Measurement Concepts
Assigns costs by applying overall gross profit margin to market value after split-off of each product
Constant Gross Profit (Gross Margin) Method Benefits & Limitations
(P1.D.1 Measurement Concepts)
Benefits
1. Allocates costs based on unified gross profit rate
Limitations
1. Actual gross profits may be different
