P1.D.2 Costing Systems Flashcards
What are the types of Costing Systems?
P1.D.2 Costing Systems
- Job order costing
- Process costing
- Operating costing
- Activity based costing
- Life cycle costing
- Backflush costing
Job Order Costing
P1.D.2 Costing Systems
- Accumulates costs for individual jobs or lots.
2. Specifies the amount of material and labor required, and adds an allocation for overhead.
What is Spoilage?
P1.D.2 Costing Systems
- Waste arising from production process
- Normal spoilage: allocated between cost of units completed & ending WIP
- Abnormal spoilage: charged to expense (loss) - period cost
What is Rework?
P1.D.2 Costing Systems
- When rework is done on spoiled materials so it can be sold as normal output
- Normal rework: charged to specific job
- Abnormal rework: written off as a loss
Rework specific job: debit to WIP
Rework common: debit to manufacturing overhead
Rework abnormal: debit to loss from abnormal rework
What is Scrap?
P1.D.2 Costing Systems
- Leftover material that’s discarded and has little to no value.
- Scrap identified to a specific job is charged to job’s WIP, otherwise it’s charged to factory overhead
Process Costing
P1.D.2 Costing Systems
Allocates manufacturing costs to mass produced, identical or similar products to determine average cost per unit.
Operating Costing
P1.D.2 Costing Systems
- Hybrid of job costing & process costing approaches
2. Suitable for homogenous manufacturing process for output by input, material is different for various jobs.
Activity Based Costing
P1.D.2 Costing Systems
- Allocates overhead costs based on activities performed that drive costs to change.
- Not in compliance with GAAP
Life Cycle Costing
P1.D.2 Costing Systems
- Accumulation of costs for activities that occur over the entire life of the product
- Can only be used for internal reporting purposes.
Total Cost of Life Cycle Costing
P1.D.2 Costing Systems
- Upstream: costs incurred before product is manufactured (period cost)
- Manufacturing: direct material, direct labor and manufacturing overhead (product cost)
- Downstream: costs incurred after product is manufactured (period cost)
Backflush Costing
P1.D.2 Costing Systems
Costing approach used in Just-In-Time operating environment where costing is delayed until good are finished.
Elements of Activity Based Costing
P1.D.2 Costing Systems
- Cost pools: homogenous costs are grouped together and cost allocations are made
- Cost drivers: resource or activity that causes costs to change directly or indirectly
- Resource driver: cost driver that quantifies the resources used in an activity. Ex: sq ft in factory is resource for factory rental costs.
- Activity driver: cost driver that quantifies the activity a cost object consumes. Ex: direct labor hours for indirect labor costs.
- Value-added activity: activity that increases customers perceived value of product or service
Production Cost Report Steps
P1.D.2 Costing Systems
- Prepare quantity schedule
- Calculate EUP of production
- Calculate cost per equivalent units
- Calculate cost of units transferred
- Calculate cost of ending inventory
Quantity Schedule
P1.D.2 Costing Systems
Units to account for:
Units in process, beginning + Units started into production = Total units to account for
Units accounted for:
Units transferred + Units in process, ending = Total units to account for
*Of the units transferred, remember a portion of that figure came from beginning units in process
Equivalent Units of Production
P1.D.2 Costing Systems
FIFO
Beginning inventory = % not complete
Units completed = 100%
Ending inventory = % complete
Weighted average (WAVE) Beginning inventory = 100% Units completed = 100% Ending inventory = % complete
