SCM Flashcards
1
Q
Purposes of product costing for managerial accounting
A
Decision making:
- Pricing
- Product-line decisions
- Manage, control, reduce cost of products
- Performance evaluation of managers
- Contracting/negotiating with outside parties
2
Q
7-step method to product costing
A
- Identify cost object
- Identify/trace direct costs
- Separate OH into cost pools
- Select OH cost-allocation base(s)
- Compute OH allocation rate for each pool (based on budgeted)
- Allocate OH costs to cost object (actual quantity)
- Compute total cost of cost object
3
Q
Indicators of need for refined cost system
A
- OH is large % of product cost
- Complex, diverse, heterogenous products lines
- Sales increase but profits decrease
- OH is allocated using one or two cost pools
- Volume is not a cost driver
- Competitors seem to know better/have an advantage
4
Q
Practical capacity
A
Level of capacity that includes unavoidable operating interruptions (e.g. maintenance, employee holidays, shutdowns)
5
Q
ABM
A
Extension of ABC: using ABC analysis to improve operations (e.g. product design, process improvement, customer profitability analysis)
6
Q
Traditional cost systems distort product costs
A
- Overcosts high-volume products
- Undercosts low-volume complex products
7
Q
Cons of ABC
A
- Costly to implement/maintain
- Surveying/resurveying employees to get estimates of how they allocate their time
- Solution: time-based ABC
8
Q
Time-based ABC
A
- Cost per unit time = Total activity cost/practical capacity in time
- Estimate unit time for each activity
- Apply/allocate activity costs to cost object based on consumption of time for various activities
- Total cost applied = cost per unit time x total time for activities
9
Q
When to invest in sophisticated costing system
A
- Willie Sutton rule: ABC where the money is (areas with large expenses - indirect/support resources, especially if growing over time)
- High diversity rule: situations where large variety exists in products, customers or processes
10
Q
Relevant information
A
- Has bearing in the future
- Differs among competing alternatives
