Test 2 Ch 5,7,8 Flashcards
Job-Order Costing
- Wide Variety of distinct products
- Costs accumulated by job
- Unit Cost= Total job costs / Output
Process Costing
- Homogeneous(similar) products
- Costs accumulated by process or department
- Unit Cost= Process Costs/ Output
Why is unit cost important?
What is it needed for?
-Unit Costs are very important because managers need accurate cost information on materials, labor, and overhead.
- Needed for:
1) The financial reporting requirements of costing inventory and determining income.
2) Decision making, such as pricing
What are the 2 ways to measure the cost associated with production?
Actual Costing and Normal Costing
Actual Cost System
Only actual costs of direct materials, Direct labor, and overhead are used to determine unit cost.
Normal Cost System
Determines unit cost by adding actual DM, actual DL, and estimated OH
Virtually all firms use Normal Costing
Predetermined Overhead Rate (formula)
OH=Estimated annual OH / Estimated Annual Activity Level
Applied Overhead (formula)
Applied OH= OH Rate x Actual activity level
Total Cost (formula)
Actual DM + Actual DL + Apllied OH
OH Variance (formula)
Applied OH - Actual OH
What is Overapplied OH
Underapplied OH
Overapplied OH= applied OH exceeds Actual OH
Underapplied OH= applied OH is less then Actual OH
Plantwide OH Rate (formula)
Plantwide OH Rate= Estimated Factory OH / Estimated Activity for factory
Departmental OH Rate (formula)
Departmental OH Rate= Estimated Department OH / Estimated Departmental Activity
Job-Order Cost Sheet - what does it look like
Job 44 Job 45 Job 46 BB DM DL Applied OH
Total
Work In Progress (WIP)
sum of all uncompleted jobs
Finished Goods
BB + all jobs completed but not sold
Ending Balance of WIP (formula)
BB + DM + DL + Applied OH - Jobs completed
Consumption Ration (definition and formula)
The proportion of each activity consumed by a product
Consumption Ratio= Amount of activity driver per product / Total Driver Quantity
Activity-Based Product Costing (ABC)
- Refines a costing system by identifying individual activities as the fundamental cost objects
- An ABC system with many activities can become overly detailed and unwieldy to operate.
- An ABC system with too few activities may not be refined enough to measure cause and effect relationship.
- Produces more accurate product costs by more accurately tracing the consumption of overhead resources to products.
Cost assigned to Product (formula)
Cost assigned= Predetermined activity rate x Actual usage of activity
4 Ways activity analysis can reduce cost
Activity elimination
Activity Selection
Activity Reduction
Activity Sharing
3 Dimensions of activity performance measure are?
Efficiency
Time
Quality
Absorption Costing
Per Unit Costing= DM+DL+VOH+FOH
Variable Costing
Per Unit Costing= DM+DL+VOH
IF:
Production > Sales
Production < Sales
Production = Sales
THEN:
Absorption income > Variable Income
Absorption income < Variable Income
Absorption income = Variable income
Units in EI (formula)
Units in EI= Units BI + Units Produced - Units Sold
Value of EI
Units in EI x Per unit product cost
COGS
COGS= Unit Product Cost x Units Sold
of Orders (formula)
Annual # lbs Used / # lbs in order
Total Ordering Cost (formula)
orders x cost per order
Total Carrying cost (formula)
Avg # units in inventory x carry cost of 1 lb
Avg # units in inventory= Units in order / 2
Total inventory Cost (formula)
Tot. Order cost + Tot Carrying cost
Segment CM (formula)
Segment CM= Sales - VC
Segment Margin (formula)
Segment Margin= Sales - VC- Direct FC
EOQ (formula)
EOQ=(put everything under Square Root Sign)
2 x CO x (D/CC)
- EOQ= Optimal number of units to be ordered at one time
- CO= Cost of placing 1 order
- D= the annual demand for the item in units
- CC= Cost of carrying one unit in inventory for a year
Reorder Point (formula)
Reorder Point= Rate of usage x Lead time
-Lead time= time required to receive the economic order quantity once and order is placed or a setup is started.
Safety Stock (definition and formula)
extra inventory carried to serve as insurance against changes in demand
Safety Stock= (Max daily usage x Avg daily usage) / Lead time
Just-In-Time Approach (JIT)
JIT offers increased ost efficiency and simultaneously has the flexibility to respond to customer demands for better quality and more variety.
JIT Manufacturing
A demand-pull system. Products are produced only when demanded by customers
JIT Purchasing
Occurs when parts and materials arrive just in time to be used in production.
