Tutorial 4 Flashcards
Manufacturing costs include
Direct Materials, Direct Labour, Manufacturing Overhead
Prime costs comprise
Direct Materials and Direct Labour
Conversion costs are
Direct Labour and Manufacturing Overhead
Margin of Safety is computed by
Sales (actual or budgeted) - Breakeven sales
Margin of Safety , Percentage
Margin of Safety /Sales (actual or budgeted)
Degree of Operating Leverage
Contribution Margin/Net Operating Income
Cost Object:
any product, any job order, any division, any anything to which you asign a cost.
Traditional Costing
- One plantwide overhead rate
- easy to implement
- only allocates products costs
- can be used for exteral reports (COGS)
- require 1 set of books
- less accurate
ABC
- multiple activity rates
- difficult to implement
- may allocate period costs
- cannot be used for external reports
- requires 2 set of books
period cost
all costs that are not product costs (expense as incurred)
Margin of safety ( in units)
Budgeted (or actual) sales quantity - Breakeven quantity
The direct costs of a cost object are
costs related to a particular cost object that can be traced to that cost object in an economically feasible (cost-effective) way for example, the cost of purchasing the main computer board or the cost of parts used to make an iMac computer.
The indirect costs of a cost object are
costs related to a particular cost object that cannot be traced to that cost object in an economically feasible (cost-effective) wa - for example, the salries of supervisors who oversee multiple products, only one of whichis the iMac, or the rent paid for ther repair facility that repairs many different object using a cost-allocation method.
Cost assignment is
a general term for assigning costs, whether direct or indirect, to a cost object.
Cost tracing is
the process of assigning direct costs.
Cost allocation is
the process of assigning indirect costs
Cost pool
is a grouping of individual indirect cost items. Cost pools can range from broad, such as all manufacturing-plant costs, to narrow, such as the costs of operating metal-cutting machines. Cost pools are often organized in conjunction with cost-allocation bases.
Cost-allocation base is
a systematic way to link an indirect cost or group of indirect costs ( operating costs of all metal-cutting machines) to cost objects (different products)
Job-costing system
In a job-costing system, the cost object is a unit or multiple units of a distinct product or service called a job.
Process-costing system
In a process-costing system, the cost object is masses of identical or similar units of a product or service.
One form of a job-costing system can be used is
actual costing, which is a costing system that traces direct costs to a cost object based on the actual direct-cost rates times the actual quantities of the direct-cost inputs used. Indirect costs are allocated based on the actual indirect-cost rates times the actual quantitities of the cost-allocation bases. An actual indirect-cost rate is calculated by dividing actual annual indirect costs by the actual annual quantity of the cost-allocation base
Cost hierarchy categorizes
various activity cost pools on the basis of the different types of cost driver, cost-allocation bases, or different degrees of difficulty in determining cause-and effect (or benefits-received) relationships
ABC systems commonly
use a cost hierarchy with four levels to identify cost-allocation bases that are cost drivers of the activity cost pools: (1) output unit-level costs, (2) batch-level costs, (3) product-sustaining costs and (4) facility-sustaining costs
Output unit-level costs are
the costs of activities performed on each individual unit of a product or service.
Batch-level costs are
the costs of activities related to a group of units of a product or service rather than each individual unit of product or service.
Product-sustaining costs (service-sustaining costs) are
the costs of activities undertaken to support individual products or services regardless of the number of units or batches in which the units are produced.
Facility-sustaining costs are
the costs of activities that managers cannot trace to individual products or services but that support the organi
