Week 1 Flashcards
Cost concepts
What are the four types/methods of cost classification?
- Financial reporting
- Assigning
Costs to Cost
Objects - Predicting
Cost Behavior - Make business decisions
(FAPM)
What is the key concept in the financial reporting cost classification?
Product vs Period costs
What is the difference between Product vs Period Costs in the cost classification method for financial reporting?
Product costs are manufacturing costs that include direct materials, direct labour and manufacturing over head.
Period costs include all selling costs and administrative costs (S&A expenses).
What is the key concept in the Assign costs to cost objects cost classification method?
Direct vs Indirect costs
What is the difference between Direct vs Indirect costs? Give 1 example of each.
Direct costs are costs that can be easily and conveniently traced to a cost object. An example is direct materials or direct labour.
Indirect costs are costs that cannot be easily and conveniently traced to cost objects/ one unit of product. An example is manufacturing overhead/indirect labour/ indirect materials
What are indirect materials? Give an example.
Materials used to support the production process or multiple units of products. Examples are lubricants for an assembly line or cleaning supplies.
What are examples of indirect labour?
Factory security guard, Factory janitors and Factor maintenance workers.
Give three examples of MOH
- Electricity used in factory
- Factory rent
- Depreciation of factory equipment
What are the formulas for prime cost and conversion costs?
DM + DL = Prime cost
DL + MOH = Conversion cost
Are all direct and indirect costs under product costs?
Yes
What are the two purposes of a schedule of Cost of Goods Manufactured?
- Calculates the cost of DM, DL, and MOH used in production.
2.Calculates the manufacturing costs associated with goods that were finished during the period.
What are the two equations for
calculations under Schedule of Cost of Goods Manufactured (COGM)
1.Beg. INVT + Additions to INVT = End. INVT + Withdraws from INVT
2.Beg. INVT + Additions to INVT - Withdraws from INVT = End. INVT
What are the three components in Manufacturing (Product) Cost Flows?
- Raw materials
- Manufacturing costs
- Work in process
When do direct materials get called direct materials in the production process?
As items are removed from raw
materials inventory and placed into
the production process, they are
called direct materials.
What are conversion costs? Give 2 examples.
Conversion costs are costs incurred to convert the direct material into a finished product.
Examples are direct labour and manufacturing overhead which are costs incurred to convert the direct material into a finished product.
What are the components of total manufacturing costs?
Direct materials + Direct labor + Manufacturing overhead
What is the last Manufacturing (Product) Cost Flows section?
Finished Goods
What are the components of total work in process?
Beginning work in process inventory + Total manufacturing costs
What are the three Manufacturing (Product) Cost Flows - Equations
- DM used = Beg. RM + Purchase – End. RM
- COGM = Beg. WIP + (DM used + DL + MOH) – End. WIP
- COGS = Beg. FG + COGM – End. FG
What is the key concept in the Predicting Cost Behavior cost classification method?
Total Variable Costs (TVC) vs Total Fixed Costs (TFC)
As activity increases does TVC increase or decrease?
Increase
As activity increases does VC per cup at starbucks increase?
No the VC is constant per cup/ Remains the same.
As activity increases does TFC increase?
No it is constant/ remains the same
As activity increases is there any change to FC per cup at starbucks?
FC per cup declines as activity increases.
*This is because
Fixed Cost per Unit= Total Fixed Costs/Number of Units
If number of units increase based on formula, since TFC won’t change, the fixed cost per unit decreases.
