WEEK 1 Flashcards
Relevant Costing - Leve; B
Incremental costs and revenues
Qualitative ?s.. how reliable are future operating costs?
demand on mgmt? laws n regulations? social or env. consequences.
Short term goal: MAXIMIZE PROFITS
Make or Buy
Quantitative: depreciation on equipment is a sunk cost
State how to implement the change
Prepare a correct quantification of the costs of the dog crates if they are manufactured and if they are purchased from an overseas manufacturer.
Consider at least 2 qualitative factors associated with the diversification of the product line and provides a recommendation
(Repeat pros that are in line with the alternative)
Outsourcing Benefits
lack of capacity in future
lack of raw materials
product is outside company’s competencies
==higher quality, low cost and easy delivery
Outsourcing Cons
reliance on third party
Can space where item is made be used for something else?
Special Order
- Need excess capacity
- costs less than revenue for order (duh)
- consider if any opportunity costs
- Consider future impact if u accept this order
Constraints
Find Cm, then find the CM/hr (divide by DL hours) and then rank and allocate
also look at how it affects sales as a whole after quant.
Add or Drop
incremental costs/revenue
drop
Does this increase net income?
Cost-Volume-Profit
Break even fc/cm = units fc/ratio = $ fc+target profit/cm ratio = target profit finding cost function: base the levels on activity find vc/hr average total costs = X$vc/unit * FC cost function after findinf FC
Product Costs
DM+DL+MOH
Prime Cost
DM + DL
Period costs
anything not product cost
COGM
the purchases version of manufacturing
Beginning WIP + DM used + DL used + OH applied – Ending WIP
Job Costing
customized
uniquely identified items
Process costing
mass produced
Job costing: Variable vs Absorption
Variable only include variable costs i/s impact Absorption/full all costs
Job costing: Variable vs Absorption
Variable only include variable costs i/s impact Absorption/full all costs
Transfer Price
Minimum transfer price = Variable costs up to the point of transfer \+ Opportunity cost to the selling division
Capacity
If selling dept has no idle capacity, the min. price is the market price
If selling dept has idle capacity, the min. price is the variable costs (since no op cost)
If buying, max price is ALWAYS external selling price
cost-based transfer pricing
- transfer prices are based on a formula applied to some measure of the product’s c
market-based transfer pricing
transfer prices are based on external market conditions such as the prices of external suppliers or the prices charged to external customers.
negotiated transfer pricing
seller and buyer work together to come up with an internal transfer price for the product or service
negotiated transfer pricing
seller and buyer work together to come up with an internal transfer price for the product or service
Process costing = EU
DM is added at the beginning of the process, while conversion costs (that is, DL and OH) are incurred throughout the process.
both different
Two methods for EU outputs
weighted average
Completed_+ WIP equivalents
FIFO
0 of the beginning and the started n completed and fhe wip equivalents
