Week 3 Flashcards
Cost pool
Temporary grouping of cost items
Cost allocation base
way to allocate costs from the cost pool to the cost object
Actual vs Normal vs Standard costing
Actual: at the end of period add up all actual overhead costs and divide by actual allocation base to get a rate
Normal: at the beginning of period add up all estimated overhead costs and divide by estimated allocation base
Standard: use estimated(budgeted) numbers for costs/allocation base
When there is difference between actual and normal costing, 3 approaches:
- Adjusted allocation rate approach - at end of year recalculate all alocations based on actual numbers (most accurate)
- Proration approach - difference is allocated proportionally across work in progress inventory, finished goods inventory and cost of goods sold
- Write-off - The difference is written off to COGS (Most common approach)
Actual vs Normal vs Standard costing overhead formulas
Actual = Actual OH/ Actual Base * Actual Base for this job
Normal = Estimated OH/ Estimated Base * Actual Base for this job
Standard = Estimated OH / Estimated Base * Estimated base for this job
DLH meaning
Direct labour hours
Base meaning
Sum of all direct labour hours
Costing systems
Job-Order costing - high product variety, low volume
Process Costing - low variety, high volume, mass production
Equivalent units meaning
Way of measuring work on partially completed units measured as quanitty of physical units * percentage of progress
Physical units meaning
An actual unit, even if only partially completed.
Conversion cost meaning
Direct Labor (DL) and MOH (manufacturing overhead cost) used to convert the RM (raw material) to FG (final goods)
Beginning WIP and Ending WIP difference (Work in progress)
Beginning - last year started, this year it’s still not finished
Ending - This year we started, didn’t finish yet
