Week 4 Review Flashcards
(22 cards)
Explain absorbsion cost
Directly trace or allocate all manufacturing costs to products made
How is absorption costs used?
Used in financial reporting for calculating book value of inventory and COGS manufactured
What are the two types of absorption costs?
Job order and process cost systems
Describe job order costing
Used in departments that produce in batches and assembly processes.
Describe process costing
Continuous production of a single type of product. Costs are assigned to the production process
What are the components of job order costing
Use of job sheets
Direct material issued for job
Machine hours
Indirect manufacturing costs-accummilated in O/H account as machine hours
Describe cost flow among inventory in job order costing
Work in process- jobs not complete
Finished goods- jobs complete and not sold
Cost of goods sold- jobs sold
Illustrate product costing approach used in job order costing.
Determine the cost of producing the job by adding DM, DL and Applied O/H (% of DL) per job
Describe process costing system
Costs from first process are incurred (DM, DM, O/H) and are WIP. These cost are transferred to Department 2. Department 2 will incur DM, DL AND O/H + costs from depart 1. Assuming both processes are complete, then both processes are transferred Finished Goods. Beginning WIP will be used first assuming FIFO.
Explain activity based costing
DM and DL Costs are assigned to activities initially then O/H costs are allocated to the activity
What is a unit cost
Activities performed at least once for each unit of product- Direct Labor, Materials and O/H
What is batch level costs
Activities performed at least once for a batch or lot of products- ex. Machine set up, cleanup, purchase orders, inspections, moving the batch to the next process
What are product level costs
Activities to support the production - ex. Engineering costs, product enhancement
What are capacity sustaining costs?
Common cost such as: security, maintenance, admin, insurance, utilities, taxes
What is the purpose of, advantage and disadvantage of activity based costing?
Purpose- to better understand cost relationships to the department pertaining to the costs.
Advantage- accuracy of product costs and resource utilization
Disadvantage- still not 100% accurate. Additional cost pools/ drivers could exceed the benefit
What concept is required for process costing?
Equivalent units
What is an equivalent unit?
Amount of output in terms of complete units (ex. If 3 units are 1/3 complete…then equivalent to 1 unit
Examples of equivalent units?
If 200 units in WIP at the end of the month and they are 75% complete, then the 200 units represent 150 equivalent units
Process cost systems track what?
Direct material and Conversion costs (labor and overhead)
What are the major functions of all absorbsions costs to include process costs?
Total costs are divided into:
1)costs still in WIP
2)completed manufacturing
A) finished goods inventory
B) cost of goods sold
Equation for cost per equivalent units materials
Equation for cost per eq. Units conversion
Material costs/ (started & completed units + end WIP units)
Conversion costs/ (started & completed + (end WIP * % complete))
Equation for Actual overhead in job processing
Step 1- fixed O/H+( per unit V O/H* activity base)/
Activity base= applied O/ H rate.
Step 2 - app. O/H rate * actual output
