Cost Accounting Flashcards
Break-even analysis
Total cost and total revenue is linear
Unit variable cost are constant
Prime costs
Direct materials plus direct manufactoring labor
Cost of electricity
The cost of electricity for a manufacturing plant, whether fixed or variable, is included in factory overhead and, therefore, is a product cost.
Quantity variance
Actual quantity - Standard quantity multiplied by standard price
Price variance
(Actual quantity x Actual price) - (Actual quantity x Standard cost)
Usage Variance
(Actual quantity x Standard price) - (Standard quantity x Standard price)
Contribution margin per unit
Sales/sales price per unit = units sold
Contibution margin/units sold = contribution margin per unit
Break-even point in units
Fixed cost/contribution margin per unit
Margin of safety
Break-even sales dollars= break-even point in units x sales price
Current sales - break-even sales dollars = margin of safety
Absorption Costing Income statement
Include both variable and fixed (all prodcution costs) manufacturing costsas product costs.
As such, the cost of goods sold, product costs and the value of the ending inventory on the absorption income statement are higher than on the variable income statement.
The first action to take is to determine the production cost per unit produced.
Sales Revenue
COGS: Variable costs
Variable selling and administrative
Contribution margin
Fixed selling & administrative cost
FOH cost
Operating income
Direct or variable costing Income Statement
Direct costing Include only variable manufacturing costs as product cost and expense fixed manufacturing costs as period expense.
Sales Revenue
COGS: variable costs
COGS: FC
Gross margin
Fixed selling and administrative costs
Variable selling and administrative cost
Operating income
Variable overhead application
estimated variable overhead costs / estimated activity level (machine hours) = predetermined variable rate
Value-added activity
An activity adds value to an organization if the activity adds value for the customer. Customers are willing to pay for activities that add value for them.
Activity-based costing (ABC)
Activity-based costing (ABC) involves the allocation of overhead costs to products based on the cost driver that actually caused those costs to be incurred. In contrast to traditional costing methods which accumulate costs by department or function, ABC accumulates costs by the specific activity being performed.
For example, costs related to the purchase of materials may be allocated according to the number of purchase transactions which occurred. Therefore, cost drivers comprise a necessary part of any ABC system.
On the other hand, non-value-added activities represent expenditures for which no value is added to the product. Hence, costs can be reduced by eliminating non-value-added activities without affecting the salability of the product.
ABC is based upon two principles. First, activities consume resources. Second, these resources are consumed by products, services, or other cost objectives (output). ABC allocates overhead costs to products on the basis of the resources consumed by each activity involved in the design, production, and distribution of a particular good.
Volume-based production
Volume-based production is somewhat of an opposite to activity-based costing in the sense that the volume-based approach, while simple, does not accurately reflect the relationship between the products produced and the costs incurred, as it systematically overassigns costs to some products and underassigns costs to others.
