Cost and Managerial Accounting Flashcards
(206 cards)
1
Q
Job order costing
A
Process of tracking the costs of an individual product
2
Q
Price - taker
A
the market sets the price + the company decides if they can produce the good/service while making a profit
3
Q
Price - maker
A
company sets the price of a custom or unique product and charges based on costs + markup
4
Q
What is the major purpose and use of job order costing?
A
To create a system where manufacturing costs are accumulated by SEPARATE product orders
5
Q
True or False: Having accurate product or service cost information is important for both price takers and price makers
A
TRUE
6
Q
Job order costing is appropriate when which two conditions exist?
A
- Products produced are DIFFERENT from each other ( even if they’re the same TYPE of product)
- Manufacturing processes used are DIFFERENT for each product
Ex. Building trucks - different colors, tires, etc.
7
Q
Why is having accurate product cost information important?
A
So manufacturers can charge a price based on costs and a reasonable markup
8
Q
What is the foundation of managerial accounting?
A
Cost control
9
Q
When should Job Order Costing NOT be used?
A
When the product produced cannot uniquely be identified from another - everything is UNIFORM
Ex. Soft drinks, newspapers, canned food
10
Q
What is a condition to using job order costing?
A
Identifying each specific job or product manufactured
11
Q
Which costs should be assigned to each product under a job order costing system?
A
Direct materials, direct labor, and manufacturing overhead
12
Q
Direct materials
A
Material out of which a product is made
13
Q
Direct labor
A
Wages paid to skilled workers who form direct materials into a final product
14
Q
Manufacturing Overhead
A
Everything needed for a product to be made that is not included in direct labor or materials
15
Q
Cost Flows in Manufacturing
A
- Raw materials are stored in RAW MATERIALS INVENTORY
- Raw materials are moved to production floor as WORK IN PROGRESS INVENTORY
- Workers combine materials + labor into finished products
- Finished products are moved to FINISHED GOODS INVENTORY
16
Q
Product costs
A
costs incurred INSIDE the production facility
17
Q
Period costs
A
costs incurred OUTSIDE the production facility
18
Q
Examples of Direct Materials
A
- Rubber for making tires
- Steel for making cars
- Wood for making tables
19
Q
Examples of Direct Labor
A
Wages and other payroll related expenses of workers who work directly on products
20
Q
Examples of Manufacturing Overhead
A
Supervisors, Custodians, utilities, depreciation of facilities, insurance, and property taxes
21
Q
Examples of product costs
A
- costs of raw materials
- wages of employees working directly on products
- salaries of supervisor over the product workers
- utility bills to heat and light the facility
- depreciation or rent on the facility
- wages of maintenance personnel
22
Q
Examples of period costs
A
- wages employees working outside the facility (admin)
- utilities to heat and light admin facilities
23
Q
Which account are the costs of the raw materials, direct labor, and miscellaneous manufacturing overhead transferred to when the product is being manufactured?
A
Work in process inventory
24
Q
When manufacturing is completed on specific products, their costs are transferred to which account?
A
Finished goods inventory
25
What are the 3 steps in the Job Order Costing Procedure?
1. Identify the products or project that needs costs measurement
2. Specifically trace the direct costs to each product or project
3. Allocate an appropriate amount of overhead costs to each product or project
26
Manufacturing Overhead Rate Calculation
The rate at which MO costs are assigned to products
= estimated MO costs for the period / number of units produced
27
Purchasing Raw Materials JE
DR - Raw mats inventory (increase in raw mats inventory)
CR - AP or cash (decrease in cash)
28
Using Direct Materials JE
DR - Work in progress inventory (WIP inventory increases)
CR - Raw mats inventory (raw mats inventory decreases)
29
Using Indirect Materials JE
DR - MO (MO costs increases)
CR - Raw mats inventory (raw mats decreases)
30
What is the MO account used for in accounting?
It is a temporary place that holds overhead costs until they are assigned to the appropriate place (rent, utilities, etc.)
31
Direct Labor JE
DR - Work in progress inventory (labor costs increases to WIP invent.)
CR - Salaries and Wages Payable (wages owed decreases when paid)
32
Indirect Labor JE
DR - MO (MO increases)
CR - Salaries and Wages Payable (wages owed decreases when paid)
33
Actual MO JE
DR - MO (MO costs decreases as they are assigned to each account)
CR - wherever the MO needs to be assigned (likely multiple CR lines)
34
Applied MO JE
DR - Work in progress inventory (WIP increases as MO is assigned)
CR - MO (MO decreases as assigned to correct account)
35
Transfer of Goods Completed JE
DR - Finished goods inventory (FG inventory increases as products are completed)
CR- WIP inventory (WIP inventory decreases as products are completed)
36
Sale of Goods JE
DR - COGS (Expense increases)
CR - FG inventory (FG inventory decreases as products are sold)
37
Estimated MO
The amount of overhead costs that management has budgeted for in a period
= estimated MO / expected level of activity (direct labor hours)
38
Predetermined Overhead Rate Calculation
Total ESTIMATED MO cost for the YEAR / total ESTIMATED machine hours for the YEAR
Ex.
Total of indirect labor / indirect materials / repairs / rent = $268,000
Total estimated hours (direct labor hours) = 8,400
$268,000 / 8,400 = $32 per machine hour
39
Actual Manufacturing Overhead
MO costs OTHER than direct materials or direct labor
40
How are ACTUAL MO costs entered throughout the year?
As DEBITS (increases as costs are incurred and added to the MO "holding tank"
41
How are APPLIED MO costs entered throughout the year?
As CREDITS (decreases as they are assigned out to a respective account)
42
What is the order of the steps followed in accounting for manufacturing overhead costs?
1. Budget estimated MO
2. Record actual MO
3. Apply MO to WIP
4. Eliminate over or under applied overhead
43
Applied manufacturing overhead is directly recorded as a credit to which account?
WIP inventory
44
UNDER - Applied overhead
Applied MO is lower than the amount of Actual MO
(there is a balance in the MO account that has not been assigned and remains in the holding tank)
45
OVER - Applied overhead
The applied amount of MO is higher than the amount of Actual MO
46
What causes an UNDER application of overhead?
An underapplication of overhead to each job during the year
Costs were TOO LOW or prices were TOO LOW
company is responsible for paying for excess overhead out of pocket
47
What causes an OVER application of overhead?
An overapplication of overhead to each job during the year
Costs were TOO HIGH or prices charged were TOO HIGH
driving customers away with high prices
48
Under-Applied overhead closing JE
DR - COGS (expenses increases)
CR - MO (decreases as MO is assigned to an account)
49
Over- Applied overhead closing JE
DR - MO (MO increases)
CR - COGS (expenses decrease since we overcharged)
50
Cost of Goods Manufactured Schedule
Summarizes the cost flows in a manufacturing organization during a given period
51
Finished Goods inventory JE
DR - Finished good inventory (increasing amount of finished goods)
CR - WIP (WIP decreases as goods are finished)
52
What do the debits on a T-account indicate?
costs put into production during the period
53
What do the credits on a T-account indicate?
cost of goods manufactured (finished products) during the period
54
Is Actual or Applied MO used in the COGM calc?
APPLIED
55
What is the COGM formula?
VERY IMPORTANT CONCEPT
Beginning mats inventory
+ mats purchased
- ending mats inventory
+ labor costs
+ applied MO
+ beg. WIP inventory
- ending WIP inventory
56
What is the COGS formula?
COGM
+ Beginning FG inventory
- Ending FG inventory
+/- Under or Overapplied MO
57
Is Overapplied MO added or subtracted in the COGS calc?
subtracted
58
When finished goods are sold, which account is debited?
COGS
59
Gross margin (Gross profit)
Total sales - COGS
60
Process costing
Method of product costing where production costs for a period are added together and averaged across all units manufactured during that period
61
When should process costing be used?
When products created are identical (Ex. Costco rotisserie chickens)
62
What is a unique feature of process costing?
Units go through process centers when being produced
63
Conversion costs
all product costs necessary to convert raw materials into finished goods
Includes all costs related to direct labor + MO
64
What are the 4 steps in process costing?
1. Determine equivalent units of production
2. Compute product costs per unit
3. Compute COGM
4. Compute ending work-in-process inventory
65
In PROCESS costing - where do costs go when all work is completed in the process centers?
Finished goods inventory
66
What is a measure of the amount of work done during the production period?
Equivalent units of production
67
Equivalent Units of Production
The calculation of the amount of work actually done during a period in terms of units of output
68
What is the sum of direct labor and manufacturing overhead costs referred to in a process costing system?
Conversion costs
69
FIFO
All beginning WIP inventory is completed before new units are started
70
Equivalent Units of Production Calc
Beginning WIP inventory
+ started & completed inventory
+ Ending WIP inventory
71
What is the difference between equivalent number of units for direct materials and conversion costs?
direct materials are usually put into production at the BEGINNING of a process, while direct labor and manufacturing overhead are put in THROUGHOUT production.
72
Equivalent number of units calc for direct materials
Started & completed
+ 100% completed ending inventory
73
Is beginning inventory used in the equivalent number of units calc for direct materials?
NO
74
Equivalent number of units for conversion costs calculation
Beginning inventory
+ Started & completed
+ Ending inventory
75
Product costs per unit calc
Direct materials total costs / equivalent number of units
76
Which costs make up the work-in-process inventory costs in the processing centers?
Direct materials and conversion costs
77
Between actual inventory items and the costs of those items, which are transferred from WIP to finished goods inventory?
BOTH
78
How should the cost of the ending WIP inventory be calculated?
Material costs + conversion costs for unfinished units
79
Cost of Goods Transferred Out
the sum of the costs to make the finished goods in all processes, both in the current or prior period
80
Material costs for ending WIP inventory calc
materials cost per equivalent unit
x
material’s equivalent units in the ending work-in-process inventory
81
Conversion costs for ending WIP inventory calc
conversion cost per equivalent unit
x
conversion equivalent units in the ending work-in-process inventory
82
The conversion cost of ending work-in-process inventory is equal to what?
conversion cost per equivalent unit
x
conversion cost number of equivalent units
83
Ending WIP inventory calc
Cost per unit of direct materials
x equivalent units for materials
+ conversion costs per unit
x number of equivalent units for conversion costs
84
Traditional overhead allocation
Assigns overhead costs to products using one simple measure of activity
All overhead costs are added together
Ex. direct labor or machine activity
85
ABC (activity based costing) overhead allocation
Assigns overhead costs to products using multiple measures of activity
Each overhead cost is considered individually
86
What is important to consider when determining how to allocate overhead costs to a product or a production process?
Determining what factors are causing overhead costs to be incurred
87
Examples of Traditional overhead allocation
- tire shop
- installation of windows
88
Does activity based costing (ABC) consider manufacturing or non-manufacturing costs?
BOTH
89
What is different about allocating overhead costs using the activity-based costing method versus the traditional method?
Overhead is allocated based on a variety of activity measures when using activity-based costing.
90
When is a traditional costing system appropriate?
when products are the same or when the production process is of a similar nature across different types of products.
91
When is a activity based costing system appropriate?
When the nature of the production process differs substantially across different products.
92
Cost pool
Total costs being generated by a specific overhead cost activity
93
Cost driver
A numerical measure that reflects how much effort has gone into an activity
94
What is the first step for a company in implementing an ABC overhead allocation system?
Determine what activities are causing the miscellaneous costs associated with production
95
Does Activity Based Costing relate to labor, materials, or overhead?
OVERHEAD
96
Unit-level activities
overhead activities that are performed each time a UNIT is produced
Ex.
- Machine maintenance
- Machine depreciation
- Electricity
97
Batch-level activities
overhead activities that are performed each time a new production is started or ended
Ex.
- inspections
- Machine setups
- Movement and accounting of materials
98
Facility support activities
overhead activities that must be in place before any other production activities can take place
Ex.
- property taxes
- factory insurance
- security
- landscaping
- general accounting
- general factory administration
99
Product-line activities
overhead activates that are associated with the capability to produce different types of products
Ex.
- engineering product design
- storage in specific warehouse
- management by a special supervisor
- ordering, purchasing, and receiving materials unique to a specific product line
100
What are the 5 steps in activity based costing (ABC) ?
1. identify overhead activities
2. analyze individual overhead costs in terms of cost activities
3. identify measurable cost drivers
4. assign overhead
5. use ABC model to make decisiosn
101
Cost objects
a product or division for which costs are accumulated and tracked
102
Which is an advantage of using ABC overhead costing over traditional overhead costing?
ABC allocates manufacturing overhead more accurately to products and processes that use the various activities
103
How are facility support costs treated in an ABC system?
As common costs that are not assigned to any specific product, division, or product line.
104
Activity rate calculation
cost pool / number of cost driver events
105
CVP Analysis (Cost Volume Profit Analysis)
How much will profit or loss vary depending on the level of sales
106
Examples of CVP
1. How many customers will I need each month to cover rent
2. How will profits be affected if I raise my prices by 10%, resulting in a reduction of 2% in the number of products sold
107
Fixed costs
Costs that remain constant in total regardless of activity level
Ex. Property taxes (they may change each year, but they are not variable over the specific period)
108
Variable costs
Costs that change in total in direct proportion to changes in activity level
Ex. The cost of cheese in a pizza restaurant >> the more pizzas sold, the more cheese that's needed
109
Mixed costs
Costs that contain both variable and fixed cost components
Ex. Monthly rent minimum at a mall + an additional 4% of sales
110
Stepped costs
Costs that increase with the level of activity but in steps instead of smoothly
Ex. A kindergarten class can be taught by one teacher until the number of student overwhelms one person and a second teacher must be hired
111
Relevant range
the reasonable range of expected sales or production activity
Ex.
112
What is the purpose of using CVP analysis?
To study the interrelationships among revenues, costs, levels of activity, and profits
113
CVP (Cost Volume Profit) Calculation - SHORT
Sales revenue
- Variable costs
- Fixed costs
= Profit
114
CVP (Cost Volume Profit) Calculation - LONG
(Sales price x units)
- (variable costs x units)
- Fixed costs
= Profit
115
Contribution margin
How much of the selling price that you get to keep
116
Contribution margin calculation
sales revenue
- variable costs
117
Towards what is contribution margin contributing to?
Towards fixed costs
118
Per unit contribution margin calculation
per unit sales revenue
- per unit variable costs
119
Contribution margin ratio
the percentage of net sales revenue left after variable costs are deducted
120
Contribution margin ratio calcualtion
contribution margin / net sales revenue
121
Break even point
the volume of activity required at which total revenue equals total costs and profit is $0
122
In a CVP graph, what is represented by the vertical-axis intercept of the total cost line?
Total fixed cost
123
Sales mix
Proportion of sales revenue from each (multiple) products
124
Break even calculation
fixed costs
/ average contribution margin ratio
125
Margin of safety calculcation
Break-even point
- Expected sales
126
Operating leverage
the extent to which fixed costs replace variable costs
the higher the proportion of fixed costs to variable costs, the faster income increases or decreases w changes in sales volume
127
Degree of operating leverage calculation
Contribution margin ration / operating income
128
responsibility accounting
system of evaluating performance where managers are held responsible for costs, revenues, assets, etc. that they have control over
129
What are the 3 types of Responsibility centers ?
1. Cost center - dept supervisor >> controls incurred costs
2. Profit center - store manager >> controls revenues and costs
3. Investment center - company manager >> controls revenues, costs, and investments
130
Standard costs
the budgeted cost for the production of one unit
131
Cost variances
the comparison of standard costs to actual costs
132
Standard cost system
Cost-accumulation system in which standard costs are used as product costs instead of actual costs
Standard costs are adjusted to actual costs when the financial reports are created >> variances are reported to management
133
Cost variance calculation
actual costs - standard costs
134
management by exception
the strategy of focusing attention on significant deviations from standard costs or expectations
135
Materials price variance
the extent to which the standard price varies from the actual price for the quantity of materials purchased or used
136
Materials price variance calculation
(standard costs - actual costs) x quantity purchased
137
Materials quantity variance
the extent to which the actual quantity of materials varies from the standard quantity
138
Materials quantity variance calculation
(standard quantity - actual quantity) x standard price
139
Materials Price Variances JE
DR Direct materials inventory
CR cash / AP
CR materials price variance
140
Materials Quantity Variances JE
DR work-in progress inventory
DR materials quantity variance
CR direct materials inventory
141
Is the standard or actual cost used in Material variances JEs?
STANDARD
142
How is an UNFAVORABLE variance recorded in a JE? (expense)
AS A DEBIT
143
How is a FAVORABLE variance recorded in a JE? (revenue)
AS A CREDIT
144
Labor rate variance
the extent to which the standard labor rate varies from the actual labor rate
145
Labor rate variance calculation
(standard rate - actual rate) x qty labor used
146
Labor efficiency variance
the extent to which the actual labor used varies from the standard quantity
147
Labor efficiency variance calculation
(actual quantity - standard quantity) x standard rate
148
Where are small unfavorable variances closed to in the balance sheet?
To COGS to adjust to actual costs so inventory accounts on the balance sheet only include standard costs
149
Labor variances JE
DR work in process inventory
DR labor rate variance
CR labor efficiency variance
CR wages payable
150
Variable overhead spending variance
the actual amount spent on variable overhead minus the actual hours worked times the standard rate for variable overhead
151
Variable overhead efficiency variance calculation
(actual hours - standard hours) x standard rate per hour
152
variable manufacturing overhead efficiency variance
measures the efficiency of the underlying activity used to assign variable MO costs
153
Manufacturing Overhead Spending Variance Calculation
(actual activity level x standard overhead rate) - actual overhead costs
154
Manufacturing Overhead Efficiency Variance Calculation
(Standard level of activity allowed - actual activity level) × standard overhead rate
155
Which group is typically responsible for the materials price variance?
Purchasing department
156
What could cause a materials quantity variance?
Purchase of substandard or unsuitable materials
157
Which person or people should be directly responsible for a labor rate variance?
Production manager or hiring manager
158
Which variance should include an analysis of the indirect materials, indirect labor, utilities, and other miscellaneous manufacturing expenses when investigating why expenses are too high?
Materials price variance
159
Which individuals should be directly responsible for the manufacturing overhead efficiency variance?
The manager responsible for the control of direct labor hours or the activity by which manufacturing overhead is assigned to products
160
What does the master budget begin with?
Sales budget
161
What does the sales budget get split into?
production and selling/admin budgets
162
Sales budget
schedule of projected sales over the budgeted period - usually includes a measure of revenue earned and cash collected
163
Budgeted sales in units
information in the sales budget that feeds directly into the production budget from which direct materials and labor budgets were created
164
Budgeted sales in dollars calculation
Budgeted sales in units x unit sales price for each product in the next period
165
Unit sales price
the expected or average sakes price each product is expected to be sold for in the next budget cycle
166
Which should be considered when preparing a sales budget?
The percentage of sales that would be collected during the current month and the percentage of sales that would be collected during following months
167
Which is an advantage of budgeting for an individual or company?
Companies or individuals that budget will have fewer negative consequences and unplanned surprises than those who do not budget
168
Which budget is included in preparing the master budget?
Production budget
169
Budgeted production in units
budgeted number of units to be produced in a period taking sales volume and units in beginning inventory into consideration, and the number of units required to be in ending inventory
170
Which factor should be considered when preparing a production budget?
Desired amount of ending inventory
171
Variable MO expenses
expenses needed to produce a product that vary w the amount of levels of budgeted or actual production
172
Fixed MO expenses
expenses that do not vary w the amount of levels of budgeted or actual production
173
Direct materials budget
schedule of direct materials to be used during the budget period
174
MO budget
schedule of production costs other than those for direct labor or materials
175
Selling and Administrative expense budget
schedule of all nonproduction spending expected to occur during the budget period
176
Current Budget Calculation
(prior budget needs + ending inventory) - beginning inventory
177
Production Budget Calculation
(sales budget - ending finished goods) - beginning finished goods
178
Direct Materials Production Budget Calculation
production budget x direct materials per unit
179
Direct Materials Purchases Budget
(direct materials production budget + ending direct materials) beginning direct materials
180
Total cash collected from customers in the current period Calculation
(current period sales budget × current period cash collection rate) + cash collected from previous period's sales
181
Total cash payments to suppliers in the current period Calculation
(current period purchases × current period payment rate for purchases) + cash paid on previous period's purchases
182
What is important to add back when budgeting expenses?
depreciation expense and other noncash costs and expenses
183
What is the correct sequence of budgets in a manufacturing business?
Sales, production, direct labor
184
Budgeted Income Statement (AKA pro forma income statement)
projects the reported income for the coming period
185
What is the purpose of a pro forma income statement?
To report project operating income for the coming period
186
Which type of costs are used in calculating cost of goods sold for the pro forma income statement?
Direct materials cost in production
187
According to a company’s cash budget, when can management plan to repay the company’s loans?
When excess cash is available
188
How can a cash budget allow a manager to foresee potential problems and take timely action to correct them?
It identifies cash shortages in advance.
189
Which items would be included in a cash budget?
Cash receipts
cash disbursements
financing needs
minimum cash balance desired
190
Which item is the last item listed on a cash budget right before determining the ending cash balance?
Total financing inflows or outflows
191
Sunk costs
cost that has already been incurred or a future costs that cannot be avoided
192
Differential costs
future costs that change as a result of a decision
193
Opportunity costs
the benefits lost as a result of selecting one alternative course of action over another
194
Which costs are relevant to decisions?
Only differential costs and revenues
195
Are sunk costs ever relevant?
No - because they are either past costs or future costs that cannot be changed
196
Special order
an order that may be priced below the normal price to utilize excess capacity therefore contributing to company profits
197
Outsourcing is associated with which application of differential analysis?
Making or buying a product or service
198
Idle capacity
The part of the budgeted capacity within an organization that is unused
199
What are some situations where idle capacity may exist?
- manufacturer is selling products under it's own brand and to retails chains as the generic brand
- competitive bidding by contractors or manufacturers
- selling products in distressing situations to keep the business afloat
- establishing significant sales potential w a foreign entity
200
When should a company process a joint product further?
When incremental revenues are greater than incremental costs
201
Which factors are irrelevant when making additional processing decisions?
Joint costs that have been incurred up to the point of split-off
202
Joint manufacturing process
one input creates several outputs
203
Joint product costs
costs incurred before the point at which the different products are separated for further processing or immediate sale
204
Critical resource factor
the resource that limits operating capacity by its availability
205
206
