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Flashcards in Planning & Management Deck (141)
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1

Define "direct costs."

Product costs that can be associated with specific units of production; comprised of direct material and direct labor costs.

2

Define "overhead allocation rate."

The rate used to apply overhead to production; calculated by dividing the estimated total overhead costs by estimated normal volume of the allocation base (direct labor hours, machine hours, raw material weight, etc.).

3

Describe the accounting treatment of over-applied or under-applied overhead (e.g., the difference between actual overhead and overhead applied to production).

If immaterial, simply charge to Cost Of Goods Sold (COGS); if material, prorate to Work In Process (WIP), Finished Good (FG), and COGS.

4

Define "product costs."

Cost that can be associated with making or acquiring goods for sale; product costs are held in inventory until the products are sold; also known as inventoriable costs.

5

List the three factors of production.

1. Direct Material; 2. Direct Labor; 3. Factory Overhead.

6

Define "applied overhead."

The estimated overhead charged to production: calculated by multiplying the overhead rate times the allocation base activity units (direct labor hours, machine hours, raw material weight, etc.).

7

Define "actual overhead."

The amounts actually paid for indirect costs (utilities, maintenance, supervision, etc.).

8

Define "prime costs."

Product costs that can be associated with specific units of production; comprised of direct material and direct labor costs; also known as direct costs.

9

Define "conversion costs."

Costs necessary to convert raw materials into a finished product: comprised of direct labor costs plus factory overhead costs.

10

Define "period costs."

Costs that cannot be matched with the production of specific revenues and so are expensed in the period incurred.

11

Define "indirect costs."

Manufacturing costs which cannot easily be traced to specific units; also known as manufacturing overhead.

12

Define "abnormal spoilage."

Unplanned but considered controllable, for example, spoilage due to natural disaster, carelessness, inefficiency, or accidents. Abnormal spoilage is separated and deducted as a period expense in the calculation of net income.

13

Describe the accounting treatment of proceeds from sale of scrap.

Sale proceeds are used to reduce overhead (and consequently, COGS), they are not reported as revenue.

14

Describe the accounting treatment of normal spoilage.

Included with other costs as an inventoriable product cost.

15

Define "normal spoilage."

Unavoidable as part of the manufacturing process. Normal spoilage is included with other costs as an inventoriable product cost.

16

Describe the differences between retail inventories and manufacturing inventories.

Retail = merchandising inventory; Manufacturing = raw materials, work-in-process and finished goods.

17

Describe the accounting treatment of costs of abnormal spoilage and scrap.

Separate costs and deduct as a period expense; do not include as part of product cost.

18

Define "fixed costs."

Costs that remain constant in total regardless of production volume.

19

Define "mixed costs."

Costs that have a fixed component and a variable component.

20

Define "variable costs."

Costs that vary in total in direct proportion to changes in production volume.

21

Define "step-variable costs."

Costs that remain constant in total over a small range of production levels, but vary with larger changes in production volume.

22

Define "relevant range."

(1) the range of activity for which the assumptions of cost behavior reasonably hold true; AND (2) the range of activity over which the company plans to operate.

23

What is usually the main reason for outsourcing?

Outsourcing is often used to lower cost and increase quality by utilizing a vendor's specialization.

24

What does process management do that activity-based costing (ABC) alone does not do?

Increase manager understanding of the cause-and-effect relationships involved between processes and the resources they consume, and promote the elimination of waste.

25

How is Business Process Reengineering (BPR) different from incrementally reducing non-value activities?

BPR often involves an extreme transformation by analyzing and making sweeping improvements to an entire process.

26

Define "shared services".

An arrangement where one part of an organization provides an essential business process where previously it had been provided by multiple parts of that same organization.

27

Describe the differences between off-shoring and outsourcing.

Outsourcing is always outside of the company (but may or may not be outside the country). Off-shoring is always outside of the country (but may or may not be outside the company).

28

Define "direct costing".

A product cost allocation method that assigns only variable manufacturing costs (i.e., direct material, direct labor, and variable manufacturing overhead) to products: fixed manufacturing overhead is written off as period expenses; not acceptable for external reporting.

29

Define "contribution margin".

Sales revenue minus variable costs: the amount of sales revenue available to cover fixed costs and generate a profit.

30

Define "absorption costing".

A product cost allocation method that assigns all manufacturing costs (i.e., direct material, direct labor, and both variable and fixed manufacturing overhead) to products; absorption costing is required for external reporting.