Schedule of Cost of Goods Manufactured Flashcards
(20 cards)
Why is understanding product or service cost important?
It helps businesses understand profitability and make better decisions.
What was management accounting previously called?
Cost accounting.
What are direct materials in cost accounting?
The raw materials that are directly used to make a product.
Example of direct materials in a burger?
Bun (10 cents), ketchup (5 cents), meat (70 cents), cheese (15 cents) – total $1.
What are direct labor costs?
The labor cost directly involved in producing a product.
How is direct labor cost calculated in the burger example?
6 minutes of a $15/hour wage
6/60 = 10%
$15 X 10%
= $1.50 direct labor.
What does DL stand for?
Direct Labor.
What does DM stand for?
Direct Materials.
What are indirect costs?
Costs that support production but cannot be traced directly to a specific product.
Examples of indirect costs?
Utilities, gas, rent, cleaning supplies, property tax.
What is manufacturing overhead (MOH)?
All indirect costs involved in the production process.
Why is MOH challenging to calculate?
Because it’s hard to assign specific overhead costs (e.g., lighting) to individual products.
What is a predetermined overhead rate?
An estimated rate used to apply overhead to products.
How is predetermined overhead rate calculated?
Estimated total overhead / estimated overhead driver (e.g., direct labor hours).
Common overhead drivers?
Direct labor hours, direct labor cost, machine hours.
How is overhead applied in the burger example?
$20,000 estimated overhead / 2,000 labor hours = $10/hour. Burger takes 6 min = $1 overhead.
Total cost of the burger in the example?
$1 (DM) + $1.50 (DL) + $1 (MOH) = $3.50.
Selling price vs. actual cost in the example?
Selling for $4.00, actual cost is $3.50, profit is $0.50.
Why might someone overestimate profit?
They forget to include labor and overhead costs.
What is the main challenge in costing?
Estimating and applying overhead accurately.
