Week 2 Flashcards
(20 cards)
Direct costs
Can be traced directly to a cost object (how much wood was used for a shelf)
Indirect costs
not traceable due to technological/economical infeasability (electricity used for specific task/product line)
Invertoriable costs (Product costs)
Costs used in the manufacturing of a product
Period costs
All costs other than COGS [sales commissions, CEO salary]
Overhead costs
All other Costs that are indirect
Prime costs
Direct materials + Direct labour (everything but MOH)
Conversion costs
Direct Labour + Manufacturing overhead costs (everything but direct materials)
Inventory types
Service companies: No inventory
Merchandising companies: Merchandise inventory
Manufacturing companies:
- Raw materials (direct materials)
-Work-in-process
-finished goods
types of Responsibility center
- Cost - [production, IT, HR]
- Revenue - [Sales]
- Profit - [Combined production and sales dept.]
- Investment - [Whole company division]
Investment & Profit better than Cost & Revenue centers
Bloomfield’s law of measure management
People being judged know exactly how they’re being measured. Those people have the power to cheat the system by either changing how things work or lying about the results. [Teaher makes exams easier to get students to rate them better]
Good performance measures include:
Goal congruence/alignment - the measure encourages your employees to do what you want them to do
Controllability - employees held accountable for things within their own control
4 methods for estimating costs
- Industrial engineering
-time consuming
-watching people may change their behavior - Conference method
- ask experts for the cost function,
-Fast, but experts arent always right - Account analysis method -
- Use accounting theory to classify costs (often qualitative) - Quantitative analysis
- Data driven, mathematical, works only with a relevant range
CVP formula
CVP = (p-v)*Q = π + F
- C - Total cost
- F = Fixed Cost
- v = Variable Cost per Unit (aka marginal cost)
- Q = Quantity of Units Produced
- p = Selling Price per Unit
- π = Operating Profit (before taxes)
Contribution margin per unit (CM/U) in CVP formula
(p-v)
- v = Variable Cost per Unit (aka marginal cost)
- p = Selling Price per Unit
Total contribution margin in CVM formula
Q*(p-v)
- v = Variable Cost per Unit (aka marginal cost)
- p = Selling Price per Unit
Breakeven formula in CVP
(p-v)*Q - F = 0
Breakeven quantity in CVP
Q(BE) = F/(p-v)
Target units in CVP formula (When you want specific profit)
Q*= (F+π) / (p-v)
Margin of safety (MOS) in CVP formula
MOS = Budgeted sales - Q(BE)
Tradeoff point (Point of indifference) - to find it we take such formula:
(pQ -v1Q - F1 = pQ-v2Q -F2)
Q = (F2-F1)/(v2-v1)
