| Terms |
Definitions |
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prime cost
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=DL+DM
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Manufacturing Overhead
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includes
-indirect labor
-indirect materials
-depreciation
-insurance
-utilities
-etc. related to factory production
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Sales vol/units
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FC+Desired profit/CM per unit
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Decision Making
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One of management's primary responsibilities; identifying possible courses of action and choosing among them.
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Predetermined OH rate
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estimated total manufacturing cost/estimated total units in allocation base
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managerial accounting
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no rules, flexible, forward-looking, segmented information
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continuous improvement
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The constant effort to eliminate waste, reduce response time, simplify the design of both products and processes, and improve quality and customer service.
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control activities
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activities that detect or prevent defects
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sales mix
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is the relative combination of products being sold by the firm
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scattergraph method
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draw visual fit lineslope: est. VC/unity-int: FC
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ideal standards
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are developed under the assumption that nothing will go wrong. some managers feel this makes employees strive for perfection.
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Selection of a Forecasting Method
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method effectiveness
costs incurred
frequency, turnaround, complexity, purpose
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job costing
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a system for assigning costs to products or services that differ in the amount of materials, labor, and overhead required. typically used by manufacturers that produce unique, or custom-ordered products in small batches; also used by professional service firms
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quality of performance
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how the product meets its specifications
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sales budget
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A schedule that shows the expected sales of services or goods during a budget period, expressed in both monetary terms and units.
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Manufacturing Company
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takes raw materials and produces new products
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conversion cost
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Direct labot cost + Manufacturing overhead cost
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Period Costs
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Costs the become expenses during the current period without going through an inventory stage
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applied overhead
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Pre-determined Rate x Actual Use of Cost Driver
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first step allocation
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assigning remaining costs to activity pools
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Institute of Management Accounts (IMA)
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The professional organization that promotes the advancement of the management accounting profession.
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discounted cash flows
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future cash flows expressed in terms of their present value`
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two-dimensional abc model
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A combination of the cost assignment view of the role of activity-based costing with its process analysis and evaluation role. Two-dimensional ABC is one way of depicting activity-based management.
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cost driver
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is a casual factor that measures the output of the activity that causes costs to change
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differentioal cost
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a difference in cost inbtween any two alternatives
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standard quantity allowed
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the amount of materials that should have been used to complete the period's actual output. it is computed by multiplying the actual number of units produced by the standard quantity per unit.
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labor efficiency variance
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a measure of the difference between the actual hours taken to complete a task and the standard hours allowed, multiplied by the standard hourly labor rate.
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Break Even Equations
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*Sales–Total VC –Total FC = 0
*Sales – Total VC = Total FC
*Contrib. Margin = Total FC
*Contribution Margin per Unit times Volume = Total Fixed Costs
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Market price
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the price charged for an item on the open market
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budgeted statement of cash flows
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A budget schedule providing information about the expected sources and uses of cash for operating activities, investing activities, and financing activities during a particular period of time.
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What kinds of production costs are included in a job cost sheet?
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All production costs:
Direct materials
Direct labor
Manufacturing Overhead
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Differences between managerial and financial accounting:regulation
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none vs. SEC, FASB, and GAAP
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enterprise resource planning systems (ERP)
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systems used to collect, organize, report, and distribute organizational data and transform that data into critical information and knowledge
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Schedule of cost of goods manufactured
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A schedule showing the direct materials, direct labor, and manufacturing overhead costs incurred during a period and the portion of those costs that are assigned to Work in Process and Finished Goods.
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What are the three tools of analysis in accounting? What do they signify?
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horiontal--evaluates data over a period of time
vertical--expresses each item as a percentage of a base amount (common-size)
ratio--expresses the relationship among data.
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a process used by a company to help identify the risks that if faces and to develop responses to those risks that enable the company to be reasonably assured of meeting its goals.
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enterprise risk management
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How does the weighted average method spread out costs?
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Beginning inventory cost + Current manufacturing cost
Units completed + Units in ending inventory
...on average basis
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Percentage of GP to sales =
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= (Gross profit / Net sales) × 100
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Define the reponsibilities of a Cost Center Manager
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As the name implies, a Cost Center Manager has control over spending -- none over revenues or the use of investment center
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Payout Ratio
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dividends/net income
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target profit
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= FC+P / CMR
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value/non-value
idle time of employees between work processes
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value added
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Prime Costs
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Direct materials and direct labor
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Lease expense on factory equipment
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manufacturing cost
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just-in-time manufacturing
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-Product made “just-in-time” to meet customer demand
-Carry little or no inventory of materials or finished goods
-Production generally completed in one area or “manufacturing cell”
-Reduce non-value added activities and costs – costs that do not provide more value for the customer
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Direct labor
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the people who made the product
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double loop feedback
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occurs when managers receive information about effectiveness and validity
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merchandising company
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sell products someone else has manufactured
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Cost Allocation
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Assigning indirect costs to cost objects using plausible and reliable cost drivers
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Controlling
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Ensuring that the plan is actually carried out and is appropriatly modified as circumstances change.
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GAAP Objective Evidence
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keep invoices, cancelled checks, purchase orders, etc
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raw materials
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inventory that hasn't been worked on yet
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Time ticket
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A detailed source document that is used to record the amount of time an employee spends on various activities.
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Mutually exclusive projects
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if accepted, preclude the acceptance of all other competing projects
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Information asymmetry
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the concept that the manager generally has more information about the true financial position and results of operations of the entity than the absentee owner does.
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Contribution margin =
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= Sales - Variable expenses (manufacturing and nonmanufacturing)
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Price Earnings Ratio
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market price of stock/earnings per share
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Managerial Effort
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Exertion toward a goal or objective including all conscious actions (such as supervising, planning, and thinking) that result in more efficiency and effectiveness
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material quantity variance
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the difference between the actual quantity of material used and the standard quantity of material allowed for the number of units produced times the standard price
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Operation Costing
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used in situations where products have some common characteristics and also some individual characteristics (both job-order and process costing)
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cost accounting system
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Part of the basic accounting system that accumulates cost for use in both managerial and financial accounting.
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Activity-based costing (ABC)
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A method of allocating overhead based on each product's use of activities in making the product
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life cycle cost management
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focuses on managing value chain activities so that long term competitive advantage is created
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computer integrated system
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The most advanced form of automated manufacturing, in which virtually all parts of the production process are accomplished by computer-controlled machines and automated material-handling equipment.
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Indirect costs
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attached to the product but cannot be conveniently traced to each separate product
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Return on common stockholders equity
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net income/average common stockholders equity
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Net Present Value (NPV)
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Difference between the present value of cash inflows and outflows associated with a project.
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manufacturing overhead budget
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a detailed plan showing the production costs, other than direct materials and direct labor, that will be incurred over a specified time period.
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Four Types of Quality Costs
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1. prevention costs
2. appraisal costs
3. internal failure costs
4. external failure costs
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Sarbanes-Oxley Act of 2002 (SOX)
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A congressional act that enhances internal control and financial reporting requirements and establishes new regulatory requirements for publicly traded companies and their independent auditors.
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direct fixed expenses
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are those fixed costs that can be traced to each segment and would be avoided if the segment did not exist
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What is the journal entry for applying manufacturing overhead to products?
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Work-In-Process Inventory xx
--------Manufacturing Overhead xx
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manufacturing cycle efficiency (MCE)
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process (value added) time as a percentage of throughput time.
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steps in ABC costing?
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1. assigns costs based on activities that drive costs rather than units of production
2. activities are procedures or processes causing work to be accomplished
3. activities consume resources (costs) of an organization
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factor of the internal rate of return
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(investment required)/(net annual cash inflow)
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cost of goods sold equation
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sales in units * cost per unit
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Limitations of the Balance Sheet
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Current values are not reflected, some elements not shown, shows status for only one moment in time, some amounts are estimated
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Average Cost Per Unit Equation:
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Cost of goods manufactured / Number of Units Produced
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How does COGS change in an under vs. overapplied overhead scenario?
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Under --> increase COGS
Over --> decrease COGS
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How is applied overhead for each cost object calculated?
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activity rate for each activity x amount of activity used ( by the cost object)
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