BEC cost accounting Flashcards

Terms Definitions
Why is important to measure costs?
To be able to allocate costs of production to units so you can price them and so that you can do variance analysis to understand what is going wrong (or what is right, so you can reward it)
What is the "flexible budget equation"?
Total costs = Fixed Costs + Per-Unit-Variable Cost x # Units
In the term y = mx+B, name & define each component in the flexible budget equation.
y is total costs, m is the variable costs, x is VOLUME, AKA COST DRIVER, b is the intercept = basic fixed costs.
What is the high low method of determining slope?
Use two points, e.g., 15K units/$75K, 0 units/$15K. Subtract each comparable unit (15-0 = 15), (75-15 = $60), then divide $60/15 = $4/unit, slope is 4.
What is another name for product vs period costs?
product costs are manufacturing costs, nonmanufacturing costs are period costs.
What is the goal of cost accounting?
To be able to accumulate costs so we can put a value on inventories & COGS
What are the three basic manufacturing costs?
Direct Materials, Direct Labor, Manufacturing Overhead
What are components of MOH?
indirect materials, indirect labor, other overhead
What are prime costs?
DM + DL
What are conversion costs?
DL + MOH (cost to convert the raw materials into finished goods)
What is SGA and what type of cost is it?
Selling General & Administrative costs; is a period (non-manufacturing) cost
What are 3 types of cost systems
actual, standard, normal
What is the "normal cost" system?
Use actual DM + DL (b/c these are easy to measure), but standard costing for MOH because it is not directly measured
What is the predetermined overhead rate?
A rate used to apply MOH costs to products; = Estimated OH costs divided by Estimated cost base (often DL hours); note it is based entirely on estimates
What is the 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.)
How do you allocate overhead costs over the manufacturing cycle?
First you allocate an applied overhead rate to WIP. At the end of the period, you find out actual OH costs, then you determine whether your allocate was over- or underapplied and you make an adjustment to COGS
How is COGS calculated for a *merchandising firm*?
Beg Inventory + new purchases = CGAS, subtract out End Inv = COGS
What are the three sets of calculations you need to calculate COGS for a Mf firm?
Raw Materials Inventory, WIP inventory, FG inventory, then compare to actual and make adjustment
How do you calcuate the amount of materials used in a period?
Beg RM mat + purchases = Cost of RM avail, less End RM mat = Cost of materials used
How do you calculate the Cost of Goods Manufactured?
Beg WIP Inventory + Raw Materials (f/calc) + DL + applied MOH = WIP available, less ending WIP = cost of goods manufactured
How do you calculate COGS in a manufacturing environment?
Last of 3 steps--first calc raw mat and WIP inventories. Beg FG inventory + cost of goods manufactured less End FG inventory = COGS (based on applied), then compare actual to estimated cost and adjust COGS
What are other names for absorption costing?
Full costing; GAAP. Fixed OH costs are "absorbed" into the product costs.
What other other names for CM costing?
Direct costing, variable costing, internal method. Fixed mf are expensed at the end of the period whether they are used or not b/c they are sunk costs
What is the contribution margin? What does it measure?
Sales - variable costs = CM. This looks at how much the remaining costs can contribute to covering fixed costs and generating profit.
What is the skeleton of a CM income statement?
Sales - variable COGS - variable SGA = CM; CM - fixed mf costs - fixed SGA = op income before tases
What are the numbers that will differ between an absorption and a contribution margin statement?
Fixed COGS in the absorption statement will include ONLY fixed overhead for those goods that have actually been sold. Fixed Mf costs in the CM statement will include ALL fixed mf costs whether the goods have been sold or not. The key is the inclusion of fixed overhead--yes for absorption costing, no for variable costing
What are normal and abnormal spoilage and how are they treated in costing?
Normal spoilage is the scrap left over after using a material; you include the cost in production costs. Abnormal spoilage is loss of inventory through accident or deterioration and is treated as a period cost.
Suppose you sell your scrap material--how is this treated in your costing?
Sale proceeds are used to reduce overhead (and consequently, COGS), they are not reported as revenue.
How do you treat over- or under-applied overhead?
If immaterial, simply charge to COGS; if material, prorate to WIP, FG, and COGS.
How is applied overhead calculated?
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.)
Where is the key difference between variable and absorption costing located?
In their treatment of fixed MOH. Absorption costing absorbs it into the product as product cost, variable costing treats it as a period cost.
What is the skeleton of a CM income statement?
Sales price - Variable Costs = Contribution Margin - Fixed Costs = Op Income
How do you figure the breakeven point in dollars?
Remember that at breakeven, Fixed Costs = Contribution Margin. FC in $/CM% (dollars over non-dollars) gives you breakeven in dollars
How do you figure breakeven in units
FC in DOLLARS/CM per unit in DOLLARS = units
How do you calculate the CM ratio?
CM/SP
How do you calculate a targeted profit?
Sales in Units = Fixed Costs + Targeted Profit /Contribution Margin per Unit
What is the margin of safety and how do you calculate it?
Margin of safety is your amount above breakeven..difference between budgeted or actual sales (in units or in dollars) and breakeven sales (in units or in dollars). When BE incr, MoS decr
review the charts in the breakeven analysis chapter
on CPA Excel
Biggest difference absorption & direct costing
treatment of FMOH. Variable expenses it all in the period, Absorption holds it in inventory until good is sold.
PSA mnemonic?
If Production is > Sales, profit is greater under Absorption. (if production is
How to calculate the difference in operatingincome under direct & absorption costing?
difference = FMOH per unit x # units in inventory
How do inventory values compare in direct vs absorption costing?
Will ALWAYS be less in direct costing because you are not including fixed costs (esp FMOH) in the value of inventory but instead are expensing it immediately.
How figure out a predetermined overhead rate?
estimated total overhead costs divded by estimated normal activity volume
How figure out a predetermined overhead rate?
estimated total overhead costs divded by estimated normal activity volume NOTE use currently accessible REALISTIC stds, not historical or ideals!
applied overhead,-what is, how calculate, JEs?
Applied Overhead: the amount of estimated overhead charged to production. Applied overhead is calculated by multiplying the predetermined overhead rate times the actual number of activity units used in production (direct labor hours, machine hours, etc).1. Applied overhead is included in the cost of work in process by the following entry: DR Work in Process XXX CR Factory Overhead Applied XXX
What account do you charge ACTUAL overhead to? JE?
These costs are initially charged to the specific expense account (i.e. supplies inventory, utilities, maintenance, supervision, etc.) and to the Factory Overhead Control account. For example: DR Factory Overhead Control Utilities Expense XXX CR Accounts Payable XXX .THEN close out by DR factory overhead APPLIEd, CR factory overhead CONTROL
How close out factory control overhead account at end of year? what do you do if the adjustments are immaterial? if material?
. Usually there are differences between the amount of applied overhead and the amount of actual overhead. Immaterial differences between the two amounts are usually allocated to Cost of Goods Sold. If the difference is material, it should be prorated to Work in Process, Finished Goods, and Cost of Goods Sold based on their respective ending balances
Set of JEs for putting predet OH into WIP, paying bills, making adjustment to OH amt?
1. Put FOH applied into WIP:DR WIP, CR FOH Applied2. Pay actual bills: DR FOH CONTROL = ACTUAL; CR A/P3. Adjust: CR FOH Applied, DR FOH Control = Actual, COGS will be difference and can be a DR or a CR depending on whether you were over or underapplied
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