Acct 230 Final

sensitivity analysis

"what-if analysis" - the study of the impact that changes in one (or more) parts of the model have on other parts of the model

desired profit equation

CVP analysis equations: (Revenues - Variable Costs - Fixed Costs = Desired Profit)

budget

a detailed plan for the future that is usually expressed in formal quantitative terms.

business process

a series of steps that are followed in order to carry out some task in a business. It is quite common for the linked set of steps comprising this process to span departmental boundaries.

comparison of costing

absorption vs. variable - difference in net income results solely from treatment of fixed overhead costs!

cost object

anything for which cost data are desired including products, customers, customer orders, etc.

constraint

anything that prevents you from getting more of what you want

mixed cost

cost that contains both variable and fixed cost elements, aka 'semi-variable costs'

DL Efficiency Variance

formula: (Standard Quantity Allowed - Actual Quantity Used) * Standard DL Rate per hour <or> SR(SH - AH)

traditional income statement

income statement format: Sales - COGS = Gross Margin - Operating Expense = Income

contribution margin income statement

income statement format: Sales - Variable Costs = Contribution Margin - Fixed Costs = Income

finished goods

inventory that has been completed in production but not yet sold

work in process

inventory that has been started in production but not yet completed

normal costing

type of manufacturing cost; assign actual Direct Materials used and Direct Labor to inventory, then allocate Overhead costs to inventory, based on estimates.

direct material costs

when raw materials (direct or indirect) are purchased: [Debit Raw Materials Inventory]. A 'materials requisition form' shows written authorization when materials are issued to production. When raw materials are used in production: DIRECT MATERIALS [Debit Work in Process Inventory], also record DM Used on Job Cost Record for the job. INDIRECT MATERIALS [Debit Manufacturing OH account]

absorption costing

(our coverage of Job Order and Process costing systems assumes this approach for external reporting.) a costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed overhead—as part of the cost of a product. This term is synonymous with full cost.

flow of product costs

- manufacturing costs are assigned to Work In Process Inventory - cost of completed jobs is transferred to Finished Goods Inventory - when units are sold, the cost is transferred to Cost of Goods Sold

fixed cost

a cost that remains constant, in total, regardless of changes in the level of activity. Examples include: straight-line depreciation, insurance, property taxes, rent, supervisory salaries, administrative salaries, and advertising

variable cost

a cost that varies, in total, in direct proportion to changes in the level of activity. Common examples of these costs include: cost of goods sold for a merchandising company, direct materials, direct labor, variable elements of manufacturing overhead - such as indirect materials, supplies, and power, and variable elements of selling and administrative expenses - such as commissions and shipping costs

budget

a detailed quantitative plan for the acquisition and use of financial and other resources over a given time period

equivalent units

a measure of the work done during the period, expressed in fully completed units; this allows accountant to calculate cost per unit when some units are partially completed. Example: 100 units that are 30% complete, 100*.30 = 30 EU. Note: most companies add DM at specified points and add DL and OH continuously. Therefore, may need a separate equivalent unit computation for DM, DL, and/or OH

financial statement analysis

application of analytical tools to general-purpose financial statements and related data for making business decisions, involves: horizontal, vertical, and ratio analysis. For meaningful analysis, common-size data and the ratios for a company should be compared with a standard - 1) past history of the company, 2) similar company, 3) industrial averages

expense

costs whose benefit has been used up; these are on the income statement

variable cost ratio

ratio: (Total Variable Cost / Total Sales) or (Variable Cost per Unit / Sales Price per Unit)

4 steps for implementing ABC

step 1 - define activities, cost pools, and activity measures; step 2 - assign overhead costs to activities (Stage 1 Allocation); step 3 - calculate activity rates (est. OH cost for the activity / est. cost driver for the activity); step 4 - assigned overhead costs to cost objects (Stage 2 Allocation)

managerial accounting

type of accounting concerned with providing information to managers for use within the organization. This type is not mandatory and it does not need to comply with externally imposed rules. These reports emphasize future decisions, relevance, timeliness, and segments.

sales mix

when a company sells more than one product, __ __ is the relative proportion in which each product is sold. Is important because some products are more profitable than others. For CVP analysis for two or more products, must consider sales mix in CVP calculations (to determine required sales for each product, multiply by % of sales contributed from each product)

benefits and limitations of ABC

1) benefits - provides a more accurate form of product costing, and has better control of overhead costs. 2) limitations - very expensive and still some arbitrary allocations involved. 3) factors that indicate using ABC may be cost effective - product lines differ greatly in volume and manufacturing complexity, and overhead costs constitute a significant portion of total costs (more machine, automation)

key differences between traditional and ABC costing

1) nonmanufacturing as well as manufacturing costs may be assigned to products (if a definite cause and effect exists), 2) some manufacturing costs may be excluded from product costs - those that are not caused by producing a product or providing a service, 3) ABC uses numerous overhead activity rates to assign overhead costs to products and services

other uses of ABC systems

1) use of ABC to determine the cost of serving customers - assign customer-related costs to specific customers or customer-types, examples of customer-related costs: sales calls, customer support, evaluating credit (all period costs). 2) use of ABC to determine the cost associated with suppliers - assign supplier-related costs to specific suppliers or supplier-types, examples of supplier-relate costs: warranty, reworks, expedited shipping (often due to defective parts)

budget benefits

1. Budgets communicate management's plans throughout the organization. 2. Budgets force managers to think about and plan for the future. In the absence of the necessity to prepare a budget, many managers would spend all of their time dealing with day-to-day emergencies. 3. The budgeting process provides a means of allocating resources to those parts of the organization where they can be used most effectively. 4. The budgeting process can uncover potential bottlenecks before they occur. 5. Budgets coordinate the activities of the entire organization by integrating the plans of its various parts. Budgeting helps to ensure that everyone in the organization is pulling in the same direction. 6. Budgets define goals and objectives that can serve as benchmarks for evaluating subsequent performance.

preparing a production cost report

6 steps for preparation: 1) account for the physical flow of units - show the number of units to be accounted for during a period, regardless or percentage of work performed (begin WIP units + units started = ending WIP units + units completed); 2) accumulate costs; 3) calculate equivalent units; 4) calculate cost per EU; 5) value inventories = (End WIP + units completed in the department); 6) cost reconciliation: flow of costs is similar to the flow of products (beginning costs + current costs = cost of end WIP + cost of units completed)

benefits of budgeting

: 1) communication of corporate goals and coordination of segments, 2) forces managers to plan for the future, 3) provides a means for allocating resources, 4) before the fact control - it creates an early warning system of potential problems so that management can make changes, 5) after the fact control - the budget provides definite objects for evaluating performance at each level of responsibility, 6) motivation tool for managers

process cost system

A cost accounting system used when a company manufactures a large volume of similar products - accumulate DM used, DL, and OH applied by department or process, used if have a continuous production process of similar products (mass production). Difficult to identify the specific inputs that go into producing one unit, examples: oil refineries, electronics, flour mill, paint. Consider information needs and cost benefits to determine which type of system to use (process is cheaper for labor costing)

contribution margin ratio approach

CVP analysis equations: (Sales $) = (Total Fixed Cost + Desired Profit) / (Contribution Margin Ratio). Used if no per unit information is available

contribution margin method

CVP analysis equations: (X units) = (Total Fixed Cost + Desired Profit) / (Contribution Margin/Unit)

static planning budget

The planning budget is prepared for the planned level of activity. It is static because it is not adjusted even if the level of activity subsequently changes. Actual results can differ from the budget for many reasons. Very broadly speaking, the differences are usually due to a change in the level of activity, changes in prices, and changes in how effectively resources are managed.

cash budget purpose

The principal purpose of the cash budget is NOT to see how much cash the company will have in the bank at the end of the year. Although this is one of the purposes of the cash budget, the principal purpose is to provide information on probable cash needs during the budget period, so that bank loans and other sources of financing can be anticipated and arranged well in advance.

flexible budget

a budget can be adjusted to reflect any level of activity—including the actual level of activity. By contrast, a static planning budget is prepared for a single level of activity and is not subsequently adjusted. The differences between the flexible budget and the actual results are the revenue and spending variances. These variances measure differences that are due to changes in prices and the effectiveness with which resources are managed.

job order cost system

a cost accounting system in which costs are assigned to each job or batch - accumulate DM used, DL, and OH applied by job (per unit or batch of units), is used if customizable orders or production of many highly differentiated products.

activity base

a measure of whatever causes the incurrence of a variable cost, aka "cost driver". Some of the most common are direct labor-hours, machine-hours, units produced, and units sold.

ROI

a performance evaluation measure used to evaluate the return (ie. income) generated by an investment center given the investment base (either assets or capital) the division had to work with.Return on investment = (net operating income) / (avg operating assets). Also ROI = Profit Margin (net op income / sales) * (sales / avg op assets) Asset Turnover.

Theory of Constraints

a specific approach used to identify and manage constraints in order to achieve the company's goals.

responsibility accounting

a system in which a manager is held responsible for those items of revenues and costs—and only those items—that the manager can control to a significant extent. Each line item in the budget is made the responsibility of a manager who is then held responsible for differences between budgeted and actual results.

cost of production report

an internal document for management; shows production quantity and cost data for a department; provides a basis for evaluating productivity and cost control for each department, setting prices, etc.

cost-volume-profit analysis

analysis is the study of the effects of change in costs and volume on a company's profits "what-if analysis". It is an important planning tool; also useful in setting selling prices, determining product mix, and maximizing use of production facilities. CVP analysis also considers the inherent interrelationships among the following: a) volume or level of activity, b) unit selling prices, c) variable cost per unit, d) total fixed costs, and e) sales mix

direct labor budget

and other budgets can be used to forecast workforce staffing needs. Careful planning can help a company avoid erratic hiring and laying off of employees.

planning and control

are different, although related, concepts. Planning involves developing goals and developing budgets to achieve those goals. Control, by contrast, involves the means by which management attempts to ensure that the goals set down at the planning stage are attained.

direct materials

are those materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product. This would include, for example, the seats that Airbus purchases from subcontractors to install in its commercial aircraft and the tiny electric motor Panasonic uses in its DVD players.

manufacturing overhead costs

assigning manufacturing OH costs to a specific job is difficult (it is an indirect cost); assign instead to products using an allocation process if "Normal Costing" is used. Use the Manufacturing OH account to keep track of 2 things: 1) Actual Overhead costs incurred and 2) Overhead costs assigned to inventory (also known as overhead applied). [Debit Manufacturing Overhead Control] when actual manufacturing overhead costs are incurred. [Credit Manufacturing Overhead Control] when OH is applied to production.

cost

cash value given up for goods or services that will provide a benefit.

ABC hierarchy of costs

classification into 4 activity levels facilitates the allocation of overhead cost to the appropriate activity cost pools: 1) unit-level activities: activities performed for each unit of production; 2) batch-level activities: activities performed for each batch of products processes, regardless of how many units are in the batch; 3) product-level activities: activities performed in support of an entire product line regardless of how many units are produced or how many batches are run; 4) facility-level activities: activities required to support the organization regardless of what products are produced or how many units are made

performance report

compares budgeted data to actual data in an effort to identify and learn from excellent performance and to identify and eliminate sources of unsatisfactory performance. Can be used as one of many inputs to help evaluate and reward employees

direct labor costs

consists of gross earnings of factory workers, employer payroll taxes on such earnings, and fringe benefits incurred by the employer. When Direct Labor is recorded: [Debit Work in Process Inventory], they worked to create an asset, so you record as an asset. Also record DL on Job Cost Record for specific job. When Indirect Labor is involved: [Debit Manufacturing OH account].

direct labor

consists of labor costs that can be easily (physically and conveniently) traced to individual units of product. Sometimes called 'touch labor' because these workers typically touch the product while it is being made. Examples of this labor include assembly-line workers at Toyota, carpenters at the home builder KB Home, and electricians who install equipment on aircraft at Bombardier Learjet

value chain

consists of the major business functions that add value to a company's products and services.

contribution margin ratio

contribution margin can be stated multiple ways; (Contribution Margin per Unit / Sales Price per Unit) or (Total Contribution Margin / Total Sales)

total contribution margin

contribution margin can be stated multiple ways; (Total Sales - Total Variable Costs)

contribution margin per unit

contribution margin can be stated multiple ways; (Unit Selling Price - Unit Variable Costs)

process cost system

cost system used when a large volume of similar products are manufactured, mass production items. Examples: food processing, oil refinery. Costs are accumulated by department for a specific time period (week, month, etc.); compute average cost per unit for each dept. Other examples: manufacturer of candy corn, and manufacturer of Valentine's Day Conversation Hearts.

job order cost system

cost system where costs are assigned to each 'job' or 'batch', measures costs for each job completed - not for set time periods. A job may be for a specific order of inventory: unit - house, aircraft; or a batch of units - 100 custom shirts or 40 McDonald's cash registers. Key features are: customization and highly differentiated product offerings. Avg cost per unit = (total product costs for the job)/(number of units in the job). Other examples: production of a Disney movie, and contractor for road construction

standard costs

costs that should be incurred under efficient operations, usually includes: quality standards and cost price standards. Used as a benchmark for measuring performance. The standard for each cost element is derived from a consideration of the standard price to be paid and the standard quantity to be used

discretionary fixed cost

costs that usually arise from annual decisions by management to spend on certain fixed cost items. Examples include: advertising, research, public relations, management development programs, and internships for students. These costs can be cut for short periods of time with minimal damage to the long-run goals of the organization

raw materials

direct and indirect materials that have been purchased but not yet used in production

VOH Efficiency Variance

formula: (Standard DLH Allowed - Actual DLH Quantity) * Standard VOH Rate <or> SR(SH - AH)

DM Usage Variance

formula: (Standard Quantity Allowed - Actual Quantity Used) * Standard Price <or> SP(SQ - AQ_used)

DL Rate Variance

formula: (Standard Rate per DLH - Actual Rate per DLH) * Actual Quantity of DL hours <or> AH(SR - AR)

VOH Rate Variance

formula: (Standard VOH Rate - Actual VOH Rate) * Actual DL hours <or> AH(SR - AR)

DM Price Variance

formula: (Standard price/unit - Actual price/unit) * Actual Quantity of DM purchased <or> AQ_purchased(SP - AP)

process inventory costing

if a distributor manufactures one product, and production consists of two processes: 1) molding - raw materials are molded and cooled, and 2) assembly - parts assembled and packaged. Raw materials move from one account to the next via journal entry

manufacturing costs

in general, the cost flow parallels the physical flow of the materials as they are converted into finished goods. Manufacturing companies separate their costs into three broad categories: direct materials, direct labor, and manufacturing overhead.

manufacturing overhead

includes all manufacturing costs except direct materials and direct labor. Such items as indirect materials, indirect labor (factory supervisors), maintenance and repairs on production equipment, and heat and light, property taxes, depreciation, and insurance on manufacturing facilities are included. Only those costs associated with operating the factory are included in manufacturing overhead

budgetary control

involves using budgets to increase the likelihood that all parts of an organization are working together to achieve the goals set down in the planning stage.

corporate social responsbility

is a concept whereby organizations consider the needs of all stakeholders when making decisions.

lean production

is a management approach that organizes resources such as people and machines around the flow of business process and that only produces units in response to customer orders. Often called just-in-time production

segment

is a part or activity of an organization about which managers would like cost, revenue, or profit data. Example include: product lines, customer groups, geographic territories, divisions, plants and departments.

operating leverage

is the degree to which a company's net income reacts to a change in sales; provides a measure of the company's earnings volatility. Is determined by relative use of fixed vs. variable costs (degree of __ __ = Total Contribution Margin / Net Income). Companies with high fixed costs relative to variable costs have high __ __. When a company's sales revenue is increasing, high leverage is good because it means that profits will increase leverage; however, when sales are declining, too much leverage will cause profits to decrease rapidly

spending variance

is the difference between how much a cost should have been, given the actual level of activity, and the actual amount of the cost. Like the revenue variance, the interpretation of a spending variance is straight-forward. A favorable spending variance occurs because the cost is lower than expected for the actual level of activity. An unfavorable spending variance occurs because the cost is higher than expected for the actual level of activity.

revenue variance

is the difference between how much the revenue should have been, given the actual level of activity, and the actual revenue for the period. A revenue variance is easy to interpret. A favorable revenue variance occurs because the revenue is greater than expected for the actual level of activity. An unfavorable revenue variance occurs because the revenue is less than expected for the actual level of activity

residual income

is the net operating income that an investment center earns above the minimum rate of return on its operating assets

target net income

is the profit objective for individual product line

cost structure

is the relative proportion of fixed versus variable costs that a company incurs - can have a significant effect on company profitability

conversion cost

is the sum of direct labor cost and manufacturing overhead, because these costs are incurred to convert materials into the finished product.

prime cost

is the sum of direct materials and direct labor cost

indirect labor

labors costs that cannot be physically traced to particular products, or that can be traced only at great costs and inconvenience. This type type of labor is treated as part of manufacturing overhead

strategy

management skill; a game plan that enables a company to attract customers by distinguishing itself from competitors.

enterprise risk management

management skill; a process used by a company to identify risks and develop responses to them that enable it to be reasonably assured of meeting its goals.

weighted average method

method for calculating cost/EU: calculate average cost/EU - average all costs (beginning and current) over all EU. Is the most widely used method

variable costing

method for income determination; accumulates only variable product costs with inventory - (WIP to FG to COGS). Assigning the following costs to inventory: DM used, DL, and variable OH applied. Fixed OH is expensed in the period incurred in full (treated as a period cost). Must still assign product costs to inventory; however, inventory evaluation is limited to variable product costs. Format is used for internal purposes only - it facilitates planning (CVP analysis), evaluation of segments, etc.

absorption costing

method for income determination; when all manufacturing costs are charged to, or absorbed by, the product - accumulate all product costs with inventory (WIP to FG to COGS). Assigning the following costs to inventory: DM used, DL, variable OH applied, and fixed OH applied. Format is required for external reporting (GAAP and IFRS), does not facilitate CVP analysis and other management decisions

cost per unit computation

must be computed for management decisions and for 'inventory valuation': costs must be allocated between - 1) cost of completed units, and 2) cost of ending work in process. Cost/unit = (DM used+DL+OH applied) / (units produced) - problem with the computation is at any point in time, some units are completed when others are partially completed; solution is to divide by 'equivalent units'

planning

one of three vital managerial activities; involves establishing goals and specifying how to achieve them. Often accompanied with a budget

controlling

one of three vital managerial activities; involves gathering, evaluating, and responding to feedback to ensure that the plan is being properly executed or modified as circumstances change.

decision making

one of three vital managerial activities; involves selecting a course of action from competing alternatives.

predetermined overhead rate

part of manufacturing overhead costs; when overhead is applied to production - [Credit Manufacturing Overhead Control], then assign to work in process and to specific jobs on an estimated basis using this rate: it's established at the beginning of the year, based on the relationship between estimated annual overhead costs and expected annual operating activity. The activity base chosen should drive overhead costs. Assigning overhead costs to inventory using Normal costing involves a 3 step process: 1) determine the rate (estimated cost / estimated activity), 2) overhead is applied to production, and 3) overhead is closed out at the end of the period

purchasing department manager

person who is primarily responsible for direct materials price variance

HR/Personnel/Department manager

person who is primarily responsible for the direct labor rate variance

production manager

person who is primarily responsible for: direct materials usage variance and direct labor efficiency variance

cost behavior

refers to how a cost reacts to changes in the level of activity

master budget

represents a summary of all of management's plans and goals for the future, and outlines the way in which these plans are to be accomplished. The master budget is composed of a number of smaller, specific budgets encompassing sales, production, raw materials, direct labor, manufacturing overhead, selling and administrative expenses, and inventories. The master budget usually also contains a budgeted income statement, budgeted balance sheet, and cash budget.

committed fixed cost

represents organizational investments with a multiyear planning horizon that can't be significantly reduced even for short periods of time without making fundamental changes. Examples include: investments in facilities and equipment, as well as real estate taxes, insurance expenses, and salaries of top management

system design differences

similarities between job order and process systems in the way production costs are recorded - accumulation of materials, labor and OH costs. Differences are in the methods of assigning the costs to individual units of inventory - in a process costing environment, materials, labor and MOH are added in multiple departments, must be recorded as work in process inventory in each manufacturing department which flow in sequence from one department to another. Therefore, must have a WIP account for each manufacturing department

leadership skills

skills and behaviors concerned with building teams and getting results through others, includes six skills: expertise in field of study, high integrity, effective organizational change, strong communication skills, capable of motivation and mentoring, and leaders must effectively manage team-based decision processes

indirect materials

small items of material such as glue and nails that may be an integral part of a finished product, but whose costs cannot be easily or conveniently traced to it. Are included as a part of manufacturing overhead

contribution margin

the amount of sales remaining after variable expenses have been deducted. CM = revenues - variable costs

CVP assumptions

the assumptions underlying this analysis - costs and revenues are linear throughout the relevant range; costs can be classified as either variable or fixed with reasonable accuracy; all units produced are sold; the sales mix will remain constant

margin of safety

the difference between actual or expected sales and breakeven sales. In sales $: (actual or expected sales - breakeven sales). In %: (margin of safety / actual or expected sales)

standard cost for DL

the direct labor rate generally includes employer payroll taxes and fringe benefits; the quantity standard should allow for rest periods, cleanup, machine setup and downtime. The MOH rate is based on a standard predetermined overhead rate.

standard cost for DM

the direct materials price per lb, gallon, yard, etc should include an amount for related costs such as receiving, storing, and handling and should be reduced by any discounts; the quantity standard should include allowances of unavoidable waste and normal spoilage

breakeven point

the level of sales where the company will realize no income and will suffer no loss (where revenues = total costs)

raw materials

the materials that go into the final product, include both direct and indirect materials

relevant range

the range of activity within which the assumption that cost behavior is strictly linear is reasonably valid. Outside of the range, a fixed cost may no longer be strictly fixed or a variable cost may not be strictly variable

cost structure

the relative proportion of each type of cost in an organization. For example, an organization might have many fixed costs but few variable or mixed costs. Alternatively, it might have many variable costs but few mixed costs

cost behavior analysis

the study of how specific costs respond to changes in the level of business activity. Analyzed to help plan cost allocation, facilitate planning, controlling, and decision making.

cost accounting

this type of accounting involves: the measuring, recording, and reporting of product costs. Accurate product costing is critical to a company's success. These unit product costs are used in financial statements, product prices, and product offerings

financial accounting

type of accounting concerned with reporting financial information to external parties, such as stockholders, creditors, and regulators. This type is mandatory for external reports and it needs to comply with rules, such as GAAP and the IFRS. These reports emphasize the financial consequences of past activities, objectivity, verifiability, precision, and company-wide reports.

period costs

type of cost; are all the selling and administrative expenses are treated as these costs. For example, sales commissions, advertising, executive salaries, public relations, and the rental costs of administrative office are all this type of cost. These costs are not included as part of the cost of either purchased or manufactured goods; instead, they are expensed on the income statement in the period in which they are incurred using the usual rules of accrual accounting.

administrative costs

type of cost; include all costs associated with the general management of an organization rather than with manufacturing or selling. Examples include: executive compensation, general accounting, secretarial, public relations, and similar costs involved in the overall, general administration of the organization as a whole.

product costs

type of cost; include all costs involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead (anything to do with the factory). In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead. These costs "attach" to units of product as the goods are purchased or manufactured, and they remain attached as the goods go into inventory awaiting sale.

selling costs

type of cost; include all costs that are incurred to secure customer orders and get the finished product to the customer. These costs are sometimes called order-getting and order-filling costs.

traditional costing systems

type of costing; a traditional costing system allocates overhead to products on the basis of predetermined plant-wide or department-wide OH rates. Based on the assumption that one activity base drives all OH costs, (isn't always true, 'cost distortion' occurs when product diversity exists). Direct labor may be the appropriate basis if a high correlation exists between direct labor and changes in the amount of OH costs incurred; machine hours may be the appropriate basis in a highly automated manufacturing environment

activity-based costing

type of costing; designed to provide managers with cost information for management decisions. Is usually a supplement to, rather than a replacement for, the company's traditional costing system. ABC allocates overhead in a two-stage process: 1) allocate OH costs to activities (or cost pools), 2) allocate costs from the activity cost pools to products (or other cost objects) using cost drivers (the activity that causes costs to be incurred). An activity is any event, action, transaction, or work sequence that incurs cost when producing a product or providing a service

contribution margin income statement

type of income statement which classifies costs as variable or fixed and computes a contribution margin, is the amount of sales remaining after variable expenses have been deducted (Sales - Variable Costs = CM - Fixed Costs = Income)

traditional income statement

type of income statement; (Sales - COGS = Gross Margin - Operating Expenses = Income)

segmented income statement

type of income statement; Sales - Variable Costs = Contribution Margin - Directed Fixed Costs = Segment Margin (most useful for evaluating segments) - Common Fixed Costs = Division Income

actual costing

type of manufacturing cost; assign actual Direct Materials used, then assign Direct Labor and Overhead to inventory. Problem: Overhead cost is indirect cost to inventory, therefore it has to be allocated at time of production (things such as oil, electricity, or the supervisor's time are too difficult to trace)

job cost sheet

used to record the costs related to a specific job on a daily basis - recording DM, DL, and OH costs; used to determine the total and unit costs of a completed job. Beginning costs + DM used + DL + OH applied = total cost

high-low method and total cost equation

uses the following formula and historical/projected information to calculate the variable and fixed components of a cost. Variable Cost per unit of activity = (High cost - Low cost) / (High activity - Low activity). Then use the total cost equation to determine total FC, Total Cost = (VC/Unit * # Units) + Total FC