Cost Accounting Exam 1
Activity Base
(also called a cost driver) is a measure of what causes the incurrence of variable costs
reciprocal method of allocating service department costs
Appropriate for use when service departments provide services to each other
direct method of allocating service department costs
Cost of services between service departments are ignored and all costs are allocated directly to production departments.
Fixed Costs
Costs that do not change for changes in activity that fall within the "relevant range."
conversion costs
Direct labor and manufacturing overhead may be combined into one classification of product cost called:
number of partially competed units x percentage of completion with respect to a particular cost
Equivalent Units formula
units transferred to the next department (or finished goods) + plus the equivalent units in the department's ending work in process inventory
Equivalent units of production formula
Manufacturing Overhead
Manufacturing costs that cannot be easily traced directly to specific units produced. Examples: Indirect materials and indirect labor
Transferred-in costs
Material, labor, and overhead costs transferred from one department's Work in Process account to another department's Work in Process account
Indirect Materials
Materials used to support the production process.
estimated total manufacturing overhead cost for the period divided by the estimated total amount of the allocation base for the period
PODR
Direct Materials
Raw materials that become an integral part of the product and that can be conveniently traced directly to it.
step method of allocating service department costs
Service department costs are allocated to other service departments and to production departments, usually starting with the service department that provides the greatest amount of service to other departments.
Discretionary Fixed Costs
These fixed costs may be altered in the short-term by current management decisions.
Direct Labor
Those labor costs that can be easily traced to individual units of product.
Indirect labor
Wages paid to employees who are not directly involved in production work.
mixed cost equation
Y = a + bX Y = total mixed cost a = fixed cost b = variable cost X = activity level
allocation base
a costing method that includes all manufacturing costs in the cost of a product
job-order costing
a costing system used in situations where many different products, jobs, or services are produced each period
overapplied overhead
a credit balance in the manufacturing overhead account that occurs when the amount of overhead cost applied to work in process exceeds the amount of overhead cost actually incurred during a period
underapplied overhead
a debit balance in the manufacturing overhead account that occurs when the amount of overhead cost actually incurred exceeds the amount of overhead cost applied to work in process during a period
job cost sheet
a form that records the materials, labor, and manufacturing overhead costs charged to a job
R-squared
a measure of the "goodness of fit."
least squares regression method
a more accurate approach to isolating the fixed and variable portion of a mixed cost. This method uses all of the data points to estimate the fixed and variable cost components of a mixed cost.
FIFO method
a process costing method in which equivalent units and unit costs relate only to work done during the current period
weighted average method
a process costing method that blends together units and costs from both the current and prior periods
predetermined overhead rate
a rate used to charge manufacturing overhead cost to jobs that is established in advance for each period.
Contribution Formal Income Statement
allocates costs based on cost behavior. Primarily for management purposes and is used as an internal planning and decision-making tool
processing department
an organizational unit where work is performed on a product and where materials, labor, or overhead costs are added to the product
activity
any discrete task undertaken to make or deliver a good or service . Examples: setting up machines, making sales calls, providing customer service, loading delivery trucks, preparing hamburgers in cafeteria, etc.
raw materials
any materials that go into the final product
Cost Object
anything for which cost data are desired including products, customers, jobs, organizational subunits, etc
Committed Fixed Costs
are long-term fixed costs that cannot be significantly reduced in the short term
equivalent units of production
are the product of the number of partially completed units and the percentage completion of those units.
mixed cost
contains both variable and fixed elements
Variable Cost
cost varies, in total, in direct proportion to changes in the level of activity
Direct Costs
costs that can be easily and conveniently traced to a specified cost object
Indirect Costs
costs that cannot be easily and conveniently traced to a specified cost object
Selling Costs
include all costs necessary to secure customer orders and get the finished product into the hands of the customer
Administrative Costs
include all executive, organizational, and clerical costs associated with the general management of an organization
Period Costs
include all selling costs and administrative costs
Product Costs
include all the costs that are involved in acquiring or making a product. More specifically, it includes direct materials, direct labor, and manufacturing overhead.
Common costs
indirect costs incurred to support a number of cost objects
Conversion Cost
is the sum of direct labor cost and manufacturing overhead cost
Traditional Format Income Statement
organizes costs in a functional format. Costs relating to production, administration, and sales are grouped together without regard to their cost behavior. Primarily for external reporting
interdepartmental or reciprocal services
services provided between service departments
cost driver
some characteristic of the activity that causes costs to be incurred. Examples: number of sales calls per day, minutes of customer service phone calls, hours worked by factory employees, # of buns used, etc.
cost of goods manufactured
the manufacturing costs associated with the goods that were finished during the period
Equivalent Units
the number of complete whole units that could be obtained from the materials and effort contained in partially completed units
break-even point
the point in the volume of activity at which the organization's revenues and expenses are equal.
overhead application
the process of charging manufacturing overhead cost to job cost sheets and to the work in process account
relevant range
the range of activity within which the assumption that cost behavior is strictly linear is reasonably valid
Prime Cost
the sum of direct materials cost and direct labor cost
work in process
units of product that are only partially complete and will require further work before they are ready for sale
finished goods
units of product that have been completed but not yet sold to customers
Process Costing
used when a single product is produced on a continuing basis or for a long period of time
Job-Order Costing
used when many different jobs having different production requirements are worked on each period.