Cost Accounting Exam #1 (Ch. 1-3, 5, 6, 16)
Cost Accounting Information System
a cost management subsystem designed to assign costs to individual products & services & other objects as specified by management
FIFO Costing Method
a unit-costing method that excludes prior-period work & costs in computing current-period unit work & costs
Weighted Average Costing Method
a unit-costing method that merges prior-period work & costs with current-period work & costs
Traceability
the ability to assign a cost directly to a cost object in an economically feasible way using a causal relationship
Activity Capacity
the ability to perform activities or the number of times an activity can be performed
Practical Capacity
the efficient level of activity performance
Break-even (Units)
Fixed Costs/(Price - Unit Variable Cost)
Break-even (Sales)
Fixed Costs/Contribution Margin Ratio
Variable Cost
-changes in TOTAL -stays the same per unit
Predetermined Overhead Rates
-estimated overhead divided by the estimated level of production activity -used to assign overhead to production
Mixed Cost
-has both fixed & variable components -if total varies, divide by activity level & find if they're equal or different if different, they're mixed (fixed changes per unit) if same, they're variable (var. stays the same per unit)
Cost Management System
-identifies, collects, measures, classifies, & reports information that is useful to managers in costing (determining what something costs), planning, controlling, & decision making -not bound by externally imposed criteria; but bound by standards set by the company -requires deep understanding of a firm's cost structure
Fixed Cost
-stays the same in TOTAL -changes per unit
Financial Accounting Information System
-the branch of the accounting system that is concerned with the preparation of financial reports for users external to the organization -inputs/rules/conventions are specified by the SEC & FASB -outputs are balance sheets, income statements, & statement of cash flows for external users
Characteristics of an Activity-Based Cost Management System
-unit & non-unit based drivers -tracing intensive -broad, flexible product costing -focus on managing activities -detailed activity info -systemwide performance maximization -uses both financial & non-financial measures of performance
Characteristics of a Traditional Cost Management System
-unit based drivers -allocative intensive -narrow & rigid product costing -focus on managing costs -sparse activity info -maximization of individual unit performance -uses financial measures of performance
Basic Features of a Process-Costing System
1. homogeneous units pass through a series of similar processes 2. each unit in each process receives a similar dose of manufacturing costs 3. manufacturing costs are accumulated by a process for a given period of time 4. there is a work in process account for each process 5. manufacturing cost flows & the associated journal entries are generally similar to job-order costing 6. the departmental production report is the key document for tracking manufacturing activity & costs 7. unit costs are computed by dividing the departmental costs of the period by the output of the period
Job-Order Costing System
a cost accumulation method that accumulates manufacturing costs by job
Operational Control Information System
a cost management subsystem designed to provide accurate & timely feedback concerning the performance of managers & others relative to their planning & control of activities
Actual Cost System
a cost measurement system in which actual manufacturing costs are assigned to products
Normal Costing System
a cost measurement system in which the actual costs of direct materials & direct labor are assigned to production & a predetermined rate is used to assign overhead costs to production
Operation Costing
a costing system that uses job-order costing to assign materials costs & process costing to assign conversion costs
Accounting Information System
a system consisting of interrelated manual & computer parts that uses processes such as collecting, recording, summarizing, analyzing (using decision models), & managing data to provide output information to users
Inseparability
an attribute of services that means that production & consumption are inseparabale
Perishability
an attribute of services that means that they cannot be inventoried but must be consumed when performed
Cost Objects
any items such as products, departments, projects, activities, and so on, for which costs are measured & assigned
Allocation
assignment of indirect costs to cost objects (least accurate)
Contribution Margin Ratio
contribution margin divided by sales revenue
What is a disadvantage of assigning costs evenly over all cost objects?
costs may be distorted by consumption patterns of other cost objects
Unit-level Drivers
explain changes in cost as units produced change
Non-unit-level Drivers
explain the changes in cost as factors other than units change
Cost Drivers
factors that cause changes in resource usage, activity usage, costs, & revenues
Tangible Products
goods produced by converting raw materials through the use of labor & capital inputs such as plant, land, & machinery
Indirect Costs vs. Direct Costs
indirect - costs that cannot be traced to a cost object direct - costs that can be easily & accurately traced to a cost object
Relevant Costs vs. Irrelevant Costs
irrelevant - a cost that will not change the result of a management decision relevant - affect management decisions
Manufacturing vs. Non-Manufacturing Costs
manufacturing - DM, DL, mfg OVH non-manufacturing - "period" costs (selling + admin expenses)
Prime Costs vs. Conversion Costs
prime - DM + DL conversion - DL + OVH
Product Costs vs. Period Costs
product - costs associated with the manufacture of goods or the provision of services (MFG cost) period - costs such as marketing, & administrative costs that are expensed in the period in which they are incurred (non-MFG costs)
Heterogeneity
refers to the greater chances for variation in the performance of services than in the production of products
Intangibility
refers to the nonphysical nature of services as opposed to products
Contribution Margin
sales revenue minus total variable costs
Abnormal Spoilage
spoilage that exceeds the amount expected under normal efficient operating conditions
Normal Spoilage
spoilage that is expected with an efficient production process & that may require extra work to make the units saleable, or may result in the units being discarded
Just-in-Time Manufacturing
supplying a product that is needed, when it is needed, & in the quantity that is needed
Unused Capacity
the difference between the acquired activity capacity & the actual activity usage
Break-Even Point
the point where total sales revenue equals total costs (i.e., the point of zero profits)
Direct Tracing
the process of identifying costs that are specifically or physically associated with a cost object (most precise)
Cost Accounting
the recording of all the costs incurred in a business in a way that can be used to improve its management
Value Chain
the set of activities required to design, develop, produce, market, distribute, & service a product (the product can be a service)
Driver Tracing
the use of drivers to assign costs to cost objects (precision depends on the strength of the causal relationship described by the driver)
Cost Behavior
the way in which a cost changes in relation to changes in activity usage