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.