Managerial Accounting
Spending variance
The difference between how much a cost should have been, given the actual level of activity, and the actual amount of the cost. A favorable (unfavorable) spending variance occurs because the cost is lower (higher) than expected, given the actual level of activity for the period.
Revenue variance
The difference between how much the revenue should have been, given the actual level of activity, and the actual revenue for the period. A favorable (unfavorable) revenue variance occurs because the revenue is higher (lower) than expected, given the actual level of activity for the period.
Casual Factors
activities or variables that invoke service costs. Gernerally it is desireable to use casual factores as the basis for allocating service costs
Failure Activities
activities performed by an organization or its customers in response to poor quality
Unit-Level Activities
activities that are performed each time a unit is produced
Environmental External Failure Costs
costs incurrred after contaminants are introduced into the environment
Nonvalue Added Costs
costs that are caused either by nonvalue added activities or by the inefficient performance of value added activities
Environmental Costs
costs that are incurred because poor environmental performance
Return on investment (ROI)
ROI = Net operating income / Average operating assets
Residual Income
Residual Income = Net Operating Income - (Average operating assets x Minimum required rate of return)
Activity variance
The difference between a revenue or cost item in the static planning budget and the same item in the flexible budget. An activity variance is due solely to the difference between the level of activity assumed in the planning budget and the actual level of activity used in the flexible budget.
Common Costs
the costs of resources used in the output of two or mroe services or products
Overhead Variance
the difference between actual overhead and applied overhead
Driver Analysis
the effort expended to identify those factors that are the root causes of activity costs
Cycle Time
the length of time required to produce one unit of a product
Activity Output Measure
the number of times an activity is performed. it is the quantifiable measure of the output
Velocity
the number of units that can be produced in a given period of time
Activity Selection
the process of choosing among sets of activities caused by competing strategies
After job 4260, costing of $200,000 in total and consisting of 1,000 units, was finished, 600 of the units were sold. How much cost should be transferred to Cost of Goods Sold?
$120,000
List the items from the Income statement in the order in which they should appear.
1. Sales 2. Cost of goods sold 3. Gross margin 4. Selling and Administrative Expenses 5. Net operating income
What are the steps from the schedule of cost of goods manufactured in the order in which they appear?
1. Total manufacturing costs 2. Add: Beginning Work in process inventory 3. Deduct: Ending Work in process inventory 4. Cost of goods manufactured
An ideal allocation base should be:
A Cost Driver
Planning budget
A budget created at the beginning of the budgeting period that is valid only for the planned level of activity.
Standard cost card
A detailed listing of the standard amounts of inputs and their costs that are required to produce one unit of a specific product.
Management by exception
A management system in which standards are set for various activities, with actual results compared to these standards. Significant deviations from standards are flagged as exceptions.
Flexible budget
A report showing estimates of what revenues and costs should have been, given the actual level of activity for the period.
Actual manufacturing overhead is entered on what side of the Manufacturing overhead account?
Always the debit side
Calculate Cost of Direct Materials
Cost of Direct Materials = Beg. Inv. + Purchases - IDM - Ending Inv.
What costs can be directly traced to a particular product?
Direct labor, Direct materials
What is the formula for Predetermined Overhead Rate?
Estimated manufacturing overhead cost divided by estimated allocation base
A journal entry that debits Manufacturing Overhead and credits Prepaid insurance records the:
Expiration of prepaid factory insurance
When a job is completed, its costs are transferred into:
Finished Goods
The document that records materials, labor, and manufacturing overhead costs are charged to a job is the:
Job cost sheet
Labor efficiency variance
Labor efficiency variance = (Actual hours x Standard rate) - (Standard hours allowed for actual output x Standard rate) or Labor efficiency variance = (AH - SH) x SR
Labor rate variance
Labor rate variance = (Actual hours x Actual rate) - (Actual hours x Standard rate) or Labor rate variance = AH ( AR - SR)
Margin
Margin = Net Operating Income / Sales
Materials quantity variance
Materials quantity variance = (Actual quantity used x Standard price) - (Standard quantity allowed for actual output x Standard price) or Materials quantity varicance = (AQ-SQ) x SP
ROI
ROI = Margin x Turnover
A journal entry that debits Manufacturing Overhead and credits Property taxes payable would record the:
Recognition of accrued property taxes
Standard quantity per unit
The amount of an input that should be required to complete a single unit of product, including allowances for normal waste, spoilage, rejects, and other normal inefficiencies.
Standard price per unit
The standard quantity allowed of an input per unit of a specific product, multiplied by the standard price of the input.
Calculate Total Cost of a Job
Total Cost of a job = DM + DL + POR x AMH
Turnover
Turnover = Sales / Average operating assets
Support Departments
Units within an organization that provide essential support services for producing departments
When a job is completed, what account is credited?
Work in Progress
What accounts are debited in the journal entry to record issuing both direct and indirect materials to be used in production?
Work in process and manufacturing overhead
Activity Based Costing
a cost assignment approach that first uses direct and driver tracing to assign costs to activities and then uses drivers to assign cost to cost objects
Job Order Costing System
a costing system in which costs are collected and assigned to units of production for each individual job
Direct Method
a method that allocates service costs directly to producing departments. This method ignores any interactions that may exist amon support departments
Sequential Method
a method that allocates service costs to user departments in a sequential matter. It gives partial consideration to interactions among support departments
Reciprocal Method
a method that simutaneously allocates service costs to all user departments. It gives full consideration to interactions among support departments
Job Order Cost Sheet
a subsidary account to the work-in-progress account on which the total costs of materials, labor, and overhead for a single job are accumulated
Activity Based Management
a systemwide integrated approach that focuses management's attention on activities with the objective of improving customer value and the profit achieved by providing this value. Includes driver analysis, activity analysis, and performance evaluation. Activity bases costing major source
Activity
action taken or work perfomed by equipment or people for other people
Control Activities
activities performed by an organization to prevent or detect poor quality
Value Added Activities
activities that are necessary for a business to achieve corporate objectives and remain in business
Nonvalue Added Activities
all activities other than those that are absolutely essential to remain in business
Actual Cost System
an approach that assigns actual costs of direct materials, direct labor and overhead to products
Normal Cost System
an approach that assigns the actual costs of direct materials and direct labore to products but uses a predetermined rate to assign overhead costs
Process Value Analysis
an approach that focuses on processes and activities and emphhasizes systemwide performance instead of individual performance
Predetermined Overhead Rate
an overhead rate computed using estimated data
Raw materials inventory is a(n)_____ account reported on the _______ _____.
asset; balance sheet
Appraisal Costs
cost incurred to determine whether products and services are conforming to requirements
Value Added Costs
costs caused by value added activities
Environmental Internal Failure Costs
costs incurred after contaminants are produced but before they are introduced to the environment
Costs of Quality
costs incurred because poor quality may exist or because poor quality does exist
Internal Failure Costs
costs incurred because products and services fail to conform to requirements where lack of conformity is discovered prior to external scale
External Failure Costs
costs incurred because products fail to conform to requirements after being sold to outside parties
Control Costs
costs incurred from performing control activities
Environmental Detection Costs
costs incurred to detect poor environmental performance
Environmental Prevention Costs
costs incurred to prevent damage to the environment
Prevention Costs
costs incurred to prevent defects in products or services being produced
Labor costs that are easily traced to a job are called _____ labor costs
direct
Unrealized External Failure Costs
environmental costs caused by an organization but paid for by society
Societal Costs
environmental costs caused by an organization byt paid for by society
Realized External Failure Costs
environmental costs caused by environmental degradation and paid for by the responsible organziation
Derpartmental Overhead Rate
estimated overhead for a single department divided by the estimated activity level for that same department
Activity Drivers
factors that measure the consumption of activities by products and other cost objectives
Nonunit Level Activity Drivers
factors that measure the consumption of nonunit level activities by products and other cost objectives
Resource Drivers
factors that measure the consumption of resources by activities
Unit-Level Activity Drivers
factors that measure the consumption of unit-level activities by products of unit-level by products and other cost objects
Activity Sharing
increasing the effiency of necessary activities by using economies of scale
Work Distribution Matrix
indentifies the amount of labor consumed by each activity and is derived from the interview process
What categories of costs contain labor charges that cannot be easily traced to a job?
indirect labor, manufacturing overhead; Only manufacturing costs go into manufacturing overhead
Typical cost drivers include:
machine-hours, flight-hours, computer time
The schedule of costs of goods ________ summarizes costs that remain in Work in process inventory and that have been transferred from Work in process to Finished goods inventory.
manufactured
Manufacturing overhead consists of all:
manufacturing costs other than direct labor and direct materials; The cost of goods sold summarizes costs that remain in Finished goods Inventory and that have been transferred to Costs of goods Sold
Job
one distinct unit or set of units
Applied Overhead
overhead assigned to production using predertimed rates
What is the debited journal entry to record the purchase of materials?
raw materials
Underapplied Overhead
the amount by which actual overhead exceeds applied overhead
Overapplied Overhead
the amount by which applied overhead exceeds actual overhead
Adjusted Cost of Goods Sold
the cost of goods sold after all adjustments for overhead variances are made
Normal Cost of Goods Sold
the cost of goods sold before adjustment for any overhead variance
Failure Costs
the costs incurred by an organization because failure activities are performed
Activity Elimination
the process of elimination nonvalue-added activities
Activity Analysis
the process of identifying, describing, and evaluating the activities an organization performs
Consumption Ratio
the proportion of an overhead activity consumed by a product
Activity Inputs
the resources consumed by an activity in producing its outputs
Activity Output
the result or product of an activity
Product Diversity
the situation present products consume overhead in different proportions
Producing Departments
units within an organization responsible for producing the products or services that are sold to a customer
Into what three categories do companies generally classify manufacturing costs?
Manufacturing overhead, Direct materials, Direct labor
A job cost sheet contains:
Materials costs charged to the job, manufacturing overhead costs charged to the job, and labor costs charged to the job.
Materials price variance
Materials price variance = (AQ x AP) - (AQ x SP) or Materials price variance = AQ x (AP - SP)
The Predetermined Overhead Rate is multiplied by the actual allocation base incurred by a job to find:
Overhead applied to the job
Variable overhead efficiency
Variable overhead efficiency = (Actual hours x Standard rate) - (Standard hours allowed for actual output x Standard rate) or Variable overhead efficiency = (AH - SH) SR
Variable overhead rate variance
Variable overhead rate variance = (Actual hours x Actual rate) - (Actual hours x Standard rate) or Variable overhead rate variance = AH (AR-SR)
Process Costing System
a costing system that accumulates production by department for a given period of time
A cost driver is:
a factor that causes overhead costs to occur
Activity Dictionary
a list of activities described by specific attributes such as name, definition, classification as primary or secondary and activity driver
Plantwide Overhead Rate
a single overhead rate calculated using all estimated overhead for a factory divided by estimated activity level across the entire factory
Time Ticket
a source document by which direct lavor costs are assigned to individual jobs
Materials requisition Form
a source document that records the type, quantity, and unit price of the direct materials issued to each job
When overhead is overapplied, manufacturing overhead must be _____ to close out the account
debited
Activity Reduction
decreasing the time and resource required by an acivity
