ACCT 2
Direct cost
A cost that can be easily and conveniently traced to a specified cost object.
Sunk cost
A cost that has already been incurred and that cannot be changed by any decision made now or in the future.
Remember that debit entries to the account represent
actual overhead costs incurred
Sales minus cost of goods sold equals
gross margin
y=a+bx
y=total mixed cost a= total fixed b=variable cost per unti of activity x= level of activity
Fixed cost per unit
Increases as activity falls and decreases as activity rises.
The factory manager's salary would be an ________ cost of a particular variety such as chicken noodle soup.
Indirect
Discretionary fixed costs
Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research.
Allocating OH balance to close account
WIP, FG, COGS all need to be weighted toward total Applied overhead. Use the wiehgt to calculate dispersion amoung the three accounts.
Lean Production
A management approach that organizes resources such as people and machines around the flow of business processes and that only produces units in response to customer orders. (just in time production)
total manufacturing costs
DM+DL+ Applied MOH
Conversion cost
Direct labor cost plus manufacturing overhead cost.
Administrative costs
include all costs associated with the general management of an organization rather than with manufacturing or selling. Examples of administrative costs include executive compensation, general accounting, secretarial, public relations, and similar costs involved in the overall, general administration of the organization as a whole.
Selling
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. Examples of selling costs include advertising, shipping, sales travel, sales commissions, sales salaries, and costs of finished goods warehouses. Direct or Indirect.
corporate social responsibility to serve
is a concept whereby organizations consider the needs of all stakeholders when making decisions. features other stakeholders—such as customers, employees, suppliers, communities, and environmental and human rights advocates
Three vital activities of managerial accounting
planning involves establishing goals and specifying how to achieve them. ( Plans are often accompanied by a budget.) controlling involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change. (performance report) Decision making involves selecting a course of action from competing alternatives
Indirect cost
A cost that cannot be easily and conveniently traced to a specified cost object.
Job cost sheet
A form that records the materials, labor, and manufacturing overhead costs charged to a job.
Indirect Labor
Just like indirect materials, indirect labor is treated as part of manufacturing overhead. Indirect labor includes the labor costs of janitors, supervisors, materials handlers, and night security guards. Although the efforts of these workers are essential, it would be either impractical or impossible to accurately trace their costs to specific units of product. Hence, such labor costs are treated as indirect labor.
Variable cost per unit______
Remains constant
Nonmanufacturing costs are often divided into two categories:
Selling and Administrative
IMA adopted
Statement of Ethical Professional Practice
Opportunity cost
The potential benefit that is given up when one alternative is selected over another.
Relevant range
The range of activity within which assumptions about variable and fixed cost behavior are valid.
Product costs
All costs that are involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead.
Common cost
A cost that is incurred to support a number of cost objects but that cannot be traced to them individually. For example, the wage cost of the pilot of a 747 airliner is a common cost of all of the passengers on the aircraft. Without the pilot, there would be no flight and no passengers. But no part of the pilot's wage is caused by any one passenger taking the flight.
Fixed cost
A cost that remains constant, in total, regardless of changes in the level of activity within the relevant range. If a fixed cost is expressed on a per unit basis, it varies inversely with the level of activity. Examples of fixed costs include straight-line depreciation, insurance, property taxes, rent, supervisory salaries, administrative salaries, and advertising.
Absorption costing
A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in unit product costs.
Job-order costing
A costing system used in situations where many different products, jobs, or services are produced each period.
Differential cost
A difference in cost between two alternatives.
Bill of materials
A document that shows the quantity of each type of direct material required to make a product.
Materials requisition form
A document that specifies the type and quantity of materials to be drawn from the storeroom and that identifies the job that will be charged for the cost of those materials.
Predetermined overhead rate
A rate used to charge manufacturing overhead cost to jobs that is established in advance for each period. It is computed (by estimated total manufacturing overhead cost for the period)/ (estimated total amount of the allocation base for the period.)
Business process
A series of steps that are followed in order to carry out some task in a business.
The 3 customer value propsitions
customer intimacy, operational excellence, and product leadership.
Cost object
Anything for which cost data are desired. Examples of cost objects are products, customers, jobs, and parts of the organization such as departments or divisions. A cost object is a specific instance of an item, whose cost can be given, either by estimation, cost allocation, or direct measurement. Office supplies for a specific division, for a specific period of time, are a cost object if a cost figure for these supplies can be measured or otherwise assigned.
Prime cost
Direct materials cost plus direct labor cost.
Committed fixed costs
Investments in facilities, equipment, and basic organizational structure that can't be significantly reduced even for short periods of time without making fundamental changes.
Note that because the Manufacturing Overhead account has a debit balance, closing the account requires
Manufacturing Overhead must be credited to close out the account.
Period costs (or selling and administrative expenses) _____ flow through inventories on the balance sheet
dont
Actual>Applied
under
COGM=
Total Manu. Cost+BI- EI
product costs flow through inventories on the balance sheet and then on to
cost of goods sold
Fixed cost element=
high or low cost-variable cost element (Variable cost*high or low activity)
Contribution approach
An income statement format that organizes costs by their behavior. Costs are separated into variable and fixed categories rather than being separated into product and period costs for external reporting purposes.
Incremental cost
An increase in cost between two alternatives.
Unadjusted COGS
BI+COGM-EI
Underapplied effect on NI
Decrease NI
Variable cost formula
Change in cost/ change in activity y2-y1/x2-x1
IMA Standards
Competence, Confidentiality, Integrity, and Credibility
Period costs
Costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued. All selling and administrative expenses are treated as period costs. For example, sales commissions, advertising, executive salaries, public relations, and the rental costs of administrative offices are all period costs.
Reebok is assigning costs to its various regional and national sales offices, then the salary of the sales manager in its Tokyo office would be a _________ cost of that office.
Direct
Difference in financial and managerial
managerial accounting serves the needs of managers employed inside the organization. Because of this fundamental difference in users, financial accounting emphasizes the financial consequences of past activities, objectivity and verifiability, precision, and companywide performance, whereas managerial accounting emphasizes decisions affecting the future, relevance, timeliness, and segment performance. managerial accounting is not mandatory and it does not need to comply with externally imposed rules
cost of goods sold for a merchandising company can be computed directly by
multiplying the number of units sold by their unit cost
Depreciation on office equipment is a
period expense rather than a product cost. Unlike depreciation on equipment.
Strategy
A company's "game plan" for attracting customers by distinguishing itself from competitors.
Variable cost in total______
increases and decreases in proportion to activity
gross margin minus selling and administrative expenses equals
net operating income
The amount transferred from Work in Process to Finished Goods
cost of goods manufactured.
Fixed cost in total
stays the same within the relevant range
Lean Production
A management approach that organizes resources such as people and machines around the flow of business processes and that only produces units in response to customer orders.
Allocation base
A measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects.
Overapplied effect on NI
Increases NI
Applied overhead=
POHR*Allocation Base
Variable cost
varies in total, in direct proportion to changes in the level of activity. Common examples of variable 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
Activity base
Goes hand in hand with variable cost. A measure of whatever causes the incurrence of a variable cost. For example, the total cost of X-ray film in a hospital will increase as the number of X-rays taken increases. Therefore, the number of X-rays is the activity base that explains the total cost of X-ray film. (Cost Driver)
Contribution margin
The amount remaining from sales revenues after all variable expenses have been deducted.
Differential revenue
The difference in revenue between two alternatives.
Value chain
The major business functions that add value to a company's products and services, such as research and development, product design, manufacturing, marketing, distribution, and customer service.
y (Estimated total MOH)= a+bx
Y = The estimated total manufacturing overhead cost a = The estimated total fixed manufacturing overhead cost b = The estimated variable manufacturing overhead cost per unit of the allocation base X = The estimated total amount of the allocation base
Cost driver
A factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes overhead costs.
Mixed cost
A cost that contains both variable and fixed cost elements. Nooksack Expeditions example, the company incurs a mixed cost called fees paid to the state. It includes a license fee of $25,000 per year plus $3 per rafting party paid to the state's Department of Natural Resources. If the company runs 1,000 rafting parties this year, then the total fees paid to the state would be $28,000, made up of $25,000 in fixed cost plus $3,000 in variable cost.
Manufacturing Overhead
Manufacturing overhead includes items such as indirect materials; indirect labor; maintenance and repairs on production equipment; and heat and light, property taxes, depreciation, and insurance on manufacturing facilities. A company also incurs costs for heat and light, property taxes, insurance, depreciation, and so forth, associated with its selling and administrative functions, but these costs are not included as part of manufacturing overhead. Only those costs associated with operating the factory are included in manufacturing overhead.
Direct Labor
consists of labor costs that can be easily traced to individual units of product. Direct labor is sometimes called touch labor because direct labor workers typically touch the product while it is being made.
What goes in Work In Process
consists of units of product that are only partially complete and will require further work before they are ready for sale to the customer. Notice that direct labor costs are added directly to Work in Process—they do not flow through Raw Materials inventory. Manufacturing overhead costs are applied to Work in Process by multiplying the predetermined overhead rate by the actual quantity of the allocation base consumed by each job
Enterprise risk management
A process used by a company to identify its risks and develop responses to them that enable it to be reasonably assured of meeting its goals.