BEC Lecture 1 Part 2

How are joint production costs on a physical allocation basis if there is a By- product?

By-Product revenue <DECREASES> the JOINT PRODUCTION COSTS. The resulting net amount is then ALLOCATED based on the % of Physical volume produced per product.

What are By-Products?

By-Products represent outputs of minor value incidental to a manufacturing process.

What are Conversion Costs?

Conversion Costs are: Direct Labor & Factory Overhead.

How is Cost of Good Sold Calculated?

Cost of Good Sold= Beginning Finished Good Inventory + Cost of Good Manufactured** (Must calculate first)** = Cost of Goods Available for sale. - <Ending Finished Goods Inventory> =Cost of Goods Sold.

How is Cost of Goods Manufactured Calculated?

Cost of Goods Manufactured 2 parts= Beginning WIP. XXX + Direct Materials used. XXX + Direct Labor. XXX + Factory Overhead applied. XXX =Total Manufactured Costs. XXX Total Manufactured Costs = Beg WIP + Total Manufactured Costs <Less> ending WIP =Cost of Goods Manufactured.

How are Cost per Equivalent Unit calculated using the FIFO method of Cost per Equivalent Unit?

Cost per Equivalent Unit using FIFO method= CURRENT COST ONLY* --------------------------------- = FIFO Cost per Equivalent Units Equivalent Unit

How are Cost per Equivalent Unit calculated using the Weighted-Average method of Cost per Equivalent Unit?

Cost per Equivalent Unit using the Weighted Average Method= Beginning cost + Current Cost ----------------------------------------- = Weighted- Equivalent Average Cost Units

How are Costs accumulated in Process Costing?

Costs are accumulated by Department in Process Costing.

Direct material and Direct Labor are what type of costs(Fixed or variable)?

Direct Material and Direct Labor are variable costs. They vary with the level of production.

When is Job Order Costing used?

Job Order Costing is used for Unique identifiable high dollar amount items like an automobile for example.

What change in cost behavior is associated with Semi-Variable Costs(Mixed Costs)?

Semi-Variable Costs (Mixed Costs) are Costs that contain BOTH fixed and variable components (Example=Telephone Bill Flat rate + usage).

What is the bottom line what the Aggregate Demand Curve illustrates?

The Aggregate Demand Curve illustrates that as DEMAND (DECREASES) = PRICE (DECREASES) = REAL GDP (OUTPUT) (DECREASES).

What is the Relative Sales Value at Split-off Approach to Joint Product Costing?

The Relative Sales Value at Split-Off Approach can ONLY be used if there is a SALES VALUE at Split-Off. Example: Joint Costs $1,000 Product A - Sales value at split-off $10,000 Product B - Sales value at split-off 30,000 ----------- Total $40,000 Product A =$10,000/$40,000 or 1/4 of $1,000 (Joint Costs) = $250. Product B=$30,000/$40,000 or 3/4 of $1,000 (Joint Costs)= $750.

What is Traditional Costing?

Traditional Costing uses 1 Cost Pool and 1 Cost Driver to determine Overhead (Direct Labor hours) for example.

What change is cost behavior is associated with Variable Costs?

Variable Cost VARY in TOTAL as production volume increases or decreases, but they remain CONSTANT per UNIT.

What are the 2 ways of calculating Equivalent Units in Process Costing?

2 Ways of calculating costs in Process Costing are: 1) FIFO ( 3 steps). 2) Weighted-Average (2 steps).

What are the 2 ways Revenue can be accounted for By-Products?

2 ways Revenue can be accounted for By-Products are: 1) Revenue applied to the main product as a cost reduction. OR 2)Miscellaneous Income.

What are 3 Types of Inventory included in the Balance Sheet for Inventory?

3 Types of Inventory included in the Balance Sheet for Inventory are: 1) Raw Materials. 2) Work in Process. 3) Finished Goods.

What type of cost is Abnormal Spoilage?

Abnormal Spoilage = Period cost because it is NOT Expected when producing a product.

What is Activity-Based Costing?

Activity-Based Costing accumulates costs in Multiple Pools (By department or process and then adds them together) an Multiple Cost Drivers. It is more PRECISE that Traditional Costing that only uses 1 Cost Driver to determine Overhead.

How are Equivalent Units of Production calculated using the FIFO Method?

Equivalent Units of Production using the FIFO method is a 3-Step approach: Step 1) Beginning WIP (X % to be completed). Step 2) + Units Completed - Beginning WIP Step 3) + Ending WIP X % completed (This period). = Equivalent Units FIFO method.

How are Equivalent Units of Production calculated using the Weighted Average Method?

Equivalent Units of Production using the Weighted-Average method is a 2-Step approach: Step 1) Units completed in Current period. Step 2) + Ending WIP X % Completed. =Equivalent Units Weighted Average method.

What change in cost behavior is associated with Fixed Costs?

FIXED COSTS remain CONSTANT in total, regardless of the production volume but increase or decrease per unit based on the level of production.

What is Joint Product Costing?

In Joint Product Costing, two or more products are produced from the same common raw materials. Joint Costs are assigned up to Split-Off to the Joint( MAIN) Products.

What do Debit Balances and <Credit> balances mean in the Manufacturing Overhead account?

Manufacturing Overhead -------------------------------- Actual Applied DR CR If Debit balance = UNDER APPLIED actual was more than booked (estimated). If Credit balance = OVER APPLIED actual was less than booked (estimated).

What type of costs are included in Factory Overhead?

Manufacturing Overhead consists of BOTH fixed and variable costs.

What are Manufacturing Costs?

Manufacturing costs are costs associated with the manufacturing of a product. Direct Materials, +Direct Labor +Manufacturing Overhead applied

What are period costs?

Period costs are expensed to the Income Statement in the period incurred. Example SG&A (Selling, General & Administrative expenses).

What are PRIME costs?

Prime Costs are: Direct Materials & Direct Labor.

When is Process Costing used?

Process Costing is used when there is a large number of Homogenous units (Bottles of Soda for example).

What are the Components of Product Costs?

Product Costs consist of: 1) Direct Materials, Direct Labor & Factory Overhead. 2) Work in Process (WIP). 3) Finished Goods. 4) Cost of Good Sold.

What are Product Costs?

Product costs are costs included in making a product and include: 1) Direct Material 2) Direct Labor 3) Factory Overhead and ALL other costs traceable to finished product. Product costs are not expensed to the Income Statement until the product is sold.

What is the Net Realizable Value Approach to Joint Product Costing?

With the Net Realizable Value Approach to Joint Product Costing costs are added after the split-off point (separable costs) must be subtracted from the final selling price to arrive at the NET REALIZABLE VALUE (NRV). Example: Joint costs $6,000 Product A - Final selling price $12,000, after split-off cost are <$2,000>= $10,000 NRV Product B - Final selling price $25,000, after split-off cost are <$5,000>= $20,000. Product A=$10,000/$30,000=1/3 of $6,000 (Joint Costs) = $2,000

Is Normal Spoilage part on Inventory Cost?

Yes= Normal Spoilage is an Inventory Cost because it is EXPECTED in producing a product.