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47 Cards in this Set

  • Front
  • Back
Managers carry out 3 major activities
Planning, directing and motivating, and controlling
Manufacturing Costs, Product costs, inventoriable costs
Direct materials, direct labor, MOH
Nonmanufacturing costs, Period costs
Selling and administrative expenses
Manufacturing overhead
Indirect materials, indirect labor, and other manufacturing costs such as factory rent, factory utilities, and depreciation of factory equipment and facilities
Prime cost
Direct materials plus direct labor
Conversion cost
Direct labor plus MOH
Period costs
Expensed on income statement in the period in which they are incurred (when co. incurs liability to pay them)
Product costs
Matched with units of product and are recognized as an expense on income statement only when the units are sold
Total manufacturing cost
Direct Materials
+Direct Labor
+MOH
-------------------------------
=Total Manufacturing cost
Cost of goods manufactured
Beginning balance, Work in process
+Total Manufacturing cost
-Ending balance, Work in process
-------------------------------------------
=Cost of goods manufactured
Cost of Goods sold
Beginning balance, finished goods
+cost of goods manufactured
----------------------------------------
=Goods available for sale
-ending balance, finished goods
---------------------------------------------
=Cost of goods sold
Income statement of manufacturing company
Sales
-Cost of goods sold
--------------------------------------------
=gross margin
-selling and administrative expenses
-------------------------------------------
=net operating income
Variable costs
Vary in direct proportion to changes in volume or level of activity.
Ex: Direct materials, direct labor, cost of goods sold
Fixed costs
Remain constant within relative range
-Relevant range: Range of activity within which the assumptions about cost behavior are valid
Direct cost
Is a cost that can be easily and conveniently traced to a specific object.
Ex: salaries and commissions of salespersons
Indirect
Cannot be easily and conveniently traced to the cost object
Ex: salary of the manager of a department store would be considered indirect cost of the shoe department and other departments
Process costing
Is used when a single homogenous product such as brick is produced
Job-Order costing
Many different products or services are produced each period
Journal entry for a withdrawal of raw materials
Work in Process
Manufacturing overhead
Raw materials
Journal entry to record labor cost
Work in process
MOH
Salaries and wages payable
Predetermined overhead rate
Estimated total manufacturing cost
------------------------------------------------
Estimated total amount of allocation base
Journal entry to apply overhead to a job
Work in process
MOH
Actual overhead costs
Actual overhead costs are NOT charged to work in process. Instead, they are charged to the MOH account. Note that ACTUAL overhead costs all appear as debits to MOH
Journal entry to transfer costs from Work in process to finished goods
Finished goods
Work in process
Journal entry for selling completed goods
Cost of goods sold
Finished goods
If overhead applied is less than the actual overhead costs incurred...
Overhead has been underapplied. MOH will have a debit balance
If overhead applied is more than the actual overhead costs incurred...
Overhead has been overapplied. MOH will have a credit balance
At end of period overhead has been underapplied, the entry would be:
MOH
Cost of goods sold
Plantwide overhead rate
Includes all the manufacturing overhead costs in a factory and is typically based on direct labor hours or machine hours. This can cause distorted product costs when overhead costs aren't really caused by the allocation base
Departmental overhead rates
provide a slightly more sophisticated approach than the plantwide overhead rate. Here, each department has its own overhead rate. Allocation bases are usually labor hours or machine hours, so distortion can occur if overhead costs are cause by factors other than the allocation bases
Activity based costing
(as compared to plantwide and departmental overhead rates) Each major activity has its own cost pool. An activity is any event or transaction that causes the incurrence of overhead cost
Activity based costing stages
1.Costs are assigned to the activity cost pools
2. The costs in each activity cost pool are assigned to products according to the amount of activity each product requires. This is accomplished by computing an activity rate
Ex: Total cost of machine setup pool=$150,000, and total activity=1000 setups. Activity rate=$150/setup
Unit level
Performed each time a unit is produced. E.g, shaping a part for a product on a milling machine
-Processing units on machines
-Processing units by hand
-Consuming factory supplies
Batch level
Performed each time a batch is handled or processed. For example, cleaning a machine prior to each batch. Costs in a batch level cost pool depend on the # of batches run, not on the # of units per batch.
-Processing purchase orders
-Setting up equipment
Product level activities
Required to have a product at all.
-Testing new products
-Administering parts inventories
-Designing products
Facility level activities
Sustain a facility's general manufacturing process
-Maintaining factory grounds
-General factory administration
To determine MOH applied to a product in activity based costing
1. Compute its activity rate (predetermined overhead rate) by dividing estimated overhead by its expected activity
2. For each activity in the cost pool, multiply the activity rate by the activity required for each product.
Process Costing is similar to job-order costing in three ways:
1. Both systems have the same basic purposes, which are to assign material, labor, and overhead costs to products and to provide a mechanism for computing unit costs
2. Both systems use the same basic manufacturing accounts: MOH, Raw materials, Work in Process, and Finished goods
3. Costs flow through the systems in the same way
Process Costing differs from job-order in three ways:
1. A single product is produced on a continuous basis, products are homogenous
2. Costs are accumulated by department, rather than by job
3.Unit costs are computed by department (rather than by job)
Processing department
Is any work center where work is performed on a product and where materials, labor, or overhead costs are added. Processing dep'ts have 2 common features:
1. Activity of department is carried out uniformly on every product passing through it
2. The output of the department is homogenouse
Equivalent Units
Equivalent units=# of partially completed units x Percentage completion
Equivalent units of production
Are used to compute the cost per equivalent unit. Under the weighted average method:

Units transferred to the next department or finished goods
+Equivalent units in ending work in process inventory
----------------------------------------------
=Equivalent units of production
Note the following points concerning process costing
1. Equivalent units of production and the cost per equivalent unit must be computed separately for each cost category
2. Units transferred out of the department or to finished goods are considered to be %100 complete in regards to the department
3. The first processing dept. will not have a cost category for the costs of units transferred in, but subsequent units will have such a cost category
Cost per equivalent unit
Under weighted average:

Cost per equivalent unit=
Cost of beginning work in process inventory+cost added during period
---------------------------------------------
Equivalent units of production
Costs of units transferred out are determined by each department as follows:
Units transferred to the next dept.
x Cost per equivalent unit
=Cost of units transferred out

This computation is made for each cost category in the department, then summed
The costs of the units in ending inventory are determined for each cost category within a department as follows:
Equivalent Units of production in ending work in process inventory
x Cost per equivalent unit
=Cost of ending work in process inventory

This computation is made for each cost category in the department, then summed
Operation Costing
A hybrid system containing elements of both job-order and process costing. It is used when products use different materials but follow the same basic processing steps.
Ex:Factory that assembles personal computers
1. Products are handled in batches, each batch is charged with its own specific materials. (similar to job-order costing)
2. Labor and overhead costs are accumulated by each department and costs are assigned to batches on an average per unit basis (similar to Process costing)