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28 Cards in this Set
- Front
- Back
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Applied Overhead
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The estimated overhead charged to production: calculated by multiplying the overhead rate times the allocation base activity units (direct labor hours, machine hours, raw material weight, etc.)
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Direct Costs
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Product costs that can be associated with specific units of production; comprised of direct material and direct labor costs.
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Treatment of Normal Spoilage
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Included with other costs as an inventoriable product cost
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Period Costs
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Costs that cannot be matched with the production of specific revenues and so are expensed in the period incurred
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Treatment of over-applied or under-applied overhead (e.g. the difference between actual overhead and overhead applied to production.)
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If immaterial, simply charge to COGS; if material, prorate to WIP, FG, and COGS
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Treatment of cost of abnormal spoilage and scrap
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Separate costs and deduct as a period expense; do not include as part of product cost.
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Treatment of proceeds from sale of scrap.
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Sale proceeds are used to reduce overhead (and consequently, COGS), they are not reported as revenue
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Overhead Allocation Rate
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The rate used to apply overhead to production; calculated by dividing the estimated total overhead costs by estimated normal volume of the allocation base (direct labor hours, machine hours, raw material weight, etc.)
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Indirect Costs
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Manufacturing costs which cannot easily be traced to specific units; also known as manufacturing overhead
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Actual Overhead
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The amounts actually paid for indirect costs (utilities, maintenance, supervision, etc.)
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Product Costs
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Cost that can be associated with making or acquiring goods for sale; product costs are held in inventory until the products are sold; also known as inventoriable costs
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Prime Costs
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Product costs that can be associated with specific units of production; comprised of direct material and direct labor costs; also known as direct costs
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3 Factors of Production
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1. Direct Material
2. Direct Labor 3. Factory Overhead. |
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Conversion Costs
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Costs necessary to convert raw materials into a finished product: comprised of direct labor costs plus factory overhead costs
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Step-Variable Costs
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Costs that remain constant in total over a small range of production levels, but vary with larger changes in production volume.
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Mixed Costs
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Costs that have a fixed component and a variable component
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Activity-Based Costing
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A method of assigning overhead (indirect) costs to products which, because it bases cost assignment according to the activities that create costs, results in more accurate product costing than traditional allocation methods (direct labor hours, machine hours, etc.).
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Product sustaining level activities (in Activity based Costing.)
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Activities that are necessary to support the product line as a whole, such as advertising and engineering activities.
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Direct Costing
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A product cost allocation method that assigns only variable manufacturing costs (i.e. direct material, direct labor, and variable manufacturing overhead) to products: fixed manufacturing overhead is written off as period expenses; not acceptable for external reporting
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Contribution Margin
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Sales revenue minus variable costs: the amount of sales revenue available to cover fixed costs and generate a profit.
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Absorption Costing
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A product cost allocation method that assigns all manufacturing costs (i.e. direct material, direct labor, and both variable and fixed manufacturing overhead) to products; absorption costing is required for external reporting.
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Job Order Costing
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Product costing method that identifies costs associated with production of specific items; used for production of large, relatively expensive, heterogeneous (custom-ordered) items
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Process Costing
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Product costing method that spreads production costs across a large number of mass-produced units; used to accumulate costs for homogeneous items which are often small and inexpensive
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Process Costing - Weighted Average Method
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Product costing method that calculates a single equivalent unit price for goods manufactured during the period by adding beginning WIP costs to current period costs dividing the total by the total equivalent units for the period
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Inventory Conversion Period
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Avg inventory/Sales per day
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Receivables Collection Period
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Avg receivables/Credit sales per day
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Payables Deferral Period
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Avg payables/Purchases per day OR Avg payables/COGS/365
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Formula to calculate cost of not taking AP discount (or any discount)
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Discount Percent/100% - Discount Percent X 365 days/Total Pay Period - Discount Period (example: 2%/100%-2% X 365/30-10 = 37.2%
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