Bec Manufacturing Costs

Front 1

Applied Overhead Calculation

Back 1

Multiply the predetermined overhead rate times the actual number of activity units used in production. (Included in cost of WIP)

Front 2

Overhead Rate Formula

Back 2

Estimated total overhead costs/estimated normal activity volume

Front 3

Schedule of Cost of Goods Manufactured (WIP)

Back 3

Beg WIP
+ Direct Mats
+ Direct Labor
+ Overhead Applied
- Ending WIP
= Cost of Goods Manufactured

Front 4

Direct Materials Used Formula

Back 4

Beginning Direct Materials
+ Purchases (net)
= Direct Materials Available for Use
- Ending Direct Materials
= Direct Materials Used

Front 5

Schedule of Cost of Goods Sold

Back 5

Beginning Finished Goods
+ Cost of Goods Manufactured
= Goods Available For Sale
- Ending Finished Goods
= Cost of Goods Sold

Front 6

Conversion Costs Formula

Back 6

Direct labor costs + Factory overhead costs (Note: DL is included as a prime cost and a conversion cost)

Front 7

Accounting for differences between overhead applied and actual overhead

Back 7

Immaterial differences are allocated to COGS. Material differences are prorated to WIP, Finished Goods or COGS based on respective ending balances

Front 8

(Applied) Overhead rate formula

Back 8

Estimated total overhead costs/Estimated normal activity volume

Front 9

Accounting for Normal Spoilage and Scrap

Back 9

Normal spoilage is included with other costs as an inventoriable product cost

Front 10

Accounting for Abnormal Spoilage and Scrap

Back 10

Abnormal spoilage is separated and deducted as a period expense in the calculation of net income

Front 11

Accounting for the Sale of Scrap

Back 11

Any money recieved from the sale of scrap are used to reduce factory overhead (& thereby reduce cost of goods sold)

Front 12

Behavior of fixed costs

Back 12

Fixed costs remain constant in total regardless of production volume so fixed costs PER UNIT vary - increasing (per unit) when production decreases and decreasing (per unit) when production increases

Front 13

Behavior of variable costs

Back 13

Variable costs vary in total, in direct proportion to changes in production volume. Variable costs PER UNIT remain constant regardless of production volume.

Front 14

Account for Difference between Applied and Actual Overhead

Back 14

Immaterial differences are allocated to COGS. (reduces COGS if overhead is overapplied, increases COGS if overhead is underapplied) Material differences are prorated to WIP, Finished Goods or COGS based on respective ending balances.

Front 15

Fixed vs. Variable Costs

Back 15

Fixed costs remain constant in total regardless of production volume. Fixed costs PER UNIT vary. Variable costs vary in total in proportion to changes in production however variable costs remain constant PER UNIT.

Front 16

Fixed, Variable & Total Costs' behavior when production volume changes

Back 16

Unit Costs Total Costs
Fixed Vary Constant
Variable Constant Vary
Total Vary Vary

Front 17

Absorption Costing

Back 17

assigns all three factors of production (direct material, direct labor and both fixed & variable manufacturing overhead) to inventory. Required for external reporting purposes

Front 18

Direct Costing

Back 18

(aka variable costing) assings only variable manufacturing costs (direct material, direct labor & variable manufacturing overhead) to inventory. Used for internal purposes, cannot be used for external reporting.

Front 19

Variable Manufacturing Costs

Back 19

Direct material, direct labor, variable factory overhead

Front 20

Fixed manufacturing costs

Back 20

Manufacturing costs that do no vary (eg. depreciation, supervisory salaries, property taxes, insurance, etc)

Front 21

Principal difference between the absorption costing and direct costing

Back 21

Absorption costing assigns ALL manufacturing costs to products while Direct costing only assigns variable manufacturing costs to products.

Front 22

Effect of absorption and direct costing on operating income

Back 22

Inventory valuation and unit costs will always be greater usuing absorption costing than if direct costing is used (due to direct costing ignoring fixed overhead)

Front 23

Absorption & Direct costing effects on Net Income
Units sold = Units produced
Units sold > Units produced
Units sold < Units produced

Back 23

Absorption NI = Direct NI
Absoprtion NI < Direct NI
Absorption NI > Direct NI

Front 24

Steps to figure Process Costing (FIFO or Weighted Avg)

Back 24

1. Acct for all units (Beg WIP + Additions = Finished + Spoilage + Ending WIP)
2. Calculate Equivalent Finished Units (W. Avg: EFU= # of units finished + % of complete ending WIP or FIFO: EFU = # of units finished - % of complete beg WIP + % of complete ending WIP)
3. Calculate Unit Costs (W. Avg: Costs in Beg WIP + current costs or FIFO: Current costs ONLY)

Front 25

Material Price (Labor Rate) Variance

Back 25

Actual Units x Actual Price
Actual Units x Std Price
(A x A > A x S = Unfavorable
A x A < A x S = Favorable)

Front 26

Labor Efficiency (Material Usage) Variance

Back 26

Actual Hours x Std Rates
Std Hours x Std Rates
(A x S > S x S = Unfavorable
A x S < S x S = Favorable)

Front 27

Mixed Costs: High-Low Method

Back 27

1. Variable Costs: Divide the change in costs by the change in activity
2. Fixed Costs: Total cost less variable cost equals fixed costs

Front 28

Direct Costing

Back 28

Only variable manufacturing costs are considered part of inventory costs.
Contribution Margin: Selling price less all variable costs.

Front 29

Direct Cost Unit Costs

Back 29

Direct Manufacturing + Direct Labor + Variable Overhead + Variable Selling & Admin (Fixed costs NOT included in unit cost!)

Front 30

Absorption Cost Unit Costs

Back 30

Direct Manufacturing + Direct Labor + Variable Overhead + Fixed Overhead (Variable Selling & Admin NOT included in unit cost!)

Front 31

Direct and Absorptions effect on income

Back 31

If a company produces more than it sells, absorption shows more profit than direct.
If the company produces less than it sells, absorption shows less profit than direct.
If the company produces the same amount as it sells, absorption will show the same amount of profit than direct.

Front 32

Margin of Safety

Back 32

The difference between current sales and breakeven sales.

Front 33

Breakeven Sales

Back 33

Fixed Cost/Contribution Margin Percentage