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149 Cards in this Set
- Front
- Back
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activity |
a repetitive action performed in fulfillment of business functions |
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activity analysis |
the process of detailing the various repetitive actions that are performed in making a product or providing a service, classifying them as value-added or non-value-added, and devising ways of minimizing or eliminating non-value-added activities |
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activity-based costing (ABC) |
a process using multiple cost drivers to predict and allocate costs to products and services; an accounting system collecting financial and operational data on the basis of the underlying nature and extent of business activities |
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activity-based management (ABM) |
a discipline that focuses on the activities incurred during the production/performance process as the way to improve the value received by a customer and the resulting profit achieved by providing this value |
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activity center |
a segment of the production or service process for which management wants to separately report the costs of the activities performed |
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activity driver |
a measure of the demands on activities and, thus, resources consumed by products and services; often indicates an activity's output |
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batch-level cost |
a cost that is caused by a group of things being made, handled, or processed at a single time |
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business-value-added (BVA) activity |
an activity that is necessary for the operation of the business but for which a customer would not want to pay; a non-value-added activity |
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cost driver analysis |
the process of investigating, quantifying, and explaining the relationships of cost drivers and their related costs |
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cycle (lead) time |
the time elapsed between the placement of an order and the time the goods arrive for usage or are produced by the company; the sum of value-added time and non-value-added-time |
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idle time |
the amount of time spent in storing inventory or waiting at a production operation for processing; is non-value-added time |
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inspection time |
the time taken to perform quality control activities; generally considered as non-value-added time except in certain industries (such as food and pharmaceutical) |
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manufacturing cycle efficiency (MCE) |
a ratio resulting from dividing the actual production time by total lead time; reflects the proportion of lead time that is value-added |
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mass customization |
a process of personalizing production that is generally accomplished through the use of flexible manufacturing systems; reflects an organization's increase in product variety from the same basic component elements |
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non-value-added (NVA) activity |
an activity that increases the time spent on a product or service but that does not increase its worth or value to the customer |
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organizational-level cost |
a cost incurred to support the ongoing facility or operations |
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Pareto principle |
a rule that states that the greatest effects in human endeavors are traceable to a small number of causes (the vital few), while the majority of causes (the trivial many) collectively yield only a small impact; is often referred to as the 20:80 rule |
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process |
the combination of activities that when performed together, satisfy a specific objective
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process complexity |
an assessment about the number of processes through which a product flows
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process map |
a flowchart or diagram indicating every step that goes into making a product or providing a service; includes value-added and non-value-added time |
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processing (service) time |
the actual time it takes to perform the functions necessary to manufacture a product; its value-added time |
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product complexity |
an assessment about the number of components in a product
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product-level (process-level) cost |
a cost that is caused by the development, production, or acquisition of specific products or services |
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product variety |
the number of different types of products produced (or services rendered) by a firm |
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service cycle efficiency (SCE) |
a ratio resulting from dividing total actual value-added service time by total cycle time; reflects the proportion of total time that is value-added |
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transfer time |
the time consumed by moving products or components from one place to another; is non-value added time |
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unit-level cost |
a cost caused by the production or acquisition of a single unit of product or the delivery of a single unit of service |
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value-added (VA) activity |
an activity that increases the worth of the product or service to the customer; an activity for which the customer is willing to pay |
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value chart |
a visual representation indicating the value-added and non-value-added activities and time spent in those activities from the beginning to the end of a process |
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abnormal loss |
decretion or spoilage of units in excess of that expected during a production process; the expectation is set by management |
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cost-plus contract |
a contract in which the customer agrees to reimburse the producer for the cost of the job plus a specified profit margin over cost
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defect |
a unit that, although rejected at inspection for failure to meet appropriate quality standards or designated product specifications, can be reworked and sold |
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employee time sheet |
a source document that indicates, for each employee, what jobs were worked on during a time period and for what amount of time |
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intranet |
a mechanism for sharing information and delivering data from corporate databases to the local-area network (LAN) desktops
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job |
a single unit or group of units identifiable as being produced for a specific customer |
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job order cost sheet |
a source document that provides virtually all the financial information about a particular job; the set of all job order cost sheets for uncompleted jobs composes the Work in Process Inventory subsidiary ledger |
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job order costing system |
a method of product costing used by an entity that provides limited quantities of products or services unique to a customer's needs; focus of record keeping is on individual jobs |
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material requisition form |
a source document that indicates the types and quantities of material to be placed into production or used in performing a service; causes material to be released from the raw material inventory warehouse and sent to the production center as well as the cost of that material to be sent from Raw Material Inventory to WIP Inventory |
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normal loss |
an expected decline in units experienced during the production process; the expectation is set by management |
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process costing system |
a method of accumulating and assigning costs to units of production in companies producing large quantities of homogeneous products; accumulates costs by cost component in each production department and assigns costs to units using equivalent units of production |
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shrinkage |
a decrease in units arising from an inherent characteristic of the production process; includes decreases caused by evaporation, leakage, and oxidation |
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spoilage
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a unit that has been rejected at inspection for failure to meet appropriate quality standards or designated product specifications and that cannot be reworked and sold
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standard cost system |
a valuation method that uses predetermined norms for direct material, direct labor, and overhead to assign costs to the various inventory accounts and Cost of Goods Sold |
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variance |
a difference between an actual and a standard or budgeted cost; is favorable if actual is less than standard and is unfavorable if actual is greater than standard |
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continuous loss |
any reduction in units that occurs uniformly throughout a production process |
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cost of production report |
a process costing document that details all operating and cost information, shows the computation of cost per equivalent unit, and indicates cost assignment to goods produced during the period |
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discrete loss |
a reduction in units that occurs at a specific point in production process |
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equivalent units of production (EUP) |
an approximation of the number of whole units of output that could have been produced during a period from the actual effort expended during that period; used in process costing systems to assign costs to production |
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FIFO |
(process costing) the method of cost assignment that computes an average cost per equivalent unit of production for the current period; does not commingle the beginning inventory production and its cost with current period production and its cost |
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method of neglect |
the treatment of spoiled units in equivalent units of production schedule as if those units did not occur; is used for continuous normal spoilage |
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total cost to account for |
the sum of the costs in beginning inventory and the costs of the current period |
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total units to account for |
the sum of the beginning inventory units and units started during the current period |
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transferred-in cost |
a prior department cost that is carried forward to a successor department to obtain the full manufacturing or performance cost |
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units started and completed |
the difference between the number of units completed for the period and the units in beginning inventory; can also be computed as the number of units started during the period minus the units in ending inventory |
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weighted average method |
(of process costing) the method of cost assignment that computes an average cost per equivalent unit of production for all units completed during the current period; combines beginning inventory units and costs with current production and costs, respectively, to compute the average |
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activity-based management (ABM) focuses on improving customer value and enhancing profitably. Which of the following is an impact of implementing ABM to control production processes? |
more effective performance evaluation
more accurate cost determination and control more efficient production processes ALL OF THE ABOVE |
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An _____ is any repetitive action that is performed in fulfillment of a business function |
activity |
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________ increase the time spent on a product but do not increase its worth |
non-value-added activities |
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_______ attempts to classify activities as value added or non-value-added |
activity analysis |
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non-value-added activities |
inspection time move time wait time |
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manufacturing cycle efficiency (MCE) |
Total Value-Added Time/ Total Cycle Time |
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the need to rework products because of a poorly designed training program is an example of a non-value-added activity caused by |
human factors |
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batch-level costs |
purchase order costs inspection costs movement costs |
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which costing system assigns costs within multiple cost pools to products using multiple drivers
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activity-based costing |
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characteristics of job order costing |
1.costs are accumulated by job
2.costs of different jobs cannot be averaged so a unique cost must be determined for each job 3.jobs are usually produced to distinct customer specifications |
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what serves as a subsidiary ledger for the WIP account
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job order cost sheet |
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source documents used in job order costing systems |
1. employee time sheet 2. job cost sheet 3. material requisition form |
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which costing system does not involve computing cost variances |
actual costing system |
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a _____ determines product cost by using predetermined norms in the inventory accounts for prices and/or quantities of cost components |
standard cost system |
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_____ can be used in a job order cost system only if a company typically engages in jobs that produce fairly similar products |
standards |
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_________ can be computed for actual-to-standard differences regardless of whether standards have been established for both quantities and prices or for prices or rates only |
standard cost variances |
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________ assists managers in their planning, controlling, decision making and performance evaluation functions |
job order costing
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_______ allows managers to trace costs associated with specific current jobs to better estimate costs of future jobs |
job order costing |
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_______ provides a means by which managers can better control the costs associated with their operations |
job order costing |
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______ that are anticipated on all jobs are estimated and included in the development of the predetermined OH rate |
normal losses |
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________ are charged to a loss account in the period in which they are incurred |
abnormal losses |
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the difference between _____ and _____ is one of degree and therefore must be determined by management |
normal and abnormal loss |
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flow of costs in a job order costing system |
RM -> WIP-> FG -> COGS |
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likely use a job order costing system |
a dental practice an auto repair shop an architectural firm |
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what is NOT charged to WIP in a normal cost system? |
actual overhead |
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what is charged to WIP in a normal cost system |
actual DM actual DL actual overhead costs (ex. estimated indirect labor) |
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likely use a process costing system |
manufacturer of soft drinks manufacturer of gasoline manufacturer of paper NOT manufacturer of custom furniture |
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which system computes an average cost per unit since units are homogeneous? |
process costing |
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which system allocates production costs between whole units and partial units? |
process costing |
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which system determines the amount of production costs that should be transferred to the next department? |
process costing |
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in regards to equivalent units of production (EUP) |
1. two units 50% complete are equivalent to one unit 100% complete 2. EUP equals the number of whole units of output that could have been produced during a period from the actual effort expended |
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the objective of EUP calculations is |
to eliminate the costing problem caused by partially completed units |
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the cost per EUP will include _______ costs if the department had beginning inventory |
prior period costs |
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applied overhead |
the amount of overhead that has been allocated to WIP Inventory as a result of productive activity; credits for this amount are to an overhead account |
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contribution margin (CM) |
the difference between selling price and variable cost per unit or between total revenue and total variable cost at a specific level of activity; the amount of each revenue dollar remaining after variable costs have been covered that goes toward coverage of fixed costs and generation of profits |
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high-low method |
a technique used to determine the fixed and variable portions of a mixed cost; used only the highest and lowest levels of activity within the relevant range |
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overapplied overhead |
a credit balance in the Overhead Control account at the end of a period; exists when the applied overhead amount is greater than the actual overhead that was incurred |
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underapplied overhead |
a debit balance in the Overhead Control account at the end of a period; exists when the applied overhead amount is less than the actual overhead incurred |
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variable costing |
a cost accumulation and reporting method that includes only variable production costs (DM, DL, and variable overhead) as inventoriable or product costs; treats fixed overhead as a period cost; is not acceptable for external reporting and tax reporting |
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absorption costing |
a cost accumulation and reporting method that treats the costs of all manufacturing components (DM, DL, VOH, and FOH) as inventoriable or product costs; the tradional approach to product costing; MUST be used for external financial statements and tax reporting |
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mass customization |
a process of personalizing production that is generally accomplished through the use of flexible manufacturing systems; reflects an organization's increase in product variety from the same basic component elements |
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cost-plus contract |
a contract in which the customer agrees to reimburse the producer for the cost of the job plus a specified profit margin over cost |
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continuous loss |
any reduction in units that occurs uniformly throughout a production process |
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cost of production report |
a process costing document that details all operating and cost information, shows the computation of cost per equivalent unit, and indicates cost assignment to goods produced during the period |
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discrete loss |
a reduction in units that occurs at a specific point in a production process |
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method of neglect |
the treatment of spoiled units of production schedule as if those units did not occur; is used for continuous normal spoilage |
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Business value-added activities increase the value of a product without increasing production time.
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True
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Adopting a just-in-time (JIT) manufacturing process may enable a company to increase its manufacturing efficiency cycle(MCE).
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False
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Activity based costing (ABC) is a method of allocating overhead by accumulating cost according to activities and then assigning them to products or services by the use of predictors.
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False
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A traditional costing system has fewer cost pools than does an ____________ system.
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activity-based costing (ABC)
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_____________ is appropriate for an organization that produces and sells a wide variety of products or services.
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Activity-based costing (ABC)
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Activity Based Costing is most appropriate for a company that produces only one product.
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False
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An objective of activity-based management is to:
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Reduce or eliminate non-value-added activities incurred to make a product or to provide a service.
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Common activity drivers for human resource costs include all but which of the following:
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Dollars expended.
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Criticisms of ABC? (3)
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1. significant amount of time and cost to implement.
2. Must overcome barriers to change 3. Does not conform to GAAP |
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There are three different valuation methods: ______, _______, and_______ and they can be used with either job order costing or with process costing.
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actual, normal, and standard
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In a job order accounting system, costs are accumulated by job, which can be either a single unit or multiple units that have been produced according to customer specifications.
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True
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A job order cost sheet contains the cost of direct material and direct labor charged to a particular job but does not show overhead.
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False
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A job order cost sheet shows the cost of direct material, cost of direct labor and actual overhead cost charged to a particular job.
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False
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________ costing makes it easier to identify those jobs that are the most profitable.
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Job order
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When a job order cost system is used, normal losses are treated as period costs and abnormal losses are treated as product costs.
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False
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Standards can be used in a job-order costing system if the products manufactured are varied in nature.
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False
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a ________ cost system will allow a company to quickly recognize cost variances and to correct the problems.
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standard
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A company which uses a _________ accounting system records both standard and actual costs in their accounting records.
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standard
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In a ________ accounting system, each job is treated as a unique cost entity and costs are accumulated by jobs.
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job order
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___________ for incomplete jobs serve as the work in process subsidiary ledger.
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Job order cost sheets
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___________ are prenumbered for control purposes.
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Job order cost sheets
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____________ for jobs that have been completed but not yet delivered to the customer serves as the finished goods subsidiary ledger.
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Job order cost sheets
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Abnormal losses are treated as ______ costs.
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product
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Normal losses which can be associated with a particular job, are charged (net of _____)to that job.
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disposal
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Normal losses, which can be anticipated, are included as a part of _____________.
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predetermined overhead
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JobOrder
_______ quantities ________ of identifiable, tailor-made products User-specificservices Trackscosts by ______ |
Small
Batches job |
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Process Costing
_______ quantities __________ goods Tracks costs by _________ |
Large
Homogeneous batch of goods by department |
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The weighted average method (WA) combines the __________ and current period __________.
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begining inventory of WIP
production activity and costs |
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Costs incurred by predecessor departments are called ________ costs by the successor departments
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transferred-in
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In a complex production environment, it is more difficult to compute a single EUP for __________.
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conversion costs
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A________ loss occurs at a specific point in time.
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discrete
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Losses from normal spoilage are _______ costs
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product
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Losses from abnormal spoilage are _______ costs.
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period
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Normal spoilage units resulting from a continuous process result in
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a higher unit cost for the good units produced
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Activity Based Management (ABM) objectives |
1. produce more efficiently 2. determine product or service costs more accurately 3. control and evaluate performance more effectively |
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Activity Analysis process |
1. classify activities as VA and NVA 2. devise ways of minimizing or eliminating activities that increase costs but provide little or no customer value |
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_____ activities can be reduced, redesigned, or eliminated without affecting the product's or service's market value or quality |
NVA |
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The easiest way to reduce costs is to minimize or eliminate the _____ activities that are incurred during the production or performance process |
NVA |
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Companies engage in ______ for production, distribution, selling, administration, and other company functions |
processes |
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Example of a VA activity |
processing (service) time |
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Examples of NVA activities |
1. Inspection Time (unless it is a pharmaceutical or food industry) 2. Transfer Time 3. Idle Time |
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Total Cycle (or Lead) Time = |
VA Time + NVA Time
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Manufacturing Cycle Efficiency (MCE) = |
Total VA Time/ Total Cycle Time |
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Service Cycle Efficiency (SCE) = |
Total Actual Service Time/ Total Cycle Time |
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Factors of NVA Activities (3) |
1. Systemic - ex. having to produce large batches to reduce set-up costs 2. Physical - ex. transfer of goods because shipping/receiving are on a different floor than production/storage 3. Human - ex. having to rework a product due to inadequate error |
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the primary impediment to a fair determination of product or service cost has always been the assignment of _______ |
overhead |
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the two principle _____ costing systems are job order and process |
product |
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in the job order costing system each _____ is treated as a unique cost entity or cost object |
job |
