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198 Cards in this Set
- Front
- Back
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what is a critical first stem in making competitive advantage?
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identifying the key costs and cost drivers
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incurred when a resource is used for some purpose
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cost
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the meaningful groups into which costs are often collected
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cost pools
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any factor that causes a change in the cost of an activity
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cost driver
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any product, service, customer, activity, or organizational unit to which costs are assigned for some management purpose
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cost object
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a group of related products
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value stream
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the process of assigning costs to cost pools or form cost pools to cost objects
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cost assignment
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name the two types of cost assignments
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direct tracing and allocation
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can be conveniently and economically traced directly to a cost pool or a cost object
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direct cost
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has no convenient or economical trace from the cost to the cost pool or from the cost pool to the cost object
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indirect cost
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has no convenient or economical trace from the cost to the cost pool or from the cost pool to the cost
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indirect cost
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what do you use because indirect costs cannot be traced?
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cost drivers
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the assignment of indirect costs to cost pools and cost objects
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cost allocation
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cost drivers used to allocate costs
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allocation basis
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includes the cost of the materials in the product and a reasonable allowance for scrap and defective units
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direct materials cost
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refers to the cost of materials used in manufacturing that are not physically part of the finished product
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indirect materials cost
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includes the labor used to manufacture the product or to provide the service
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direct labor costs
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includes supervision, quality control, inspection, purchasing and receiving and other manufacturing support costs
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indirect labor cost
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all indirect costs are commonly combined into a single cost pool - for indirect materials, indirect labor, and other indirect items
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overhead
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in a manufacturing firm, overhead is called
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factory overhead
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name the three types of costs
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direct materials, direct labor, and overhead
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refers to direct materials and direct labor that are combined into a single amount
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prime costs
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refers to direct labor and overhead combined into a single amount
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conversion cost
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name the four types of cost drivers
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- activity based
- volume based - structural - executional |
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a detailed description of the specific activities performed in the firm's operations
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activity analysis
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how does activity based costing help to improve operational and management control? (2)
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1) identifying which activities are contributing value to the customer
2) focusing attention on activities that are most costly |
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the cost driver is
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the amount produced or quantity of service provided
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name the 3 cost drivers:
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a) output of complete units
b) quantity of direct materials c) hours of direct labor |
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pattern of increasing costs at a decreasing rate
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increasing marginal productivity
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the range of the cost driver in which the actual value of the cost driver is expected to fall and for which the relationship to total cost is assumed to be approximately linear
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relevant range
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the change in total cost associated with each change in the quantity of the cost driver
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variable cost
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the portion of the total cost that does not change with a change in the quantity of the cost driver within the relevant range
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fixed cost
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the term used to refer to total cost when total cost includes both variable and fixed cost components
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mixed cost
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a cost when it varies with the cost driver but in steps
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step cost
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the total manufacturing cost (materials, labor and overhead) divided by the number of units of output
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unit cost (average cost)
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strategic in nature and involve plans and decisions that have a long-term effect with regard to issues such as scale, experience, technology and complexity
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structural cost drivers
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name four examples of structural cost drivers
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1) scale
2) experience 3) technology 4) complexity |
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factors the firm can manage in the short term to reduce costs, such as workforce involvement, design of the production process and supplier relationships
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executional cost drivers
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name 3 examples of executional cost drivers
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1) workforce empowerment
2) design of the production process 3) supplier relationships |
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the cost of the product transferred to the income statement when inventory is sold
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cost of goods sold
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for a manufacturing firm include only the costs necessary to complete the product: direct materials, direct labor, and factory overhead
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product costs
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all nonproduct expenditures for managing the firm and selling the product
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period costs
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name the three inventory accounts that manufacturing firms use:
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1) materials inventory
2) work in process 3) finished goods inventory |
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the cost of the supply of materials used in the manufacturing process or to provide the service
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materials inventory
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contains all costs put into the manufacture of products that are started gut not complete at the financial statement date
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work-in process inventory
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the cost of goods that are ready for sale
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finished goods inventory
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the sum of materials used, labor and overhead for the period
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total manufacturing cost
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the cost of goods finished and transferred out of the work-in-process inventory account this period
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cost of goods manufactured
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a set of policies and procedures that restrict and guide activities in the processing of financial data with the objective of preventing or detecting errors and fraudulent acts
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internal accounting controls
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contains all costs put into the manufacture of products that are started gut not complete at the financial statement date
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work-in process inventory
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to ensure that products and services meet customer requirements, a cost system must measure and report the cost of providing the features and functions that customers want
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quality
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the cost of goods that are ready for sale
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finished goods inventory
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to manage these, managers must understand their cost systems
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cost
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the sum of materials used, labor and overhead for the period
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total manufacturing cost
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effective management of manufacturing costs requires timely and accurate cost information. getting timely and accurate cost information requires that the firm choose a cost system that is a good match for its competitive strategy
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time
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the cost of goods finished and transferred out of the work-in-process inventory account this period
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cost of goods manufactured
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resources sacrificed or forgone to achieve a specific objective
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cost
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a set of policies and procedures that restrict and guide activities in the processing of financial data with the objective of preventing or detecting errors and fraudulent acts
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internal accounting controls
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accumulations of costs
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cost pools
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to ensure that products and services meet customer requirements, a cost system must measure and report the cost of providing the features and functions that customers want
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quality
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to manage these, managers must understand their cost systems
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cost
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effective management of manufacturing costs requires timely and accurate cost information. getting timely and accurate cost information requires that the firm choose a cost system that is a good match for its competitive strategy
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time
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resources sacrificed or forgone to achieve a specific objective
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cost
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accumulations of costs
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cost pools
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any product, service, customer, activity or organizational unit for which you want to separately measure costs
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cost object
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process of assigning costs to cost objects or from cost pools to cost objects
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cost assignment
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name four examples of cost drivers
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units produced
machine hours miles driven labor hours |
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can be conveniently and economically traced to a cost pool or a cost object
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direct cost
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can not be conveniently or economically traced to cost pools or cost objects
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indirect costs
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the assignment of indirect costs to cost pools and cost objects, using cost drivers
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cost allocation
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includes cost of materials in the product or other cost object and usually a reasonable allowance for scrap and defective units
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direct materials
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labor used to manufacture the products or to provide the service plus some portion of non-productive time that is normal and unavoidable
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direct labor
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the indirect costs for materials, labor and facilities used to support the manufacturing process but not easily traced directly to the product
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factory overhead
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direct materials and direct labor
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prime cost
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direct labor and factory overhead
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conversion cost
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- costs benefit future periods
- capitalized as an asset - costs inventoried until sold |
product costs
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- presumed to NOT benefit future periods
- not attached/added to inventory - expenses when incurred |
period costs
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the store of materials awaiting use in the manufacturing process
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materials inventory
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all costs put into manufacture of products that are not complete at the financial statement date
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work-in process inventory
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goods fully completed but not yet sold
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finished goods inventory
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- cost objects: jobs or batches
- wide variety of products or services - until cost computed by dividing total job costs by units produced or served at end of the job |
job costing
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- cost objects: process or departments
- mass production of homogeneous products or services |
process costing
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unit cost computed by dividing total process costs of the period by units produced or served
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process costing
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the process of accumulating, classifying and assigning direct materials, direct labor, and factory overhead costs to products, services, or projects.
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costing
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name the three types of cost accumulation methods
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job costing
process costing joint costing |
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name the three types of the cost measurements
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actual
normal standard |
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name the two types of the overhead assignment methods
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volume-based
activity based |
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when the cost can be easily traced to a specific product or service
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job costing
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when the cost can be traced to the departmental level
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process costing
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uses actual costs incurred for all product costs;
direct materials direct labor factory overhead rarely used |
actual
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why is the "actual measurement" rarely used?
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because actual prices can fluctuate significantly;
the prices are only known at the end of the period and can't provide accurate unit product cost information |
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uses actual costs for direct materials and direct labor
uses normal costs for factory overhead estimates a portion of overhead timely estimate |
normal
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standard costs and quantities for direct materials direct labor and overhead
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standard
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expected costs the firm should maintain
cost control performance evaluation process improvement |
standard costs
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allocate overhead to products/jobs using a volume-based cost driver
relies on the fact that each unit uses the same amounts of overhead --> charged the same amount $ or should be proportional to labor used for each product |
volume based
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allocate factory overhead to products using cause and effect criteria with multiple cost drivers
use volume and non volume based drivers |
activity approach
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what types of cost measurements would a cost leader use?
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process costing
activity based costing standard costing |
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a product costing system that accumulates costs and assigns them to specific jobs, customers, projects or contracts
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job costing
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records and summarizes the costs of direct materials, direct labor, and factory overhead for a particular job
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job cost sheet
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name the three cost elements
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materials
labor overhead |
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a source document that the production department supervisor uses to request materials for production
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materials requisition
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shows the time an employee worked on each job, the pay rate, and the total labor cost chargeable to each job
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time ticket
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a process of allocating overhead costs to jobs
because overhead costs are not traceable to individual jobs ----> actual costing normal costing |
overhead application
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uses actual costs incurred for direct materials and direct labor and applies actual factory overhead to jobs;
not known until the END OF THE PERIOD not at the end of the job --> so many use normal costing instead |
actual costing system
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uses actual costs for direct materials and direct labor
applies factory overhead to jobs using a predetermined allocation rate - avoids fluctuations in cost per unit - using predetermined annual factory overhead rate normalizes overhead cost fluctuations |
normal costing system
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an estimated rate used to apply factory overhead cost to a specific job
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predetermined factory overhead rate
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the amount of overhead assigned to a job using a predetermined factory overhead rate
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factory overhead applied
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name the three most frequently used volume-based cost drivers
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direct labor-hours
direct labor-costs machine hours |
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since total overhead for all departments is used to determine the overhead rate
when production departments in the plant are very similar to the amount of overhead in each department and the usage of cost drivers in the departments |
plantwide method of normal costing
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the amount of factory overhead applied that exceeds actual factory overhead costs
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overapplied overhead
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the amount by which the actual factory overhead exceeds factory overhead applied
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underapplied overhead
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name the two ways that under/over applied overhead can be disposed of
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1) adjust the cost of goods sold
2) adjust the production costs of the period - prorate the difference among the amounts of the current period's applied overhead remaining in ending balances of work in process inventory finished goods inventory cost of goods sold |
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a hybrid costing system that uses job costing to assign direct materials costs to jobs and process costing to assign conversion costs to products or services
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operation costing
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process of making a large number of identical products
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mass/traditional production
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allows firms to quickly turnout small batches of customized products
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lean manufacturing
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customers might want customized products or services but it appears too costly
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quality
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trying to minimize costs using economies of scale
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cost
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existing production focuses on how quickly a firm can get its product to market
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time
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what is important/valuable to the customer
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value
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all activities to bring product or service to the customer; similar to the value chain
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value stream
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customers' orders pull all processes to provide a product or service;
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pull and flow
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multiskilled labor force
- cellular work arrangements that pull together people and equipment - employees are intellectual assets capable of adding value |
empowerment
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zero defects, continuous improvement, value added activities
- eliminating all forms of waste |
perfection
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name the five principles of lean manufacturing
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value
value stream pull and flow empowerment perfection |
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to purchase materials:
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Raw Materials
Accounts Payable or Cash |
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to issue direct (raw materials) and indirect materials (overhead)
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work in process inventory
manufacturing overhead raw materials |
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to distribute direct and indirect labor costs
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work in process inventory
manufacturing overhead wages payable |
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to apply overhead
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work in process inventory
manufacturing overhead |
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to record actual overhead costs incurred
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manufacturing overhead
various accounts (a/p, cash, A/D) |
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to record completed goods
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finished goods inventory
work in process inventory |
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to record goods sold
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cost of goods sold
finished goods inventory accounts receivable sales |
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to close overapplied overhead
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manufacturing overhead
cost of goods sold |
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to close underapplied overhead
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cost of goods sold
manufacturing overhead |
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job costing and process costing have the same objective:
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determine the cost of products
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job costing and process costing have the same inventory accounts:
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raw materials
work in process finished goods |
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job costing and process costing have the same overhead assignment method:
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predetermined rate times actual activity
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name three characteristics of process costing
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continuous mass production
similar processes homogeneous products |
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management needs informaiton on how adding features to a product or increasing its level of reliability may increase overhead costs
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quality
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an appropriate cost allocation system may help management to focus on high return products, customers or processes
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cost
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a good allocation system shows how altering schedules or using alternative processes affects costs of products
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time
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strategy determines
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products/customers
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products/customers trigger consume
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activities
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activities consume
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resources
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personnel
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number of workers
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storeroom order
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number of items picked for an order
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engineers
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time worked
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materials management
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time worked
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accounting
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time worked
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research and development
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number of new codes developed
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quality
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time worked
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utilities
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square footage
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an activity that is performed for each unit of production (direct materials, direct labor hours, inserting a component)
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unit-level activity
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an activity that is performed for each batch of products rather than for each unit of production (machine setup, purchase ordering, production scheduling)
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batch-level activity
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an activity that is performed to support the production of a given product
product design, parts administration, issuance of engineering change orders, expediting |
product-sustaining activity
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an activity that is performed to sustain the production of products in general
security, safety, maintenance, plant management |
facility-sustaining activity
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product design
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product level
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production scheduling
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batch
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materials ordering
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batch
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parts administration
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products
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materials receipt
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batch
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general and administrative services
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facility
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machine setups
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batch
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plant administration
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facility
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custodial service
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facility
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vendor certification
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product or facility
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difference between volume based and activity based activities:
in the first stage: cost pools |
volume based: plants or departments
activity based: activities or activity centers |
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all of the following are cost objects except;
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a. activities or processes
b. customers c. outputs of processes d. ***cost assignments ****** |
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which one of the following items is typically an example of an indirect cost of a cost object?
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a. courier charges for shipment
b. **** manufacturing plant electricity ****** c. direct manufacturing labor d. wood used for furniture manufacture |
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which one of the following examples could be classified as a direct cost?
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a. the costs of an entire factory's electricity related to a product; the product line is the cost object
b. *****the printing costs incurred for payroll check processing; the payroll check processing is the cost object***** c. the salary of a maintenance supervisor in the manufacturing plant; product A is the cost object d. the costs incurred for electricity in the office; accounting department is the cost object |
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a company using the traditional volume-based overhead assignment (allocation) method will tend to
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understate the cost of low volume products.
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Elimination of low-value-added activities in a firm should:
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not affect the form, fit or function of the product or service
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What ABC/M tool is used to answer the following critical question? What do we do?
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Activity analysis
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Which of the following is a true statement?
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a.) ABC/M applications are not commonly used by manufacturing firms
b.) ABC/M applications are only used by manufacturing firms. c.) ABC/M applications are not commonly used by governmental units. **** d.) ABC/M are commonly used in most industries. **** |
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________ identifies customer service activities, cost drivers, and the profitability of individual customers or groups of customers
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customer profitability analysis
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which of the following is a customer batch-level cost category?
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order taking is $30 per order
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Customer costs can be classified into all of the following categories except:
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a.) customer-batch-level costs
***b.) distribution channel profits **** c.) sales-sustaining costs d.) customer-sustaining costs |
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customer lifetime value (CLV) is:
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the net present value of all estimated future profits from the customer
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successful ABC/M implementation requires close cooperation among the management accountant and:
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engineers
manufacturing managers operating managers |
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a specific task or action of work done
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activity
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an economic element needed or consumed in performing activities
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resource
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a measure of the amount of resources consumed by an activity
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resource consumption cost-driver
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measures how much of an activity a cost object uses
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activity consumption cost driver
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a costing approach that assigns resource costs to cost objects based on activities performed for the cost objects
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activity-based costing
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assigns resource costs to activity cost pools and then to cost objects
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two-stage cost assignment
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list the steps in the activity-based costing system
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1. identify resource costs and activities
2. assign resource costs to activities 3. assign activity costs to cost objects |
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performed for each unit of the cost object
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unit-level activity
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supports the production of a specific product or service
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product-level activity
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supports operations in general
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facility-level activity
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list the benefits of activity based costing
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1. better profitability measures
2. better decision making 3. process improvement 4. cost estimation 5. cost of unused capacity |
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increases the value of the product or service to the customers
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high-value added activity
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consumes time, resources or space, but adds little to satisfying customer needs
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low-value added activity
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identifies customer service activities, cost drivers, and the profitability of individual customers or groups of customers
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customer profitability analysis
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identifies activities and cost drivers to service customers
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customer cost analysis
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the net present value of all estimated future profits form the customer
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customer lifetime value
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the sum of the CLVs for all the firm's customers
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customer equity (CE)
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resource costs are assigned to certain activities which in turn are assigned to other activities before being assigned to the final cost objects
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multistage ABC
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an adaptation of ABC that emphasizes resource consumption by greatly increasing the number of resource cost pools, which allows more direct tracing of resource costs to cost objects than an ABC system with fewer cost centers
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resource consumption accounting
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assigns resource costs directly to cost objects using the cost per time unit of supplying the resource, rather than first assigning costs to activities and then from activities to cost objects
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time-driven activity-based costing TDABC
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