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48 Cards in this Set
- Front
- Back
What is cost accounting |
involves the measuring, recording and reporting of product cost
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Cost accounting system
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consists of accounts for various manufacturing cost.
Important features is the use of perpetual inventory system Provides immidiate, up to date info on teh cost of a product |
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Types of cost accounting system
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1. Job order costing
2. Processing cost |
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Objective of both Job order and process costing system
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to provide:
1. product cost 2. cost control 3. intentory valuation 4. Financial statement presenation |
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Job order costing system
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Costs are assigned to each job or to each batch
Each job/batch has its own destinguishing features Objective is to compute the cost per job used for uniqu product |
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Manufecturing cost
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activities and process taht converts raw material into finished goods
1. Direct Material 2. Direct Labor 3. Manufacturing overhead |
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Indirect Matrial
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Cannot be physically traced to end product
1. dont become part of the finished good 2. they can't be traced becaseu their association wiht finished goods is too small |
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Predetermined Variable OH rate
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Is based on relationship between estimated annual overhead cost and expected annual operating activity.
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Predetermined Variable OH rate
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Estimated annual overhead cost / expected operating activity
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Fixed Overhead rate
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Estimate fixed cost / normal capacity
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Manufacturing overhead
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MO> assigned = underapplied
MO < assigned = overapplied |
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Over or underapplied Manufecturing overhead
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if immaterial - write off to cogs
if material - then charged to WIP, Finished godos and COGS |
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fixed overhead over/under applied treatment
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always chage to cogs
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Service department costs are allocated based on
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1. Service provided
2. Service available 3. Benefit received 4. Equity |
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Cost allocated stages
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1. Allocate support department cost to producing department
2. Assignmnet of the allocated cost to individual product |
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Producing departments' overhead
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1. Overhead directly associated with producing department
2. Overhead allocated to producing department from support departments |
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Steps to allocating support department's cost to producing departments
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1. Departmentalize the firm
2. classify each dept as support vs production 3. Trace overhead cost to each dept 4. allocate support dept cost to producing 5. allocate off to individual product through predeterminded OH rate |
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Sequential method of allocating cost
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1. Support dept of highest cost is allocated to smaller support departments
2. Small support dept's cost to producing dept 3. Nothing gets allocated to the support dept with most cost |
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Process cost accounting
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focuses on teh process involved in mass producing productas that are identical
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Difference between Job Cost vs process cost
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1. Number of wqork in process accounts used
2. Documents used to track cost 3. the point at which costs are totalled (period of time) 4. unitl cost computation |
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Similaries of job order and process costing system
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1. Manufecturing cost elements are same
2. Accumulation for cost types 3. Flow of cost |
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Process costing flow (PECUA)
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1. Physical flow analysis
2. Calculate equivelent units 3. Determine cost to allocate 4. Compute Unit cost 5. allocate cost to EWIP, Goods completed (valuation of inventory) |
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Prime cost
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DM + DL
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Coversion cost
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DL + Overhead
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Physical flow of unit
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Units to be accounted for:
Beg Unit + Started into production Units accounted for: Transferred out + End. unit |
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Compute Equivelent unit
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Material:
Transfered out (% X unit) + Ending COGS (% X unit) Conversion Cost (CC) Transfered out (% X unit) + Ending COGS (% X unit) |
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Computer production cost
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( Beg DM + DM added)/ DM Equivelent units
CC: (Beg CC + CC added)/ CC equivelent unit |
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Product cost
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Manufecturing cost (DM+ DL + OH)
OH = Indirect material, indirect labor, other indirect cost |
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Period cost
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Non-manufecturing cost
selling expense Admin expense |
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ABC (activity based costing)
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An approach for allocating overhead cost to multiple cost pools then is assigns the activity cost pools to product by means of cost drivers
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Benefits of ABC
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1. ABC leads to more cost pools
2. ABC leads to enhanced control overhead costs 3. ABC leads to better mgmt decision |
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Limitations of ABC
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1. expensive
2. arbitary allocation continues |
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When to use ABC
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1. Product lines differ greatly in volume and manufecturing complexity
2. product lines are numeours, divers, adn require different degress of support cost 3. overhead cost constitues significant portion of total cost 4. manufecturing process changed significantly 5. production managers ignoring data |
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Types of activity level
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Unit level
batch level Production level Facility Level |
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Joint product
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two products procuded together up to a split off point. Can't be produced by themselves
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Valuation methods of joing cost
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1. Physical unit
2. Weighted ave 3. sales value at split off point 4. Net realizable value 5. Constant gross margin % |
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Net realizable value
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Market price - futher processing cost
= Hypothetical price X # of unit = Hypothetical value then apply joint cost % |
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When to use Net realizable value
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use only if sales value @ split off point is not available
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Sell or further process
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Futher process only if incremental reveneu is > than incremental cost.
Joint cost should be ignored |
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By-product treatement for Financial reporting
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Revenue is immaterial
Recoreded a other income or recudction to COGS Any further cost to by-product is recoreded as reduction to other income or increse of COGS Recored as ordinary sales |
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Constant Growth Margin
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(Joint cost + Futher processing cost ) / Final revenue = Gross margin/final revnenue = GM %
Final value - Margin $= COGS - Seperable cost = joint cost to product |
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Cost estimation approaches (4)
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Industrial engineering
Conference method account analysis Quantitative methods |
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4 types of qunatetative methods
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1. Scattergrah
2. High low 3. Regression 4. correlation analysis |
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High low method
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Chage in cost between high and low point / change in activity between high and low point
Give VC per unit |
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Regression analysis
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Y = a + bx
Y = estimated total cost a = fixed cost b = slope, VC X quantity |
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R Square
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Coefficient of determination
the closer it is to 1, the more causal the relationship |
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Reason why OH will be overapplied
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1. overhead cost were overestimated
2. Actual capacity was greate than noral capacity 3. Actual overhead costs were less than expected |
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Why would overhead be underapplied?
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1. overhead costs were underestimated
2. Actual activity was less than normal capacity 3. Actual overhead was higher than expected |