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82 Cards in this Set
- Front
- Back
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Cost Assignment (definition)
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The process of tracing or allocating costs to cost objects to satisfy a well-specified management objective for the info.
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Cost (definition)
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Cash or cash equivalent sacrificed for goods or services that are expected to bring a current or future benefit.
- Costs are recorded as assets or expenses |
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Asset (definition)
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A cost with a future benefit.
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Expense (definition)
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A cost with a current benefit.
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Traceability (definition)
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The ability to assign a cost to a cost object: 1) in an economically feasible way; 2) by means of a cause and effect relationship.
- Once recorded, costs can be classified, based on traceability, as either direct costs or indirect costs. |
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Direct cost (definition)
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Those that can be easily and accurately traced to the cost object.
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Indirect cost (definition)
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Those that cannot be easily or accurately traced to the cost object.
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What are the three methods for assigning cost to a cost object?
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Direct tracing, driver tracing, and allocation
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Direct tracing (definition)
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The process of identifying and assigning costs that are exclusively or physically related to the cost object.
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Driver tracing (definition)
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The use of drivers to assign costs to cost objects.
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Drivers (definition)
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Observable causal factors that measure the demands placed on resources by cost objects; something causing a cost.
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Allocation (definition)
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The assignment of costs to cost objects based on an assumed relationship. Example being a course schedule.
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Exercise 2-3
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a. direct tracing
b. indirect / allocation c. direct tracing d. direct tracing e. driver tracing f. indirect / driver tracing g. indirect tracing |
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Product (definition)
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A good or a service
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Goods (definition)
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Goods produced by using labor and capital to convert raw materials into some other form.
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service (definition)
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Tasks or activities performed by or for customers using an organization's products or facilities. (services also use materials, labor and capital)
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What are the four ways in which goods differ from services?
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Intangibility (services can't be "touched"), perishability (services cannot be stored), inseperability (producers and consumers come into direct contact), heterogeneity (services vary from customer to customer)
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Production cost (definition)
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Costs associated with the manufacture of goods or provision of services. There are three types of product costs (direct materials, direct labor, overhead)
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Direct materials (definition)
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Cost of materials that are directly traceable to the product.
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Direct labor (definition)
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Cost of labor that is directly traceable to the produce
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Overhead (definition)
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Indirect production costs; all product costs other than DM and DL.
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Fixed cost (definition)
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As a whole, stay the same. Per unit, change
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Variable cost (definition)
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As a whole, change. Per unit, stay the same.
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What is the linear equation for behavioral costs, in terms of fixed and variable costs?
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TC = F + VX
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Capacity (definition)
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The ability to do something. It is determined by the resources that are available
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What are the two types of resources?
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Flexible resources (buy when needed); committed resources (machinery, etc)
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How do you determine available capacity?
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Capacity used (sold) + Unused capacity (unsold) = Total Capacity Available
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Fixed Activity Rate (equation)
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FAR = Committed resources / capacity supplied
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Variable Activity Rate (equation)
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VAR = Flexible resources / capacity supplied
VAR = flexible resources / capacity used |
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Cost of unused capacity (equation)
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CUC = FAR x Unused Capacity
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Ex 3-10
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Total committed resources = $600,000
Total flexible resources = $420,000 Cost of resources supplied = $1,020,000 (What you did) VAR flexible resources / capacity supplied = $420,000 / 35,000 calls = $12 / call (potential) FAR committed resources / capacity supplied = $600,000 / (20x8x250) = $600,000 / 40,000 = $15/cal Cost of one call = VAR + FAR = $12/call + $15/call = $27/call Capacity used 35,000 calls Unused 5,000 Capacity available 40,000 cost of resources used = (VAR + FAR) x capacity used = ($12/call + $15/call) x 35,000 =($27/call) x 35,000 =$945,000 Cost of unused capacity FAR x unused capacity $15/call x 5,000 = $75,000 Cost of res. used = $945,000 Cost unu. cap = $75,000 Cost res. supp = $1,020,000 (same as part 1) |
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OH rate (definition)
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OH Rate = Estimated OH cost / Estimated Activity usage
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Applied OH (definition)
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Applied OH = OH rate x Actual activity usage
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Overhead variance (definition)
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The difference between actual and applied OH.
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Ex 4-2
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1. OH Rate = Est. OH cost / Est. DL hrs = $27,000,000 / 90,000 DLhrs = $300 / DLhr
2. Applied OH rate = OH rate x Actual DLhrs = $300/DLhr x 91,000 DLhrs = $27,300,000 3. OH variance Applied OH = $27,300,000 Actual OH = ($27,200,000) Overapplied by $100,000 |
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Activity Rate (definition)
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AR = Estimated Activity Cost / Est. driver
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Example 1 of AR (see answer)
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Processing Sales orders = $1,760,000
# Sales Orders = 440 Selling Goods = $640,000 # Sales Calls = 80 Servicing Goods = $600,000 # Service Calls = 300 (P) = $1,760,000 / 440 s.o = $4,000 / sales order (Sel) = $640,000 / 80 sa.c = $8,000 / sales call (Ser) = $600,000 = 300 se.c = $2,000 / service call |
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Example 2 of AR (see answer)
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C Class
Purchase Price $125 x 200,000 $ = $25,000,000 Processing = $4,000 x 400 $ = $1,600,000 Selling = $8000 x 40 $ = $320,000 Service = $2,000 x 200 $ = $400,000 Total = $27,320,000 / 200,000 units $136.60/unit - - - - - D class Purchase price = $125 x 200,000 $ = $25,000,000 Processing = $4,000 x 40 $ = $160,000 Selling = $8,000 x 40 $ = 320,000 Service = $2,000 x 100 $ = $200,000 Total = $25,680,000 / 200,000 units $128.40/units |
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Profit (definition)
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Profit = revenue - expenses
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Sales budget (definition)
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Details the projected sales by period. (sales are projected in units and dollars. Annual periods are broken down by month, quarter, etc)
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Production budget (definition)
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Details the units to be produced by period to meet the demands for: sales, ending finished goods inventory
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Direct materials budget (definition)
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Details the: quantity and cost of direct materials by period and to meet production and materials needs
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Direct labor budget (definition)
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Details the quantity and cost of direct labor needed in each period to meet production demands.
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Overhead budget (definition)
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details projected overhead costs by period given production.
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Selling and administrative expensive budget (definition)
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Details proejcted SGA expenses by period given projected sales.
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ending finished goods inventory budget (definition)
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details the quantity and cost of finished goods inventory in each period.
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costs of goods sold budget (definition)
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Details the projected COGS in each period.
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Budgeted (pro forma) income statement (definition)
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Details the projected income in each period
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Cash budget (definition)
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details by period: the sources and uses of cash; any borrowing needs; budgeted (pro forma) balance sheet; capital budget.
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Ex 8-3 (sales budget)
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Unit sales
x price/unit =total |
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Ex 8-4 production budget
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Unit sales
+ EFGI (% of next quarters sales) =Needs - BFGI (previous quarter's EFGI) =Units to produce |
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Ex 8-8 DM budget
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Units produced
x DM/unit = production needs + ERMI (% of nextx month's prod. needs) = Needs - BRMI (% of current month's production needs) = DM to purchase x DM cost = total |
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Ex 8-9 DL budget
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Units produced
x DL per unit = DL hours x DL rate = DL cost |
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Return on Investment (ROI) (Definition)
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ROI = operating income / avg. operating assets
(operating income is profit before interest and taxes) (average operating assets = the assets used to generate income; (Beg. BV + End BV) / 2 |
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Ex of ROI (ratio) vs. RI ($) (see answer)
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Northwoods
ROI $140,000 / $1,000,000 = 0.14 RI $140,000 - (0.08 x $1,000,000) = $60,000 Midwest ROI $330,000 / $3,000,000 = 0.11 RI $330,000 - (0,08 x 3,000,000) = $90,000 |
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Productivity Ratio (definition)
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PR = output / input
EX. 10 tables/100ft^2 = 0.1 tables/ft^2 |
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How to calculate PLM (5 steps)
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Step 1: calculate PR for each input in the base period.
May 10 tables 100 square feet of wood $5 per square foot April PR 0.2 tables/square foot -- -- -- -- Step 2 - Calculate PQ 10 tables / .2 = 50 feet squared -- -- -- -- Step 3 - Calculate PQ cost -- -- -- -- Step 4 - Calculate PLM -- -- -- -- Step 5 - Calculate the price recovery component (PRC) |
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PQ (definition)
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The amount of each input that would have been used in the current period to produce the current period's output if productivity would have been the same as base period.
PQ = current output / base PR |
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PQ cost (definition)
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PQ cost = PQ x current period input cost
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PLM (definition)
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PLM = total PQ cost - total current period input cost
(negative means it went down) |
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PRC (definition)
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PRC = profit change - PLM
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Ex 15-7
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See notebook
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Ex 15-2
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1. external failure cost
2. appraisal/prevention 3. internal failure cost 4. external failure cost 5. external failure cost 6. prevention 7. prevention 8. internal failure cost 9. external failure cost 10. internal failure cost 11. external failure cost 12. prevention 13. internal failure cost 14. external failure cost 15. external failure cost 16. prevention 17. external failure cost 18. internal failure cost 19. prevention 20. prevention/appraisal 21. external failure cost 22. prevention 23. internal failure cost |
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hidden cost vs. Taguchi (definition)
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L(y) = k(y-T)^2
L = quality loss y = actual value of design characteristic T = target value of design characteristic k = constant dependent on the organization's external failure cost system -- -- -- -- hidden cost = observable cost x multiplier $10,000,000 x 4 = $40,000,000 -- -- -- -- Taguchi $80 (12.5) = $1,000/unit hidden cost $1,000/unit x 45,000 units = $45,000,000 |
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GAAP income statement
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Sales
- COGS (DM, DL, VOH, FOH) = Gross Margin - Operating Expenses (VSGA, FSGA) = Operating Income |
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Behaviorable (variable costing) income statement
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Sales
- Variable Expenses (DM, DL, VOH, VSGA) = Contribution Margin - Fixed Expenses (FOH, FSGA) = Operating Income |
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Ch 11, Ex 3. See answer
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Sales = 110 units
Operating Income = $250 Sales up by 10% so CM up by 10% = $500 x 10% Operating Income up = $50 + $250 New Operating Income = $300 |
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Chapter 11 Variables Defined
P = |
the price charged per unit
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Chapter 11 Variables Defined
V = |
The variable cost per unit
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Chapter 11 Variables Defined
Q = |
The number of units sold
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Chapter 11 Variables Defined
F = |
The total fixed cost
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Chapter 11 Variables Defined
I = |
Operating Income
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Breakeven point (in units)
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I = PQ - VQ - F
At the BEP, $0 = PQ - VQ - F So Q = F (P-V) |
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Target profit (in units)
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I = PQ - VQ - F
TP = Target Profit TP = PQ - VQ - F Q = (TP + F) / (P - V) |
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11-3
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See notebook
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Breakeven Point (In dollars) (the easy way)
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I = PQ - VQ - F
at the BEP, $ = PQ - VQ - F Q = number of units P = price per unit PQ - sales dollars needed to break even |
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Breakeven point (in dollars) (the not-so-easy way)
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I = PQ - VQ - F
CM RATIO = CM / PQ = (P-V)/P CMR X PQ = CM/PQ X PQ = CM -- -- -- -- I = PQ - VQ - F I = CM - F SO I = (CMR X PQ) - F |
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ex 11-4
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1. CM per unit = CM/Q = (PQ - VQ)/Q = P-V
CM per unit = $45,000/15,000 = $3 CM per unit = ($120,000 - $75,000)/15,000 = $3 CM per unit = $8-$5 = $3 CM ratio = CM/PQ = PQ-VQ/PQ = P-V/P CMR = $45,000/$120,000 = 0.375 CMR = $120,000 - $75,000/$120,000 = 0.375 CMR = $8-$5/$8 = 0.375 2. VCR = 1-CMR 1 - 0.375 = 0.675 3. PQ so that I = $0. The easy way: I = PQ - VQ - F Q = 12,500 U -> (from 11-3) PQ = $8(12,500) = $100,000 The not-so-easy way: I = CMR X PQ - F $0 = 0.375PQ - $37,500 PQ = $100,000 |
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Margin of Safety (definition)
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MOS = Sales - BEP
(Higher MOS implies less risk) Notice that (in dollars) MOS x CMR = I (in units) MOS x CM/u = I |
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Chapter 12 Cost Concepts
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Relevant costs will be incurred in the future
AND Will differ across alternatives |
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Sunk cost (definition)
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Past costs that cannot be changed by any future decision.
Sunk costs are NEVER relevant Sunk costs are recorded in the accounting system. |
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Make or Buy
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Purchase Cost (Buy) $6.50
DM Cost (Make) $2.95 DL Cost (Make) $0.40 VOH (Make) $1.80 FOH (neither) ---- Total: Make = $5.15; Buy = $6.50 Disregarding qualitative factors, what is the maximum a company would pay for the product in this example? Add FOH to Make Rel. Cost for Make ups to $7.50 |
