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47 Cards in this Set
- Front
- Back
Managers carry out 3 major activities
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Planning, directing and motivating, and controlling
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Manufacturing Costs, Product costs, inventoriable costs
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Direct materials, direct labor, MOH
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Nonmanufacturing costs, Period costs
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Selling and administrative expenses
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Manufacturing overhead
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Indirect materials, indirect labor, and other manufacturing costs such as factory rent, factory utilities, and depreciation of factory equipment and facilities
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Prime cost
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Direct materials plus direct labor
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Conversion cost
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Direct labor plus MOH
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Period costs
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Expensed on income statement in the period in which they are incurred (when co. incurs liability to pay them)
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Product costs
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Matched with units of product and are recognized as an expense on income statement only when the units are sold
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Total manufacturing cost
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Direct Materials
+Direct Labor +MOH ------------------------------- =Total Manufacturing cost |
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Cost of goods manufactured
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Beginning balance, Work in process
+Total Manufacturing cost -Ending balance, Work in process ------------------------------------------- =Cost of goods manufactured |
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Cost of Goods sold
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Beginning balance, finished goods
+cost of goods manufactured ---------------------------------------- =Goods available for sale -ending balance, finished goods --------------------------------------------- =Cost of goods sold |
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Income statement of manufacturing company
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Sales
-Cost of goods sold -------------------------------------------- =gross margin -selling and administrative expenses ------------------------------------------- =net operating income |
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Variable costs
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Vary in direct proportion to changes in volume or level of activity.
Ex: Direct materials, direct labor, cost of goods sold |
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Fixed costs
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Remain constant within relative range
-Relevant range: Range of activity within which the assumptions about cost behavior are valid |
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Direct cost
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Is a cost that can be easily and conveniently traced to a specific object.
Ex: salaries and commissions of salespersons |
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Indirect
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Cannot be easily and conveniently traced to the cost object
Ex: salary of the manager of a department store would be considered indirect cost of the shoe department and other departments |
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Process costing
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Is used when a single homogenous product such as brick is produced
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Job-Order costing
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Many different products or services are produced each period
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Journal entry for a withdrawal of raw materials
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Work in Process
Manufacturing overhead Raw materials |
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Journal entry to record labor cost
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Work in process
MOH Salaries and wages payable |
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Predetermined overhead rate
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Estimated total manufacturing cost
------------------------------------------------ Estimated total amount of allocation base |
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Journal entry to apply overhead to a job
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Work in process
MOH |
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Actual overhead costs
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Actual overhead costs are NOT charged to work in process. Instead, they are charged to the MOH account. Note that ACTUAL overhead costs all appear as debits to MOH
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Journal entry to transfer costs from Work in process to finished goods
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Finished goods
Work in process |
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Journal entry for selling completed goods
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Cost of goods sold
Finished goods |
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If overhead applied is less than the actual overhead costs incurred...
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Overhead has been underapplied. MOH will have a debit balance
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If overhead applied is more than the actual overhead costs incurred...
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Overhead has been overapplied. MOH will have a credit balance
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At end of period overhead has been underapplied, the entry would be:
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MOH
Cost of goods sold |
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Plantwide overhead rate
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Includes all the manufacturing overhead costs in a factory and is typically based on direct labor hours or machine hours. This can cause distorted product costs when overhead costs aren't really caused by the allocation base
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Departmental overhead rates
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provide a slightly more sophisticated approach than the plantwide overhead rate. Here, each department has its own overhead rate. Allocation bases are usually labor hours or machine hours, so distortion can occur if overhead costs are cause by factors other than the allocation bases
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Activity based costing
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(as compared to plantwide and departmental overhead rates) Each major activity has its own cost pool. An activity is any event or transaction that causes the incurrence of overhead cost
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Activity based costing stages
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1.Costs are assigned to the activity cost pools
2. The costs in each activity cost pool are assigned to products according to the amount of activity each product requires. This is accomplished by computing an activity rate Ex: Total cost of machine setup pool=$150,000, and total activity=1000 setups. Activity rate=$150/setup |
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Unit level
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Performed each time a unit is produced. E.g, shaping a part for a product on a milling machine
-Processing units on machines -Processing units by hand -Consuming factory supplies |
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Batch level
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Performed each time a batch is handled or processed. For example, cleaning a machine prior to each batch. Costs in a batch level cost pool depend on the # of batches run, not on the # of units per batch.
-Processing purchase orders -Setting up equipment |
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Product level activities
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Required to have a product at all.
-Testing new products -Administering parts inventories -Designing products |
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Facility level activities
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Sustain a facility's general manufacturing process
-Maintaining factory grounds -General factory administration |
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To determine MOH applied to a product in activity based costing
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1. Compute its activity rate (predetermined overhead rate) by dividing estimated overhead by its expected activity
2. For each activity in the cost pool, multiply the activity rate by the activity required for each product. |
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Process Costing is similar to job-order costing in three ways:
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1. Both systems have the same basic purposes, which are to assign material, labor, and overhead costs to products and to provide a mechanism for computing unit costs
2. Both systems use the same basic manufacturing accounts: MOH, Raw materials, Work in Process, and Finished goods 3. Costs flow through the systems in the same way |
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Process Costing differs from job-order in three ways:
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1. A single product is produced on a continuous basis, products are homogenous
2. Costs are accumulated by department, rather than by job 3.Unit costs are computed by department (rather than by job) |
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Processing department
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Is any work center where work is performed on a product and where materials, labor, or overhead costs are added. Processing dep'ts have 2 common features:
1. Activity of department is carried out uniformly on every product passing through it 2. The output of the department is homogenouse |
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Equivalent Units
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Equivalent units=# of partially completed units x Percentage completion
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Equivalent units of production
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Are used to compute the cost per equivalent unit. Under the weighted average method:
Units transferred to the next department or finished goods +Equivalent units in ending work in process inventory ---------------------------------------------- =Equivalent units of production |
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Note the following points concerning process costing
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1. Equivalent units of production and the cost per equivalent unit must be computed separately for each cost category
2. Units transferred out of the department or to finished goods are considered to be %100 complete in regards to the department 3. The first processing dept. will not have a cost category for the costs of units transferred in, but subsequent units will have such a cost category |
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Cost per equivalent unit
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Under weighted average:
Cost per equivalent unit= Cost of beginning work in process inventory+cost added during period --------------------------------------------- Equivalent units of production |
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Costs of units transferred out are determined by each department as follows:
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Units transferred to the next dept.
x Cost per equivalent unit =Cost of units transferred out This computation is made for each cost category in the department, then summed |
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The costs of the units in ending inventory are determined for each cost category within a department as follows:
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Equivalent Units of production in ending work in process inventory
x Cost per equivalent unit =Cost of ending work in process inventory This computation is made for each cost category in the department, then summed |
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Operation Costing
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A hybrid system containing elements of both job-order and process costing. It is used when products use different materials but follow the same basic processing steps.
Ex:Factory that assembles personal computers 1. Products are handled in batches, each batch is charged with its own specific materials. (similar to job-order costing) 2. Labor and overhead costs are accumulated by each department and costs are assigned to batches on an average per unit basis (similar to Process costing) |