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ACCT 402
So far... chapter 2, 4, 5, 16 (done)
| Term | Definition |
|---|---|
| Chapter 2 >>> | OVERVIEW: This study set consists of anything I feel like is important. I am going off of the book and my own knowledge, so if there are any errors just let me know. Thanks in advance. |
| Cost | The monetary value of resources (such as labor) sacrificed or forgone to achieve a specific objective. |
| Actual cost | A cost that has been incurred (a historical or past cost) and is distinguished from a budgeted cost. |
| Budgeted cost | A forecasted, or predicted, cost (a future cost) |
| Cost object | Anything for which a cost measurement is desired |
| Direct costs of a cost object | Costs related to the particular cost object that can be unambiguously traced to that object in an economically feasible (cost-effective) way. |
| Cost tracing | Describes the assignment of direct costs to a particular cost object. |
| Indirect costs of a cost object | Costs related to the particular cost object that cannot be traced unambiguously to that object in an economically feasible (cost-effective way) |
| Cost allocation | Assignment of indirect costs to a particular cost object |
| Cost assignment | General term that encompasses both (1) tracing accumulated costs that have.a direct relationship to a cost object and (2) allocating accumulated costs that have an indirect relationship to a cost object |
| What are the two basic ways in which costs behave? | Through variable costs and fixed costs |
| Variable cost | Cost that changes in total in proportion to changes in the related level of total activity or volume |
| Fixed cost | Cost that remains unchanged in total for a given time period, despite wide changes in the related level of total activity or volume |
| Relevant range | Band of normal activity level or volume in which there is a specific relationship between the level of activity or volume and the cost in question |
| When it comes to decisions, should managers use total costs or unit costs? | Managers should use TOTAL COSTS |
| Unit cost/average cost | Cost computed by dividing total cost by the number of units. |
| Why should you use unit costs cautiously? | It is possible to over/underestimate the actual total costs of a project/production |
| T/F: costs are assets when incurred, then expensed as cost of goods sold when products are sold. | True |
| T/F: costs are liabilities of the period in which they are incurred | False: costs are EXPENSES of the period in which they are incurred. |
| Manufacturing-sector companies | Companies that purchase materials and components and convert them into various finished goods |
| Merchandising-sector companies | Companies that purchase and then sell tangible products without changing their basic form |
| Service-sector companies | Companies that provide services or intangible products to their customers |
| Direct materials inventory | Direct materials in stock and awaiting use in the manufacturing process |
| Work-in-process inventory | Goods partially worked on but not yet completed (also called work in process) |
| Finished-goods inventory | Goods completed but not yet sold |
| Direct materials cost | Acquisition costs of all materials that eventually become part of the cost object (work in process and then finished goods), and that can be easily traced to the cost object in an economically feasible way. |
| Direct manufacturing labor costs | Include the compensation of all manufacturing labor that can be easily traced to the cost object (work in process and then finished goods) in an economically feasible way. |
| Indirect manufacturing costs | All manufacturing costs that are related to the cost object (work in process and then finished goods) but that cannot be traced to that cost object in an economically feasible way. Also called manufacturing overhead costs and factory overhead costs. |
| Examples of indirect manufacturing costs… | Indirect materials, indirect manufacturing labor, rent, insurance, property taxes, depreciation, compensation of managers |
| Inventoriable costs | All cost of a product that are considered as assets in the balance sheet when they are incurred and that become a cost of goods sold only when the product is sold. |
| Revenues | Inflows of assets (usually cash or accounts receivable) received for products or services provided to customers |
| Period costs | All costs in the income statement other than cost of goods sold |
| Examples of period costs… | Design costs, marketing, distribution, and customer service costs |
| T/F: in merchandising settings, inventoriable costs flow through work in process and finished goods accounts and are expensed when goods are sold; period costs are always expensed as incurred | False: in MANUFACTURING settings… |
| Cost of goods manufactured | Cost of goods brought to completion, whether they were started before or during the current accounting period |
| Operating income | Total revenues from operations minus cost of goods sold and operating (period) costs (excluding interest expense and income taxes) |
| Prime costs | All direct manufacturing costs |
| Conversion costs | All manufacturing costs other than direct materials costs |
| Overtime premium | Wages paid in excess of straight-time rates for overtime work |
| Idle time | Wages paid for unproductive time caused by lack of orders, computer breakdowns, delays, poor scheduling, and the like |
| Product cost | Sum of the costs assigned to a product for a specific purpose |
| What are the three features that help managers make decisions? | 1. Calculating the cost of products, services, and other cost objects 2. Obtaining information for planning and control and performance evaluation. 3. Analyzing the relevant information for making decisions |
| What is the most commonly used tool for planning and control? | Budgeting |
| Chapter 4 >>> | Job Costing |
| What are the building-block concepts of costing systems? | Cost object, direct costs, indirect costs, cost pools, and cost allocation base. (See chapter 2 for definitions) |
| Cost pool | A grouping of individual cost items |
| T/F: cost pools have the same cost-allocation base and they are grouped together and allocated to cost objects | True |
| Cost-allocation base | A factor that links in a systematic way an indirect cost or group of indirect costs to a cost object. (Ex: machine-hours) |
| Job-costing system | Costing system in which the cost object is a unit or multiple units of a distinct product or service called a job |
| Job | A unit or multiple units of a distinct product or service |
| Process-costing system | Costing system in which the cost object is masses of identical or similar units of a product or service |
| T/F: Many companies have costing systems that are only pure job-costing systems or pure process-costing systems. | False: Many companies have both qualities of job and process costing. |
| What is the five-step decision-making process | 1. Identify the problem and uncertainties 2. Obtain information 3. Make predictions about the future 4. Make decisions by choosing among alternatives 5. Implement the decision, evaluate performance, and learn |
| Actual costing | A costing system tracing direct costs to a cost object using actual direct-cost rates x actual quantities of the direct-cost inputs & allocates indirect costs based on actual indirect-cost rates x actual quantities of the cost-allocation bases. |
| Why is it better to calculate the indirect-cost rate annually than monthly | The shorter the period = the greater the influence of seasonal patterns on the amount of costs in the cost pool. It’s better to collect indirect costs over an annual period so it the cost can take account of all four seasons. |
| What is another reason why we should calculate the indirect-cost rate annually than monthly? | To avoid spreading monthly fixed indirect costs over fluctuating levels of monthly output and fluctuating quantities of the cost-allocation base |
| Budgeted indirect-cost rate | Budgeted annual indirect costs in a cost pool divided by the budgeted annual quantity of the cost-allocation base |
| Normal costing | A costing system tracing direct costs to a cost object using the actual direct-cost rates times the actual quantities of the direct-cost inputs and that allocates indirect-cost rates times the actual quantities of the cost-allocation bases. |
| What is the seven-step approach to compute direct and indirect costs of a job? | 1. Identify the job that is the chosen cost object 2. Identify the direct costs of the job 3. Select the cost-allocation bases to use for allocating indirect costs to the job 4. Identify the indirect costs associated with each cost-allocation base |
| What is the seven-step approach to compute direct and indirect costs of a job? (Cont.) | 5. Compute the indirect-cost rate for each cost-allocation base 6. Compute the indirect costs allocated to the job 7. Compute the total cost of the job by adding all direct and indirect costs assigned to the job |
| Source document | An original record that supports journal entries in an accounting system |
| Job-cost record | Source document that records and accumulates all the costs assigned to a specific job, starting when work begins. Also called job-cost sheet. |
| Materials-requisition record | Contains information about the cost of direct materials used on a specific job and in a specific department |
| Labor-time sheet | Source document that contains information about the amount of labor time used for a specific job in a specific department |
| T/F: actual costing uses actual indirect-cost rates | True |
| T/F: normal costing uses budgeted indirect-cost rates | True |
| Actual indirect-cost rate | Actual total indirect costs in a cost pool divided by the actual total quantity of the cost-allocation base for that entire cost pool |
| Manufacturing overhead allocated | Amount of manufacturing overhead costs allocated to individual jobs (or products or services) based on the budgeted rate multiplied by the actual quantity of the cost-allocation base used for each job. |
| T/F: Manufacturing overhead applied is another name for manufacturing overhead allocated | True |
| T/F: Manufacturing overhead control is not a contra account to manufacturing overhead allocated | False. They ARE contra accounts with one another |
| Subsidiary ledgers | Contain the underlying details of the general ledger and help managers track individual jobs. |
| Materials records | Is used to continuously record the quantity of materials received, issues to jobs, and the inventory balances for each type of material |
| Labor records by employee | Are used to trace the costs of direct manufacturing labor to individual jobs and to accumulate the costs of indirect manufacturing labor in the manufacturing department overhead records |
| Manufacturing department overhead records | (That make up the subsidiary ledger for the manufacturing overhead control account)… shows details of different categories of overhead costs. |
| Inventoriable costs relate to product or period costs? | Product(?) <- 90% correct sorry if it isn’t |
| Underallocated indirect costs | Allocated amount of indirect costs in an accounting period is less than the actual (incurred) amount in that period. Also called underapplied indirect costs or underabsorbed indirect costs |
| Overallocated indirect costs | Allocated amount of indirect costs in an accounting period is greater than the actual (incurred) amount in that period. Also called overapplied indirect costs and overabsorbed indirect costs |
| Adjusted allocation-rate approach | Restates all overhead entries in the general ledger and subsidiary ledger using actual cost rates rather than budgeted cost rates. |
| What benefits does the adjusted allocation-rate approach offer? | Timeliness and convenience of normal costing during the year and the allocation of the entire actual manufacturing overhead costs at year-end |
| Proration | The spreading of underallocated manufacturing overhead or overallocated manufacturing overhead among ending work in process, finished goods, and cost of goods sold |
| Managers prefer to use the PRORATION method when… | - the purpose of the adjustment is to state the balance sheet and income statement based on actual rather than budgeted MOH rates - the total amount of under/over allocation is big, relative to total operating income, and inventory levels are high |
| Managers prefer to use the WRITE-OFF TO COST OF GOODS SOLD approach when… | - the purpose of the adjustment is to state the balance sheet and income statement based on actual rather than budgeted MOH rates - the total amount of under/over allocation is small, relative to total operating income, or inventory levels are low |
| Managers prefer to use the ADJUSTED ALLOCATION-RATE method when… (pt. 1) | - the purpose of the adjustment is to provide an accurate record of actual individual job costs in order to conduct a profitability analysis, learn how to better manage the costs of jobs, and bid on future jobs. |
| Managers prefer to use the ADJUSTED ALLOCATION-RATE method when… (pt. 2) | - the total amount of under/over allocation is big, relative to total operating income |
| Which method makes adjustments in individual job records in addition to the general ledger accounts | The adjusted allocation-rate method |
| Which method is the most accurate method of allocating actual manufacturing overhead costs to the general ledger accounts? | The proration method |
| Which method is a good approximation of the more accurate proration method | The write-off to cost of goods sold approach |
| Chapter 5 >>> | Activity-Based Costing and Activity-Based Management |
| T/F: Broad averaging measures the different resource consumed by different products or services | False. It does not measure the different… |
| Peanut-butter costing | Broadly averages or spreads the cost of resources uniformly to cost objects (such as products and services) when the individual products or services use those resources in nonuniform ways |
| In the book and on the PowerPoint, who is considered to be “undercosted” Emma paid $15 | James paid $42 | the average cost is $27 (between 4 people) | James is undercosted. The average (that everyone pays) is UNDER than the individual price |
| In the book and on the PowerPoint, who is considered to be “overcosted” Emma paid $15 | James paid $42 | the average cost is $27 (between 4 people) | Emma is overcosted. The average (that everyone pays) is HIGHER than the individual price |
| Product undercosting | The cost measurement system reports a cost for a product that is below the cost of the resource the product consumes |
| Product overcosting | The cost measurement system reports a cost for a product that is above the cost of the resource the product consumes |
| What is the strategic consequences of products being under/overcosted | - undercosted products will be underpriced - overcosted products will be overpriced |
| Product-cost cross-subsidization | Costing outcomes where one undercosted (overcosted) product results in at least one other product being overcosted (undercosted) (and vice versa)… basically if a company undercosts one of its products, it will overcost at least one of its other products. |
| T/F: Product-cost cross-subsidization is very common | True |
| Steps to executing a simple costing system by using a single indirect-cost pool (pt. 1) | 1. Identify products that are chosen cost objects 2. Identify direct costs of the products 3. Select an cost-allocation base to use for allocating indirect (overhead) costs to the products 4. Identify indirect costs associated with each CA base |
| Steps to executing a simple costing system by using a single indirect-cost pool (pt. 2) | 5. Compute the rate per unit of each cost-allocation base 6. Compute the indirect costs allocated to the products 7. Compute the total costs of the products by adding all direct and indirect costs assigned to the products |
| Three guidelines for refining a cost system include… | 1. Classify more costs as direct costs 2. Expand the number of indirect-cost pools 3. Identify cost drivers |
| Refined costing system | Costing system reducing broad averages usage for assigning the cost of resources to cost objects. Provides better measurements of indirect resource costs used by different cost objects, no matter how differently various cost objects use indirect resources |
| What’s the difference between simple and activity-based costing systems? | Unlike simple systems, activity-based costing systems calculate costs of individual activities in order to cost products |
| Activity-based costing (ABC) | Approach to costing that focuses on individual activities as the fundamental cost objects. It uses the costs of these activities as the basis for assigning costs to other cost objects such as products or services |
| Activity | An event, task, or unit of work with a specified purpose |
| T/F: It’s easy to determine when to separate and combine activities | False: It’s actually challenging because it could be overly detailed or too vague to express the cause-and-effect relationships between cost drivers and various indirect costs |
| First-stage allocation | Managers assign costs accumulated in various account classifications (such as salaries, wages, maintenance, and electricity) to each of the activity-cost pools |
| Second-stage allocation | The allocation of costs of activity-cost pools to cost objects such as products or services |
| Describe a four-part cost hierarchy | A four-part cost hierarchy is used to categorize costs based on different types of cost drivers |
| Give an example of a four-part cost hierarchy | Costs that vary with each unit of a product versus costs that vary with each batch of products |
| Cost hierarchy | Categorization of indirect costs into different cost pools on the basis of different types of cost drivers, or cost-allocation bases, or different degrees of difficulty in determining cause-and-effect (or benefits received) relationships |
| T/F: The ABC system uses cost hierarchy with 4 levels that reflect the cost drivers of the activity-cost pools | True |
| What are the 4 parts of four-part cost hierchy | 1. Output unit-level costs 2. Batch level costs 3. Product-sustaining costs (service-sustainable costs) 4. Faculty-sustaining costs |
| Output unit-level costs | The cost of activities performed that vary with each individual unit of the cost object, such as a product or service |
| Give an example of a output unit-level cost | Machine operation costs are related to the activity of running the machines = output unit-level costs since activity increases with additional units of output products |
| Batch level costs | The costs of activities that vary with a group of units of the cost object, such as a product or service, rather than with each individual unit of the cost object |
| Give an example of a batch level cost | Set up costs = set up hours per batch times the number of batches… set up costs do not affect the number of products made |
| Product-sustainable costs (service-sustaining costs) | The costs of activities undertaken to support individual products or services regardless of the number of units or batches of the product produced or services provided |
| Give an example of a product-sustainable cost | Design costs since they depend on the time designers spend.. in the example from the book they talk about the # of parts times the # of square footage for a design. |
| Facility-sustaining costs | The costs of the activities that managers cannot trace to individual cost objects such as products or services, but supports the organization as a whole |
| Give an example of a facility-sustaining cost | Direct manufacturing labor hours(?) I didn’t read well for this one (I apologize if it is incorrect) |
| What is a benefit of implementing activity-based costing systems | More accurate costs that aid in decision-making when products make diverse demands on indirect resources versus costs incurred for measurement and implementation |
| What are some limitations of implementing activity-based costing systems (pt. 1) | - It requires managers to estimate costs of activity pools and to identify the measured cost drivers from these pools to serve as cost-allocation bases - Data for ABC may be hard to obtain |
| What are some limitations of implementing activity-based costing systems (pt. 2) | - As more cost pools are identified, more allocations are necessary to calculate activity costs increasing the chances of misidentification - When using incorrect/imprecise cost allocation bases, activity-cost information can be inaccurate and misleading |
| Activity-based management (ABM) | Method of management decision-making that uses activity-based costing information information to improve customer satisfaction and profitability. |
| T/F: Managers use ABC systems to focus on how and where to increase costs | False. The goal is to reduce costs by improving the way work is done without compromising customer service or the actual perceived value (usefulness) to customers obtain from the product or service |
| T/F: ABC systems help managers evaluate the effect of current product and process design choices on activities and, as a result, costs and to identify design changes that reduce costs | True |
| Chapter 16 >>> | Allocation of Support-Department Costs, Common Costs, and Revenues |
| Single-Rate method | One rate for allocating costs in a cost pool |
| Dual-Rate method | two rates for allocating costs in a cost pool - one for variable costs and one for fixed costs |
| Operating department/production department | directly adds value to a product or service |
| support department/service department | provides the services that assist other internal departments (operating departments and other support departments) in a company |
| examples of support department/service departments | information systems, production control, materials management, plant maintenance |
| what are the two questions managers face when allocating the costs of a support department to operating departments or divisions | 1. should fixed costs of support departments be allocated to operating divisions 2. if fixed costs are allocated, should the fixed and variable costs of the support department be allocated in the same way? |
| single-rate method (more formal definition) | allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base without distinguishing fixed from variable costs |
| dual-rate method | allocation method that classifies costs in each cost pool into two pools (a variable-cost pool and a fixed-cost pool) with each pool using a different cost-allocation base (both can use budgeted actual rates) |
| advantages of the single-rate method | - the single-rate method is less costly to implement - it offers user departments some operational control over the charges they bear |
| disadvantages of the single-rate method | the single-rate method may lead operating department managers to make suboptimal decisions that are in their own best interest but inefficient from the standpoint of the organization as a whole |
| advantages of the dual-rate method | - guides department managers to make decisions that benefit both the organization as a whole and each department - allocating fixed costs based on budgeted usage helps user departments with both short-run and long-run planning because... |
| advantages of the dual-rate method (pt. 2) | ...user departments know the costs allocated to them in advance |
| disadvantages of the dual-rate method | - requires managers to distinguish variable costs from fixed costs, which is often challenging - does not measure the cost of mixed support department resources actually used by the operating departments because fixed costs are allocated based on... |
| disadvantages of the dual-rate method (pt. 2) | ...the budgeted rate rather than the actual usage - allocating fixed costs on the basis of budgeting long-run usage may tempt some managers to underestimate budgeted usage |
| T/F: actual rates provide certainty to users about charges and motivate the support division to control costs | False. Budgeted rates... |
| Direct method | cost allocation method that directly allocates each support department costs to operating departments only |
| how do you execute using the direct method? | add the cost from cost objects. get the percentage then multiply it to the allocation base. |
| Step-down method/sequential allocation method | cost allocation method that allocates support department costs to other support departments and to operating departments in a sequential manner that partially recognizes the mutual services provided among all support departments |
| how do you execute using the step-down method? | where there are multiple support departments... - determine order (by percentage or by $ amount) - allocate $ to 3 cost objects first (if 2 sup | 3 oper) - next time you do 2 cost objects. +add it up... supports 0'd out |
| reciprocal method | cost allocation method that fully recognizes the mutual services provided among all support departments. also called matrix method |
| how do you execute using the reciprocal method? | allocation base + percentage of share * other support department. - substitute equation in other... then solve... then substitute again. - use that # as allocation base for the rest of the support departments.. |
| T/F: the reciprocal method is conceptually the most precise method since it considers the mutual services provided among all support departments. | True |
| common costs | cost of operating a facility, activity, or like cost object that is shared by two or more users |
| stand-alone cost-allocation method | method that uses information pertaining to each user of the common cost facility or activity as a separate entity to determine the cost-allocation weights |
| first ranked user of a cost object is called.... | primary user/party |
| the second-ranked user is called the | first-incremental user/party |
| T/F: Under incremental method… the primary party typically receives the highest allocation of the common cost… difficulty with the method is that every person prefers to be viewed as the incremental party. Because its less of a cost burden | True |
| The US government reimburses most contractors in one of two main ways: | 1. the contractor is paid a set price without analysis of actual contract cost data 2. The contractor is paid based on an analysis of actual contract cost data |
| THERE'S TECHNICALLY MORE ABOUT STAND-ALONE, INCREMENTAL, AND SHAPELY VALUE METHOD... | BUT IM TOO LAZY ATP TO ADD IT SO SUCK IT. |
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jalicoolrip94
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