1
Q
Cost object
A
anything for which cost data is required
2
Q
Direct costs
A
costs you can trace to a particular cost object in an economic feasible way (in a way where the time and effort is worth it to track)
EX:
- in a classroom (cost of tables and chairs, projectors)
3
Q
Indirect Costs
A
- costs that cant be traced to a particular object in an economically infeasible way
- EX: Nuts, bolts, threads, glue
- Costs that cannot be traced to a cost objectq
4
Q
where would a uni president salary be a cost object of..
DIRECTLY & INDIRECTLY
A
DIRECTLY: to the university/ their office
INDIRECTLY: to an individual classroom
5
Q
Types of Manufacturing Costs
A
- Direct Materials (DM): raw materials are physically incorporated into the final product [NOTE THAT THREAD, NUTS, BOLTS ARE NOT CONSIDERED DIRECT MATERIALS CUZ NOT WORTH IT TO TRACK]
- Direct Labour/Factory Labour: cost of salaries of employees who work directly on the manufacturing of the prodct
- Manufacturing Overhead: anything in the fictory that is not direct materials and direct labour is considered manufacturing overhead
-> Indirect materials, Indirect Labour, Other manufacturing costs (utiliities, property taxes/rent + facilities)
6
Q
Manufacturing Costs
A
DM + DL+ MOH
7
Q
Prime Costs
A
DM + DL
8
Q
Conversion Costs
A
DL + MOH
9
Q
Product Costs
A
Inventoriable Costs
Costs of inventory (EX: Retailer/Wholesaler-purchase price + shipping costs+ duties etc)
Manufacturer costs are DM+DL+MOH
10
Q
Product cost stay on balance sheet till sold then they are moved to
A
statement of income under COGS & Revenue
11
Q
What are period costs
A
all costs that are NOT product costs are period costs
(the costs in different areas not related to products)
12
Q
Period costs are amthced with the revenue of a specific time period and not included in inventory ever
A
THEY ARE EXPENSES IN THE PERIOD INCURRED!!! the first sheet they appear in is statement of income
13
Q
Consider the example of a factory, if you have paper towels in the washroom
WHY?
A
THEY ARE A PRODUCT COST! because they are part of manufacturing over head!!!!
BECAUSE IN THIS EXAMPLE, THE COST OBJECT IS THE FACTORY!
14
Q
How to identify if there is a direct or indirect cost?
A
- IDENTIFY THE COST OBJECT
- think logically: is this a direct cost or an indirect cost?
15
Q
IMPORTANT THING TO REMEMBER!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
A
EVERYTHING IN THE FACTORY IS A PRODUCT COST
EVERYTHING OUTSIDE THE FACTORY IS A PERIOD COST!!!
16
Q
direct & indirect is different from the product & period cost
A
17
Q
the question about overtime/undertime is not relevant! wont be on the test
A
18
Q
serevice firms
A
provide a service!
no inventory=no product costs
all costs are period costs and expensed as operating expenses
19
Q
retailers/holdsalers
A
prior to sales: balance sheet as inventory
at time of sale: income statement as COGS
PERIOD COSTS: same as service firms
20
Q
Manufacturing Companies
A
Products costs: prior to sale [3 tyes of inventories]
- Raw Materials
- Work in Process
- Finished Goods
At the time of sale: Debit COGS, credit Finished goods
Period costs: same as service companies
21
Q
Retailers, wholesalers, service companies, manufacturing companies
A
product costs are different
period costs are identical
22
Q
Cost Accounting
A
measuring recording and reporting product costs
23
Q
what do companies use cost accounting for
A
determine which products to produce
24
Q
2 types of cost accounting systems
A
JOB ORDER COST SYSTEM
PROCESS COST SYSTEM
25
Job order costing
company assigns costs to each job/ batch of goods
26
FEATURE OF JOB ORDER COSTING
each job or batch has its own characteristics!!! OBJECTIVE: compute the cost per job
27
PROCESS COST SYSTEMS
manufactures a large volume of similar products, production is ocntinous
EX: like ceral, like petrol, etc.
ACCUMULATE COSTS FOR A PERIOD OF TIME!!!
28
can a company use both job order and process costing?
YES
29
What is the flow of costs in job order cost accounting?
PARALLELS PHYSICAL FLOW OF MATERIALS AS THEY BECOME FINISHEd GOODS
1. ACCUMULATE manufacturing costs (DM,DL,MOH)
2. ASSIGN to Work in Process Inventory account
3. FINISHED GOODS INVENTORY
4. COGS when sold
30
FLow of job order costing in terms of accounts
DR Manufacturing Costs (Expense)
DR Work in Process INventory (asset)
DR finished goods inventory (Asset)
DR COGS (Expense)
1. DR costs to Raw Materials Inventory
31
How are wages and salaries of non manufacturing employees accounted for
PERIOD COSTS -> as SALARIES AND WAGES EXEPENSE
32
How are wages and salaries of manufacturing employees costed?
FACTORY LABOR!!! (DL)
1. Gross earnings of factory workers
2. EMployer payroll taxes on the earning
3. Fringe beenfits (sick pay, pensions, vacation pay)
debit costs to factory labor (Asset)
credit costs to factory wages payable (liability)
33
MOH relating to non manufacturing facility?
EXPENSED AS PERIOD COSTS
34
If MOH relates to manufactufuing facility
DR. MOH
CR. Payables, Prepaid Insurance, Acc Depreciaiton...
35
how to assign manufacturing costs to WIP
1. debit to WIP inventory
2. Credit to RM inventory, FL, MOH (basically all the manufacturing costs accounts)
36
RAW MATERIALS COSTS
Companies assign raw materials costs to jobs when their materials storeroom issues the materials in response to requests. Requests for issuing raw
materials are made on a prenumbered materials requisition slip. The materials
issued may be used directly on a job, or they may be considered indirect materials.
As Illustration 2-5 shows, the requisition should indicate the quantity and type
of materials withdrawn and the account to be charged. The company will charge
direct materials to Work in Process Inventory, and indirect materials to Manufacturing Overhead.
37
companies assign manufacturing overhead to
work in process and to specifi c jobs on an estimated basis through the use of
A PRE DETERMINED OVERHEAD RATE
based on the relationship between estimated annual overhead costs and expected annual operating activity, expressed
in terms of a common activity base
estimated annual overhead costs / expected annual operating activity = predetermined overhead rate
38
Actual activity base used x predetermined overhead rate
is assigned to
WIP that you split into jobs
39
The use of a predetermined overhead rate
enables the company to determine the approximate total cost of each job when
it completes the job.
40
how to assign costs to finished goods?
when a job is completed, the FG is debited and WIP inventory is credited
41
Finished Goods Inventory is a control account. It controls individual fi nished goods records in a fi nished goods subsidiary ledger. T
42
how to assign costs to cogs?
DR COGS
CR finishee dgoods inventory
& whatever other JEs you have to do
43
The cost fl ows in the diagram can be categorized as one of four types:
* Accumulation. The company fi rst accumulates costs by (1) purchasing raw
materials, (2) incurring labor costs, and (3) incurring manufacturing overhead costs.
* Assignment to jobs. Once the company has incurred manufacturing costs,
it must assign them to specifi c jobs. For example, as it uses raw materials
on specifi c jobs (4), it assigns them to work in process, or treats them as
manufacturing overhead if the raw materials cannot be associated with a
specifi c job. Similarly, it either assigns factory labor (5) to work in process,
or treats it as manufacturing overhead if the factory labor cannot be associated with a specifi c job. Finally it assigns manufacturing overhead (6) to
work in process using a predetermined overhead rate. This deserves emphasis: Do not assign overhead using actual overhead costs, but instead
use a predetermined rate.
* Completed jobs. As jobs are completed (7), the company transfers the cost
of the completed job out of work in process inventory into fi nished goods
inventory.
* When goods are sold. As specifi c items are sold (8), the company transfers
their cost out of fi nished goods inventory into cost of goods sold.
44
advantages of job order costing
- precise in cost assignment than process costing
45
disadvantage of job order costing
- requires significant data entry
- difficult to allocate overhead
46
when MOH has debit balance
UNDERAPPLIED OVERHEAD!
If actual is greater than applied,
manufacturing overhead is underapplied.
If actual is less than applied,
manufacturing overhead is overapplied.
47
when MOH has Credit balance
OVERAPPLIED OVERHEAD
If actual is greater than applied,
manufacturing overhead is underapplied.
If actual is less than applied,
manufacturing overhead is overapplied.
48
Year end balance- how to do adjusting entry
MOH debit
COGS credit
49
what are the 3 types of inventories for manufacturing companies before sales?
1. raw materials (materials purchased, waiting for producion)
2. wip (incokplete goods at end of period)
3. fg (goods completed and awaiting sale)
50
when you are sleling an object what is the JE
dr COGS
cr FG inventory
period costs are same for product and service companies
51
product costs and period costs
product costs: incurred only cuz company manufacturer their cost object (as opposed to purchasing)
period costs: expenses incurred cuz company is in business (admin, selling, mktg)
52
what are prime costs
sum of all direct materials and direct labor costs
DM+DL
53
COnversion costs
cost of concerting raw materials into final product
DL + MOH
54
DL is part of both Prime and conversion costs
55
Product costs also referred to as inventoriable costs
56
what are period cost
- matched with revenue earned in a time frame and charged to expesne as incurred
- NON MANUFACTURING
basically these are non inventoriable
57
Activity or volume index
identifies activity that causes change in the behavuour if costs
VARIABLE COST
FIXED COST
MIXED COST
58
Vairable costs
Costs that vary in total directly and proportionately with
changes in the activity level
same at the per unit level1!!
SO: total variable cost increases! but the variable cost per uni is constant
59
fixed costs
Costs that remain the same in total within the relevant
range regardless of changes in the activity level.
* Per unit cost varies inversely with activity:
o As volume increases, unit cost decline, and vice versa
SO: total fixed costs are constant!
but fixed csots per unit decrease steadily!
60
Variable costs are costs that vary in total directly
and proportionately with changes in the activity
level. These costs remain the same per unit at every
level of activity.
* Fixed costs are costs that remain the same in total
within the relevant range regardless of changes in
the activity level. Fixed costs per unit vary inversely
with activity—in other words as volume increases,
unit costs decrease and vice vers
61
Throughout the range of possible levels of activity, a
straight-line relationship usually does not exist for
either variable costs or fixed costs
o The relationship between variable costs and changes
in activity level is often curvilinear
o For fixed costs, the relationship is nonlinear – some
fixed costs will not change over the entire range of
activities, others may change at different levels of
activity
62
Costs that have both a
variable and a fixed cost
component
Sometimes called semi
variable cost
Change in total but not
proportionately with
changes in activity level
Behaviour of mixed costs
63
cost behaviour analysis 41-48
64
Current assets: manufacturing firm will carry at least three
(3) different inventories, other industries will normally
report one inventory
Income Statement: cost of goods sold section reflects
manufactured cost of goods
65
income statement
The income statement for a manufacturer is similar to
that of a merchandiser except for the cost of goods
sold section
66
Merchandiser COGS
Beginning Merchandise Inventory + Cost of Goods Purchased - Ending Merchandise Inventory = COGS
67
Manufacturer COGS
Beginning Finished Goods Inventory + COGM - Ending FG Inventory = COGS
68
Work in Process – partially completed units
* Total Manufacturing Costs – sum of direct material costs, direct
labour costs, and manufacturing overhead incurred during the
current year
69
In a manufacturer’s balance sheet, three inventories may be
reported: (1) raw (direct) materials, (2) work in process, and (3)
finished goods. In what sequence do theses inventories generally
appear on a balance sheet?
3,2,1
70
Expense in period incurred. These costs never appear on
the B/S!!
71
ACCT323
flashcards
Decks in class (19)
# Cards
-
Chapter 1: Managerial Accounting Introduction51
-
Chapter 2: Cost Terms, Concepts, Classifications71
-
Chapter 3: Job Order Costing26
-
Review12
-
Chapter 2 supplement2
-
dwProcess Costing26
-
cost behaviour analysis12
-
Chapter 6: CVP44
-
Chapter 8: Absorption Costing & Variable Costing23
-
Review for Midterm15
-
Chapter 10: Budget Making45
-
Chapter 11: Budgetary Control22
-
Chapter 12: Standard Costs40
-
Ch 9: Excess Capacity7
-
Ch 11/12 Notes from Supplementary3
-
Ch 11: Responsibility Accounting8
-
Ch 9 v2: transfer pricing21
-
Ch 9 Powerpoint12
-
Chapter 7: Incremental Analsysis8
