1. Whats wrong with volume based

    • Oversimplify the OH allocation, assumed only proportional to one cost driver
    • Not based on the actual consumption of resources
    • Traditional costing systems tend to overcost high volume products and undercost low volume products that are often more complex to produce.

  2. Pros and cons of ABC and its Implication on decision

    • Pros: More accurate cost information; assigns indirect costs to products and services based on the activities they require
    • Cons: cost of tracking cost drivers and cost pool information, more complex
    • Production volume, price, gross margin may change after knowing the correct cost
    • Eliminate non-value added activities

  3. Unit level/customer level

    • Machining and installation
    • Assembly
    • *Taking a customer’s order
    • Checking a passenger’s bag
    • Selling ticket to a customer

  4. Batch level/group level

    • Setup and reconfiguring machinery
    • delivery
    • *Hiring security for concert
    • Serving private party
    • Flying a group of customers

  5. Product level/service level

    • Engineering and quality control
    • R&D
    • Product testing
    • *Creating a new menu item
    • Booking a musical that will run for 3 weeks
    • Promoting a new airline route

  6. Facility level

    • Promotional activities
    • Developing an mobile app
    • Inventory storage

  7. Examples of non-value added activities

    • Ivt storage
    • Rework after a quality inspection

  8. Activity based management

    • JIT inventory vs traditional inventory: Demand pull vs supply pushed
    • Target costing and life cycle cost management: managers determine what costs should be to earn an acceptable profit across product’s life cycle
    • Eliminate non-value added activities
    • Manage underlying activities, eg. benchmarking

  9. Pros and cons of JIT

    • Pros
    • Reduce storage cost
    • Reduce likelihood of obsolete ivt
    • Cons
    • If a supplier halts work, company has no “cushion” and is affected quickly.

  10. Cost driver for maintenance

    Machine hours

  11. Candidates for ABC

    • Businesses that produce a variety of products or services
    • that differ in production volume, resources consumed, and/or attention required during the manufacturing process

  12. quality cost for total quality management

    • prevention cost
    • appraisal or inspection cost
    • internal failure cost
    • external failure cost

  13. cost drivers for factory rent and utilities, inventory security and supervisor salaries

    square footage

  14. cost drivers for material handling

    • material moves
    • weight of materials

  15. cost driver for R&D

    development hours

  16. difference between job order and process costing

    • products: unique vs homogeneous(price difference is minimal)
    • production: customized vs mass-produced with standardized procedures(Raw materials purchased in bulk)
    • cost accumulation: jobs vs process
    • cost report: job cost sheet vs production report

  17. difference between manufacturing OH and conversion

    conversion costs include direct labor

  18. difference between weighted average vs FIFO(the way beg ivt is treated)

    • WA: averages of cost of beg+started
    • Assumes all work of beg ivt started in current period, ignore %completion of beg ivt
    • FIFO: assume units in beg ivt finished first
    • Beg ivt and S&C units accounted for separately

  19. Why are materials and conversion accounted for separately?

    In many manufacturing process materials are added in at the beg(100% complete) but additional effort is still needed

  20. When will WA and FIFO differ?

    • Cost per unit fluctuates from period to period
    • Maintains a large amt of WIP ivt

  21. How does WA and FIFO differ when Cost is rising

    • FIFO cost per equivalent unit is higher
    • FIFO charges less to finished goods

  22. Job order costing balance

    • Raw materials
    • WIP
    • Mtg OH
    • Finished goods
    • COGS
    • Non-mtg expenses
    • Sales revenue

  23. Why is direct labor cost no longer a good allocation base?

    • Advances in automation
    • Changing nature in labor forces

  24. Cost of goods manufactured report

    • Beginning raw materials ivt
    • Plus: purchases
    • Less: indirect materials
    • Less: ending ivt
    • Direct materials used in production
    • Direct labor
    • Mtg OH
    • Total current mtg costs
    • Plus: beginning WIP
    • Less: ending WIP
    • Total mtg costs
    • Costs of goods manufactured

  25. Income statement

    • Sales revenue
    • Less: COGS
    • Beginning finished goods ivt
    • Plus: Cost of goods manufactured
    • Less: ending ivt
    • Unadjusted COGS
    • Plus: underapplied COGS
    • Adjusted COGS
    • Gross profit
    • Less: operating expenses
    • Net income

  26. Process costing production report

    • Rec. Physical units
    • Equivalent units(physical, mat., conversion)
    • Cost per equivalent units
    • Cost to account for: prior period cost and current period cost(mat&con, total)
    • Cost accounted for: beg ivt, S&C, end ivt(prior period, current period(mat&con), total)

  27. difference between FA and MA

    • intended user of the information: external parties vs internal business managers.
    • reports

  28. features of FA reports

    • standardized financial statements
    • periodic basis
    • highly aggregate level
    • objective, reliable, and historic

  29. features of MA reports

    • encompass budgets, performance evaluations, and cost accounting reports
    • continuous basis
    • more detailed and segmented
    • subjective and future-oriented in nature and must be relevant

  30. functions of management

    • directing/leading
    • controlling
    • planning

  31. relevant cost

    • incurred in the future
    • differ between decision alternatives

  32. conversion cost

    direct labor+mtg OH

  33. prime cost

    direct materials+direct labor

  34. if not only product costs is counted as ivt?
    Ivt inflated

    Period cost understated
Card Set