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honestkyle
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What is the over (managerial) goal of Cost-Management Systems?
To provide managers with information regarding "product cost," i.e., resource consumption of the firm's outputs (products/services produced by the firm).
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What are Product Costs?
Resource demands or consumption of whatever is produced at the firm.
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What is an example of Financial Accounting at the aggregate level?
Inventory valuation
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How accurate are Financial Reports in regard to individual products?
Not very accurate.
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Why is the notion of "resource consumption" a theoretical construct?
The existence of indirect/support costs complicates efforts to measure/determine the resource consumption of a firm's outputs (goods or services).
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Over/under-costing of individual products is a balance between what?
- "Indicated Product Cost"
- The Product's "Resource Demands"
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In regard to over/under-costing of individual products, why are the product's "resource demands" unobservable?
They are unobservable because of indirect costs.
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When are products considered over-costed?
When the indicated cost is greater than the resource demands.
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When are products considered under-costed?
When the resource demands are greater than the indicated costs.
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The extent of Cost System Inaccuracy can lead to what?
Product Cost Cross-Subsidization
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What is Cost System Inaccuracy?
The extent of product over or under-costing for a given cost object.
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What is Product Cost Cross-Subsidization?
Compensating errors by balancing mis-costing across products.
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How do direct and indirect costs differ in terms of traceability?
- Direct costs are traceable.
- Indirect costs are allocated, but can't be traced.
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What is a cost object?
The thing to collect data on.
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Indicated product costs are a function of what?
The cost structure.
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There is a unique way to identify product costs with indirect costs. True or False?
False
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What is actual costing?
Using the actual level of the cost driver to compute the cost driver rate results.
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What is a death spiral?
When increasing prices cause demand to fall, which leads to further price increases as the cost driver rate increases the cost-plus price.
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When estimating practical capacity, what proportion should it be to theoretical capacity?
80%
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In a manufacturing company, manufacturing overhead (support costs) would be considered what?
Indirect cost pool
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How do you calculate Predetermined Overhead Rate?
- Predetermined Overhead Cost = Estimated total factory indirect cost / practical capacity in cost driver units
- Predetermined Overhead Cost = budgeted overhead ($) / cost allocation base, at practical capacity
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In the Predetermined Overhead Rate calculation, how is the numerator (budgeted overhead) determined?
An estimation process like linear regression or some other method is used.
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In the Predetermined Overhead Rate calculation, how is the cost allocation base chosen?
This is a design choice based on analysis.
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What is the issue regarding the choice of the denominator volume level in the Predetermined Overhead Rate calculation?
There is more than one choice including Practical Capacity
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Design choices have a greater affect on product costs when what?
Indirect costs are relatively high.
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Why use a predetermined cost allocation rate?
System-design choice provides more timely data.
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Why use annual data (and not, for example, monthly data)?
Output can change month to month because some overhead costs are seasonal/cyclical.
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What choices are available for the denominator volume regarding the assignment of overhead to product costs?
- Practical capacity
- The actual level of operations
- The planned level of operations
- The average level of operations
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How are cost-accounting systems determined?
They weigh the costs and benefits based on complexity and accuracy of the system.
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What does cost system refinement mean?
It means increasing the accuracy of a cost system by adding more complexity.
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Why is one cost allocation base chosen over another?
There is a higher correlation between the measurement and overhead incurred.
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What is cost system accuracy?
How well the indicated costs approximate resource demands and consumption.
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How are cost pools typically designed?
- By department
- By activities
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What is a homogenous cost pool?
All the costs in a particular pool are related in a similar way.
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