Accounting Chapter 11 and 8

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  1. What are period costs?
    they relate to the year/month in which a cost was incurred
  2. What are product costs?
    relate to the cost of goods or services produced
  3. What is gross profit?
    the amount of income remaining after the costs of producing a product or providing a service are covered.  Period costs, such as selling and administrative expenses, are deducted from gross profit to determine operating profit.
  4. What are cost of goods sold?
    The cost of providing a service, the cost of buying goods sold by a retailer, the cost of raw materials and production costs to produced a finished good
  5. What are direct costs?
    readily traceable to a particular product or service.  For example the cost of wheels used in the production of a skateboard
  6. What are indirect costs?
    Not traceable but necessary in producing the product (i.e. factory lighting)
  7. What is a materials requisition record?
    A list of all materials used in a particular job
  8. What is a divisional based overhead rate?
    calculates the overhead for each division within the company than uses an allocation base to assign the divisoinal overhead to jobs
  9. What is activity based costing?
    A method of allocating indirect costs in a  more direct manner to provide a more accurate cost of products or services.
  10. What are cost pools?
    Cost pools accumulate the indirect cost of business processes, irrespective of the organizational structure of the business.  For example, a purchasing cost pool can be the result of work taking place in many different departments.
  11. What is a cost driver?
    It;s the most significant cause of the activity. Cost drivers enable the cost of activities to be assigned from cost pools to cost objects.  

    • i.e. Purchasing - cost driver is number of POs
    • Material handling - cost driver is number of set ups
    • Scheduling - number of production orders
    • Equipment maintenance - machine hours
  12. What are unit level activities?
    are performed each time a unit is produced; for example; direct labour, materials and variable manufacturing costs such as electricity.  Unit-level activities consume resources in proportion to the number of units produced.
  13. What are batch related activities?
    They are performed each time a batch of goods is produced; for example, a machine set-up.  The cost of batch related activities varies with the number of batches, but is fixed irrespective of the number of units produced in the batch.
  14. What are product sustaining activities?
    enable the production and sale of multiple products/services; for example, maintaining product specifications, after sales support, and product design and development.  THe cost of these activities increases with the number of products, irrespective of the number of batches or the number of units produced.
  15. What are facility sustaining activities?
    Activities that support the entire business and are common to all products/services.
  16. What is variable costing?
    a method of reporting in which only variable costs are treated as inventoriable - that is, costs that are assigned in some way to each product made by the company.
  17. What is absorption costing?
    A system where all production overhead costs (fixed and variable) are inventoriable.  Variable costs (such as direct materials, labour and variable overhead) are assigned directly to each unit made, similar to variable costing.
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Accounting Chapter 11 and 8
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