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Definition
| used when relatively homogeneous products are mass produced on a continuous basis. |
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| employed by entities with high levels of indirect costs. |
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Term
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Definition
| estimate of what a cost should be under normal operating conditions based on accounting and engineering studies. Standard costs are used to assign costs to products as well as to control actual costs. Comparing actual and standard costs permit evaluation of managerial performance using variance analysis. This analysis can also be applied to revenue amounts. |
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Term
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Definition
| assigns costs to inventoriable goods or services. It applies to relatively homogeneous products that are mass produced on a continuous basis. |
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Term
| How does process costing work? |
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Definition
| Instead of using subsidiary ledgers to track specific jobs, process costing typically uses a WIP account for each dept. through with the production of output passes. |
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Term
| process costing calculates the average cost for all units as follows... |
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Definition
Costs are accumulated for a cost object that consists of a large number of similar units of goods or services.
WIP is stated in terms of equivalent units.
Unit costs are established. |
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| How are costs accumulated under process costing? |
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Definition
| The accumulation of costs under a process costing system is by department rather than by project. This reflects the continuous, homogeneous nature of the mfg. process. |
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Definition
| DL + MO. The nature of process costing makes this accounting treatment more efficient. |
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Term
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Definition
The accumulation of costs under a process costing system is by department rather than by project. This reflects the continuous, homogeneous nature of the mfg. process.
Physical inputs required for the production process are obtained from suppliers.
DM are added by the first dept. in the process.
Conversion costs = DL and MO. The nature of process costing makes this accounting treatment more efficient.
The product move from one dept. to the next.
The second dept. adds more DMs and more conversion costs.
When processing is finished in the last dept., all costs are transferred to FG.
As products are sold, sales are recorded and the costs are transferred to CoGS. |
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Term
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Definition
Beginning RM + Purchases of RM – Ending RM = RM Used
Beg. WIP + Conversion Costs + RM Used – End. WIP = CoGM
Beg. FG + CoGM – End. FG = CoGS. |
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Term
| equivalent units of production (EUP) |
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Definition
| number of FG that could have been produced using the inputs consumed during the period. EUP for DM of conversion costs is the amount of DM or conversion costs required to complete one physical unit of production. |
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Term
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Definition
| are by definition 100% complete. The units (costs) transferred in from the previous dept. should be included in the computation of the EUP of the second dept. |
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Term
| actual production quantity flow |
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Definition
| Beg. WIP + Units started this period = Units transferred out (completed) + End. WIP |
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Term
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Definition
units in beg. WIP are treated the same as units started and completed during the current period.
EUP under weighted-average = total units transferred-out this period + (end WIP * % completed)
Cost per EUP = (beg. WIP + current period costs) / EUP |
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Term
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Definition
EUP under FIFO = (beg. WIP * % left to complete) + units started and completed during the current period - (end WIP * % completed)
Units started and completed during the period = units started – end. WIP
Cost per EUP = current period costs / EUP |
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Term
| How are conversion costs treated? |
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Definition
Under the weighted-average method, all DM are conversion costs incurred in the current period and in beg. WIP are averaged.
Under the FIFO method, only the cost incurred in the current period are included in the calculation.
When beg. WIP is 0, the two methods yield the same results. |
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Term
| traditional (volume-based) costing system vs. ABC |
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Definition
Under a traditional (volume-based) costing system, overhead is simply dumped into a single cost pool and spread evenly across all end products.
Under ABC, indirect costs are attached to activities that are then rationally allocated to end products. |
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Term
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Definition
| inaccurate averaging or spreading of indirect costs over products or service units that use different amounts of resources. |
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Term
| product-cost cross-subsidization |
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Definition
| condition in which the miscosting of one product causes the miscosting of other products. |
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Term
| Do overhead costs always fluctuate with volume? |
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Definition
| No. Volume-based systems were appropriate when most mfg. costs were direct. However, overhead costs do not always fluctuate w/volume. |
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Term
| Activity-based systems involve... |
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Definition
Identifying organizational activities that result in overhead
Assigning the costs of resources consumed by the activities
Assigning the costs of the activities by appropriate cost drivers to final cost objects. |
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Term
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Definition
Step 1- Activity Analysis
Step 2- Assign Resource Costs to Activities
Step 3- Allocate Activity Cost Pools to Final Cost Objects |
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Term
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Definition
| set of work actions undertaken within the entity, and a cost pool is established for each activity. |
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Term
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Definition
Analysis identifies value-adding activities, which contribute to customer satisfaction. Non-value-adding activities should be reduced or eliminated.
Activities are classified in a hierarchy according to the level of the production process where they occur. |
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Term
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Definition
| once the activities are designated, the next step in an ABC system is to assign the costs of resources to the activities. |
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Definition
| measures of the resources consumed by an activity; once the resources have been identified, resource drivers are designated to allocated resource costs to the activity cost pools. |
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Term
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Definition
| final step in ABC system; allocating the activity cost pools to final cost objects |
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Term
| How are costs reassigned to second/final-stage cost objects? |
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Definition
| On the basis on activity cost drivers. |
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Definition
| measures of the demands made on an activity by next-stage cost objects, such as the number of parts in a product used to measure an assembly activity. |
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Term
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Definition
| factor causes a change in a cost; direct cause-and-effect relationship, not simply the basis of a high positive correlation |
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Term
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Definition
| cost assignment bases that are used in allocation of MO costs to cost objects. |
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Definition
| basis of performance evaluation using standard costs. |
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Term
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Definition
| the practice of giving attention primarily to significant deviations from expectations (where F or U). When a significant variance occurs, management is signaled that corrective action may be needed. |
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Term
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Definition
| arise from a difference between the actual price of resources used in production and the standard prices, holding quantity constant. |
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Term
| quantity usage (efficiency) variance |
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Definition
| arise from a differences in the actual level of resources used in production and the standard level allowed, holding price constant. |
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Term
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Definition
| actual quantity of materials purchased |
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Term
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Definition
| actual quantity of materials consumed or hours worked |
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Term
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Definition
| actual price/rate of materials consumed or hours worked |
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Term
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Definition
| standard quantity of materials consumed or hours worked |
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Term
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Definition
| standard price/rate of materials consumed or hours worked |
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Term
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Definition
| actual quantity of input purchased times the difference between the standard price of materials and the actual price |
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Term
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Definition
| AQP or actual quantity * (SP or standard price – AP or actual price) |
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Term
| materials quantity variance |
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Definition
| standard cost times the difference between the standard quantity of materials and the actual quantity used in production. |
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Term
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Definition
| (standard quantity – actual quantity) * standard price |
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Term
| labor efficiency variance |
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Definition
difference between the standard # of hours and the actual # worked, times standard hourly wage.
Labor efficiency variance is the variance affected by the learning curve. |
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Term
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Definition
| (standard # of hours allowed – actual # of hours worked) * standard hourly rate |
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Term
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Definition
The amount of variable overhead (VOH) that was under- or overapplied for the period is the variable overhead flexible budget variance.
For simplicity, assume that the variable overhead is applied based on direct machine hours used. |
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Term
| VOH flexible budget variance |
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Definition
| (expected quantity * standard price) – Actual VOH |
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Term
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Definition
VOH applied – Actual VOH costs incurred
(actual production * standard hours allowed per unit of production * standard variable overhead rate) – actual VOH incurred |
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Term
| What is overhead applied based on? |
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Definition
| based on expected, not standard quantity. |
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Term
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Definition
| standard # of driver units allowed given the achieved level of production |
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Definition
| has a spending component and an efficiency component |
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Term
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Definition
| (actual driver level * standard VOH rate) – actual VOH |
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Term
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Definition
| (expected quantity – actual quantity) * standard price |
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Term
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Definition
FOH applied – actual FOH incurred
= (actual production * standard hours allowed per unit of production * standard FOH rate) – actual FOH incurred |
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Term
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Definition
amount budgeted – actual FOH incurred
Useful in helping to control overhead costs. |
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Term
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Definition
| FOH applied – amount budgeted |
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Term
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Definition
do not change w/in the relevant range of the budgeting cycle. The same amount of fixed cost is budgeted regardless of machine usage or output level.
Amount applied – Actual costs incurred = FOH spending variance + VOH volume variance |
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Term
| 3-way overhead variance analysis |
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Definition
| combines the variable and fixed spending variances and reports the other two variances separately. |
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Term
| 2-way overhead variance analysis |
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Definition
| combines the spending and efficiency variances into a single budget variance and reports the volume variance separately |
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Term
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Definition
| budget variance in 2-way analysis. It is the portion not attributable to the volume variance. |
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Term
| net factory (1-way) overhead variance analysis |
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Definition
- combines all the components into a single amount
The net factory overhead variance is equal to the difference between the total actual factory overhead incurred and the total factory overhead applied.
Overhead volume is least controllable by production supervisors. |
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Term
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Definition
useful for evaluating not only the production function but also the selling function
If sales differ from the amount budgeted, the difference could consist of a sales price variance, a sales volume variance, or both.
The analysis of these variances concentrates on CMs b/c FCs are assumed to be constant. |
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Term
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Definition
change in CM attributable solely to the change in selling price (holding quantity constant)
sales price variance = actual units sold * (actual selling price – budgeted selling price) |
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Term
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Definition
change in CM attributable solely to the difference between the actual and budgeted unit sales (holding price constant).
sales volume variance = budgeted CM per unit * (actual units sold - budgeted units sold) |
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