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Cost Accounting

Test 1

QuestionAnswer
What is the Cost of something? the amount of money that must be paid to acquire goods or services
How can a Cost be measured? as a single cost item (materials or labor), or multiple items (cost pool)
Actual Cost a cost that has already been incurred: historical cost
Budgeted (Standard) Cost an estimate or forecast of what a producer or production input shows
Cost Object any particular object for which we are trying to determine a cost (product, service, production line, store, factory)
Cost Driver (allocation base, activity lever) is any input, factor, or business activity that causes a change in TOTAL cost for a cost object over a given period of time (production volume, or units of output, revenue, direct labor hours, machine hours)
Cost Pool A group of individual cost items accumulated over a period of time (MFG overhead accounting)
Volume Related Driver Units of output, # of patients in a hospital, passenger miles flown, etc
Nonvolume Driver Production costs increase (or decrease) with changes in business activity not related to volume (# of purchase orders, # of quality inspections)
Direct Cost can be directly traced to a cost object in an economical and feasible manner (DM, DL)
Cost Tracing refers to the assignment of direct costs into cost objects
Indirect Cost costs that cannot be traced in an economically feasible manner to a cost object (MFG overhead, indirect materials, indirect labor, factory supplies)
Cost Allocation refers to the allocation of indirect costs to a cost object using a cost driver
Variable Costs costs that change in TOTAL in direct proportion to change in volume (or business activity)
Fixed Costs remain unchanged in total within the relevant range with changes in volume (or business activity) (Ex: rent, equipment depreciation, admin salaries, etc)
Relevant Range level of business activity/production volume in which TOTAL FIXED COSTS and VARIABLE COST PER UNIT remain CONSTANT, in practical terms, a given level of a firms production capacity, the NORMAL RANGE of production capacity
VC per unit always remain CONSTANT (unchanged) within the relevant range
FC per unit decrease with increase in production volume within the relevant range
Average Costs decrease (increase) with increases (decreases) in production volume
Production Costs all costs incurred during manufacturing or assembly of a product, or costs related to acquiring merchandise for sale (direct materials USED in production + DL + MFG OH)
Product Costs for a Merchandise Company product costs (inventoriable costs)=cost of merchandise + distribution costs + insurance costs
What happens to production costs when incurred? all PRODUCTION COSTS are CAPITALIZED and recorded in the balance sheet when incurred
MFG Firms costs are recorded first in WIP inventory account, second costs are RELEASED from WIP, and recorded into finished goods inventory as products are completed. all production costs are released from FG inventory and into COGS expense on IS. Assets->Expense
Period Costs costs expensed immediately when incurred and are recorded in the IS. (ex: selling admin expenses, product design expenses) matched against revenues on a time basis, not included in the calculation of prod costs
Prime Costs any direct manufacturing costs (DM + DL)
Conversion Costs (transformation costs) all MFG costs other than DM. DL + OH
Goals of Cost 1. value inventory 2. reporting COGS on the IS
Direct Materials Inventory all purchases of raw materials (direct and indirect) and other components stocked to be used in production BI Raw materials xxx purchases of raw materials xxx =Raw materials available for use xxx (RM used in production ) (xxx) =End Inv, Raw materials xxx
Work in Process Inventory includes goods or subassemblies partially completed BI WIP xxx prod costs incurred in month xxx =total prod costs to acct for xxx (COG manufactured) (xxx) =ending inv, WIP xxx
Finished goods inventory goods completed but NOT yet sold, or goods sold but that have NOT been shipped yet BI FG xxx COGM xxx =COG available for sale xxx (COGS) (xxx) =EI FG xxx
Created by: afortier