Chapters 2 3 Costs and Job Order Costing 5 questions 4 computational 1 conceptual Costs o Product Costs Direct Materials Direct Labor and Manufacturing Overhead Also known as manufacturing costs Costs associated with goods for sale until the time period during which the products are sold at which time the costs become expenses o Direct Material cost of raw material that is used to make and can be conveniently traced to the finished product Ex Steel used to manufacture an automobile o Indirect Materials materials used to support the production process Ex Lubricants and cleaning supplies used in an automobile assembly plant o Direct Labor Cost of salaries wages and fringe benefits for personnel who work directly on manufactured products Ex Wages paid to an automobile assembly worker o Indirect Labor costs of personnel who do not directly work on the product Ex maintenance workers janitors and security guards o Manufacturing Overhead indirect materials indirect labor and other manufacturing costs Examples of other costs depreciation on plant and equipment property taxes insurance utilities overtime premium and unavoidable idle time o Prime Costs Direct Materials Direct Labor o Period Costs costs that are expensed during the time period in which they are incurred Selling and Administrative Costs Job Order Costing o Produce many different types of products in relatively small quantities batches o Quantities can be separately identified custom made unique goods o Each product job is different from anther product job o Output consists of many diverse products Formulas o Cost Unit Total Cost of DM DL Manuf OH for Job 1 Total Units Produced From Job 1 o Predetermined Manuf O H Rate Estimated Manuf O H Estimated Activity o Applied Manuf O H Predetermined O H Rate X Actual Activity o Actual Overhead Applied Overhead Over Under applied O H o If Actual Applied Under applied Overhead o If Actual Applied Over applied Overhead o Costs of Goods Manufactured DM Used DL Worked Manuf OH Applied Total Manuf Costs Beg WIP Inventory End WIP Inventory Chapter 5 Activity Based Costing 2 questions computational Computing the difference between traditional costing single plant wide rate and ABC Activity Based Costing Charge overhead costs to activities not directly to products or to department and then charge activities to the product o Divide the total Overhead costs into activity cost pools o 5 steps for Implementing Activity based Costing o 1 Identify the most significant activities comprising the production process Called the activity cost pools measure Activity cost pool a bucket in which costs are accumulated that relate to an activity Activity any event that causes the consumption of overhead resources o 2 Assign overhead costs to the activity cost pools that represent the most significant activities comprising the production process called first stage allocation Cost Activity o 3 Need to specify an appropriate cost driver for each activity cost pool o 4 Calculate activity rates Total cost for each activity Total cost driver Activity rate o 5 Assign costs to cost objects using the activity rate Called second stage allocation Activity Product Chapter 6 Cost Behavior 2 questions 1 conceptual 1 computational Per Unit Cost Behavior o Variable Costs Constant no matter what happens to change in activity o Fixed Costs Changes in opposite direction as change in activity level Total Cost Behavior o Variable Costs Change in same direction and in direct proportion to changes in activity level o Fixed Costs Constant no matter what happens to change in activity Mixed Cost partly variable cost and partly fixed cost Formulas TOTAL VARIABLE COST variable Rate x Activity Level TOTAL FIXED COST Total Mixed Cost Total Variable Cost COST LINE Y mx b o Y Total Cost dependent variable o M variable Rate o X Activity level independent variable o Mx Total variable Cost o B Total FC Chapter 7 Cost Volume Profit 1 question computational on breakeven B E point in Units Fixed Costs CM per unit of units needed to sell to achieve a particular before tax profit Fixed Costs Desired Profit before taxes B E point in Sales Dollars Revenues Fixed Costs CM ratio Sales Dollars needed to achieve a particular before tax profit Fixed Costs Desired profit before taxes CM per unit CM ratio Chapter 8 Absorption and Variable costing 1 question conceptual Absorption Costing A system of accounting for costs in which both fixed and variable production costs are considered product costs o Product Costs Variable DM Variable DL Variable Manufacturing OH Fixed Manufacturing OH o Period Costs Variable and Fixed Selling Administrative Costs o Traditional I S Sales CGS of units sold x product cost unit under abs costing Gross Margin S A Expenses Var S A Fixed S A Operating Income Variable Costing A system of cost accounting that only assigns the variable cost of production to products o Product Costs DM DL Variable Manufacturing OH o Period Costs Selling Administrative Costs Fixed Manufacturing OH o Operating Income Sales VC Variable CGS and Variable S A CM FC Fixed Manuf O H and Fixed S A Variable CGS of units sold x product cost per unit under variable costing Product cost per unit under variable costing DM DL Var Manuf O H What is so significant about whether a cost is a product or a period cost o 1 Reclassifying Fixed manuf O H from a product cost to a period cost can cause differences in the B S and the I S o 2 Using variable costing will not necessarily result in the same OI on the I S and Ending Inventory valuation on the B S as using absorption costing would o 3 Difference is due to the difference as to when product costs are expensed compared to when period costs are expensed Assume Constant costs Constant selling price o No over under applied Manuf O H actual applied o If units produced units sold i e inventory levels remain constant OIs same o If units produced units sold i e inventory levels increase Abs costing OI income will be greater that Var OI o If units produced units sold Absorption OI wiill be less than Variable OI Variable Costing Total Fixed Manuf O H is expended immediately because it is considered to be a period cost Abs Costing fixed Manuf O H is not expensed until the product is sold CGS because it is considered to be a product cot Any units of product not sold under absorption costing result in Fixed manuf O H being stored in inventory and carried forward as assets Works In Progress Finished Goods on the B S Chapter 9