BMGT 221 FALL 2014 STUDY SHEET 1 Terminology Planning process of establishing goals and specifying how to achieve them Control process of gathering feedback to ensure that a plan is being properly executed or modified as circumstances change Product cost all costs involved in acquiring or making a profit DM DL MOH they attach themselves to the units of product as goods are purchased or manufactured and stay attached as goods go into inventory awaiting sale Initially on balance sheet as inventory but as they are sold they are released form inventory as expenses COGS and matched against sales revenue on income statement Period cost all costs that are not product costs SG A sales commissions advertising executive salaries PR rental costs not included in cost of purchased of MF goods expensed on income statement in period in which they are incurred accrual accounting might not necessarily be incurred when the cash changes hands like insurance expense spread out when the premium is paid Fixed cost cost that remains constant in total despite changes in level of activity like straight line depreciation insurance property taxes rent supervisory salaries admin salaries and advertising NOT affected by changes in activity average fixed cost becomes progressively smaller as level of activity increases don t express FC as average per unit in internal reports because creates false impression that FC are like VC and that total FC actually change as level of activity changes Variable cost vary in total in direct proportion to the changes in the level of activity COGS DM DL variable elements of MOH indirect materials supplies power variable elements of SG A like commissions and shipping costs Relevant range range of activity within which the assumption that cost behavior is strictly linear is reasonably valid Direct cost cost that can be easily and conveniently traced to a specified cost object Indirect cost cost that can t be easily and conveniently traced to a specified cost object Prime cost DM DL Conversion cost DL MOH DL and MOH are used to convert materials into the finished product Cost object anything for which cost data are desired products customers jobs organizational subunits either direct or indirect Cost driver factor that causes overhead costs like machine hours beds occupied computer time or flight hours Opportunity cost potential benefit that is given up when one alternative is selected for over another Sunk cost cost that has already been incurred and that cannot be changed by any decision made now or in the future Cost Allocation Statement of cost of goods manufactured and sold DM Begin RM Purchases of RM Total RM available End RM inventory RM used in production Indirect materials in MOH DL MOH applied to WIP Total MF costs Beginning WiP Ending WiP COGM Beginning FG inventory COGM COG available for sale Ending FG inventory Unadjusted COGS Underapplied OH overapplied OH Adjusted COGS Under applied manufacturing overhead Over applied MOH Applying manufacturing overhead POHR Overhead applied to particular job POHR X Amount of allocation base incurred by job Actual MOH Total MOH applied under over applied MOH Cost Volume Profit Break even in units FC unit CM Break even in dollars FC CM Ratio Unit sales to get target net income TP FC unit CM Dollar sales to get target net income TP FC CM ratio Sales mix break even point depends on mix of units sold if sales mix changes so will break even point Contribution margin amount remaining from sales revenue after variable expenses have been deducted it is the amount available to cover fixed expenses and then to provide profits for the period Variable costing only those manufacturing costs that vary with output are treated as product costs Absorption costing treats all manufacturing costs as product costs whether they are variable or fixed Margin of safety is the excess of budgeted or actual sales dollars over the break even volume of sales dollars Margin of safety in dollars total budgeted or actual sales BE sales Margin of safety percentage margin of safety in dollars total budgeted or actual sales in dollars 2B Quality of conformance costs incurred to prevent defects or that result from defects in products High quality of conformance product that meets or exceeds its design specifications as is free of defects that mar its appearance or degrade its performance Quality cost refers to all of the costs incurred to prevent defects or result from defects in products Prevention costs support activities whose purpose is to reduce the number of defects quality training quality circles statistical process control activities SPEND MOST TIME ON PREVENTION Appraisal costs incurred to identify defective products before the products are shipped to customers testing and inspecting incoming materials final product testing depreciation of testing equipment Internal failure costs incurred as a result of identifying defects before they are shipped scrap spoilage rework External failure costs incurred as a result of defective products being delivered to customers cost of field servicing and handling complaints warranty repairs lost sales recalls Prevention costs support activities whose purpose is to reduce number of defects Quality circles small groups of employees that meet on a regular basis to discuss ways to improve quality Statistical process control technique used to detect whether a process is in or out of control Out of control defective units can be caused by mis calibrated machine Use charts to monitor quality of units that pass through their workstations ISO 9000 standards quality control requirements issued by the international organization for standardization that relate to products sole in European countries Prevention cost appraisal costs internal failure costs external failure costs total quality cost Quality cost reports provide an estimate of the financial consequences of the company s current defect rate Helps managers see financial significance of defects Helps managers identify the importance of quality problems Help managers see if quality costs are poorly distributed 3B Problems with using predetermined overhead rate with respect to capacity POH rate based on budgeted activity results in product costs fluctuating depending on activity level and charges products for costs they did not use To fix these problems should use the estimated total units in allocation base at capacity in the denominator RATHER than estimated total unites in
View Full Document
Unlocking...