cost 2 studyguide

process costing

accounting system used when identical units are produced through a series of uniform production steps

plantwide allocation method

allocation method using one cost pool for the entire plant. It uses one overhead allocation rate, or one set of rates, for all of a plant’s departments

departmental allocation method

allocation method that has a separate cost pool for each department, which has its own overhead allocation rate or set of rates

activity based costing

costing method that first assigns them to products based on the products consumption of activities

stages of ABC step 1

identify the activities

stages of ABC step 2

identify the cost drivers

stages of ABC step 3

compute the cost driver rates

stages of ABC step 4

assign costs using abc

cost drivers

factors that cause or “drive” costs

direct method

cost allocation method that charges costs of service departments to user departments without making allocations between or among service departments

reciprocal method

method to allocate service department costs that recognizes all services provided by any service department, including services provided to other service departments

operations costing

hybrid costing system used in manufacturing goods that have some common characteristics and some individual characteristics

joint cost

cost of a manufacturing process with two or more outputs

joint products

outputs from a common input and common production process

joint cost allocation

process of assigning shared production costs (joint costs) to multiple products that are produced together from a common process before the split-off point

unused resource capacity

difference between resources used and resources supplied

resources supplied

expenditures or the amounts spent on a specific activity

resources used

cost driver rate multiplied by the cost driver volume

weighted average process costing

inventory method that for product costing purposes combines costs and equivalent units of a period with the costs and the equivalent units in beginning inventory

fifo process costing

inventory method whereby the first goods received are the first ones charged out when sold or transferred

cost hierarchy

classification of cost drivers into general levels of activity, volume, batch, product, and so on

production cost report

report that summarizes production and cost results for a period; generally used by managers to monitor production and cost flows

product costing

the process of determining the total cost of producing a good or service, including direct materials, direct labor, and allocated overhead

by-products

outputs of joint production processes that are relatively minor in quantity or value

activity based costing management (ABCM)

approach that uses activity based costing data to evaluate the cost of value-chain activities and to identify opportunities for improvement

step method

method of service department cost allocation that allocates some service department costs to other service departments

value chain

set of activities that transforms raw resources into the goods and services that end users purchase and consume

value added activities

those activities that customers perceive as adding utility to the goods or services they purchase

nonvalue-added activities

activities that do not add value to the good or service

theoretical capacity

amount of production possible under ideal conditions with no time for maintenance, breakdowns, or absenteeism

practical capacity

amount of production possible assuming only the expected downtime for scheduled maintenance and normal breaks and vacations

normal capacity

long-run expected volume

actual capacity

actual volume for the period

physical quantities method

joint cost allocation based on measurement of the volume, weight, or other physical measure of the joint products at the split-off point

quality control systems

processes and procedures used by a company to monitor, evaluate, and ensure that products or services meet specified standards and requirements

quality planning and analysis

process of identifying quality standards, setting quality goals, and analyzing processes and data to ensure products or services meet those standards efficiently

death spiral

process that begins by attempting to increase price to meet reported product cost

equivalent units

number of complete physical units to which units in inventories are equal in terms of work done to date

two stage allocation system

process of first allocating costs to intermediate cost pools and then to the individual cost objects using different allocation bases