Managerial Accounting and Cost Concepts Flashcards

Comprehensive vocabulary flashcards covering managerial accounting concepts from Chapters 1, 2, 3, and 7 including cost classifications, job-order costing formulas, overhead application, and activity-based costing.

Cost Object

Anything for which a manager wants separate cost data, such as a product, job, customer, department, or service.

Direct Cost

A cost that can be easily and conveniently traced to a specific cost object.

Indirect Cost

A cost that cannot be easily and conveniently traced to a specific cost object.

Common Cost

An indirect cost shared by more than one cost object that cannot be traced to only one object.

Product Cost

A cost involved in making or acquiring a product. It is inventory until the product is sold.

Period Cost

A selling or administrative cost expensed in the period it is incurred.

Direct Materials

Materials easily traced to a product that become an important part of the finished product.

Direct Labor

Touch labor: employees who physically work on the product or service.

Manufacturing Overhead

All factory product costs other than direct materials and direct labor.

Indirect Materials (Examples)

Glue, solder, small hardware, and ty-wraps.

Indirect Labor (Examples)

Factory supervisors, factory administrative assistants, factory janitors, and factory security guards.

Other Manufacturing Overhead (Examples)

Factory rent, factory insurance, factory depreciation, repairs, and small factory tools.

Selling Expenses

Costs of getting customer orders and delivering or storing finished products for sale.

Administrative Expenses

General business support costs such as accounting, legal, IT, HR, and management.

Finished-Goods Warehouse Depreciation Classification

A period cost, usually a selling expense.

Prime Cost Formula

$$\text{Direct materials} + \text{Direct labor}$$

Conversion Cost Formula

$$\text{Direct labor} + \text{Manufacturing overhead}$$

Ending Work in Process (WIP) Costs

Direct materials + direct labor + applied overhead on unfinished jobs.

Finished Goods Inventory Content

Completed products or jobs that have not yet been sold.

Cost of Goods Manufactured (COGM)

The cost of jobs or units completed during the period.

COGM Formula

$$\text{Beginning WIP} + \text{total manufacturing costs} - \text{ending WIP}$$

Unadjusted COGS Formula

$$\text{Beginning Finished Goods} + \text{COGM} - \text{ending Finished Goods}$$

Apex Example: Ending Materials Inventory

$\$170$ ($\$820$ purchased -$ \$650 used).

Apex Example: Ending WIP

$\$600$, the total cost of unfinished Job 1.

Apex Example: Job 2 Cost Per Unit

$\$105$ ($\$1,050$ total job cost $\div 10$ units).

Apex Example: Ending Finished Goods

$\$420$ ($4$ unsold units $\times \$105$).

Apex Example: COGM and COGS

COGM is $\$1,050$ and COGS is $\$630$.

Total Variable Cost Behavior

It changes in direct proportion to the activity level.

Variable Cost Per Unit Behavior

It stays constant within the relevant range.

Total Fixed Cost Behavior

It stays constant within the relevant range.

Fixed Cost Per Unit Behavior

It decreases when activity increases and increases when activity decreases.

Relevant Range

The activity range where the assumed cost behavior is reasonable.

Committed Fixed Cost

A long-term capacity cost that cannot easily be reduced without hurting the business.

Mixed Cost

A cost containing both fixed and variable components.

Mixed-Cost Formula

$$Y = a + bX$$

Mixed-Cost Equation Variables ($Y = a + bX$)

$Y$ = total mixed cost, $a$ = total fixed cost, $b$ = variable cost per unit, and $X$ = activity units.

Job-Order Costing Usage

Used when different jobs, products, or services are produced and costs must be collected separately.

Unit Product Cost Formula for a Job

$$\text{Total job cost} \div \text{number of units in the job}$$

Absorption Costing Product Cost Assignments

Direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead.

Importance of Absorption Costing

It is required by GAAP for external financial reporting.

Normal Costing Costs Used

Actual direct materials + actual direct labor + applied overhead.

Predetermined Overhead Rate (POHR) Formula

$$\text{Estimated total manufacturing overhead} \div \text{estimated total cost-driver units}$$

Reason for Calculating POHR Before the Period Begins

So jobs can be costed and customers can be billed without waiting for year-end actual costs.

Common Overhead Cost Drivers

Direct labor hours, direct labor cost, machine hours, or units produced.

Relationship Between Cost Driver and Overhead

A positive correlation.

Applied Overhead Formula

$$\text{Actual cost-driver units used by the job} \times \text{POHR}$$

Timing of Overhead Application to a Job

While it is in WIP and before a completed job leaves the factory; unfinished jobs also receive OH at period-end.

Underapplied Overhead

Actual OH is greater than applied OH, so not enough OH was assigned to jobs.

Overapplied Overhead

Actual OH is less than applied OH, so too much OH was assigned to jobs.

Method 1 Handling of Underapplied OH

Add the entire amount to unadjusted COGS.

Method 1 Handling of Overapplied OH

Subtract the entire amount from unadjusted COGS.

Effect of Underapplied OH on Net Operating Income

It raises COGS and lowers net operating income.

Effect of Overapplied OH on Net Operating Income

It lowers COGS and raises net operating income.

Accounts Receiving Method 2 Allocation

Ending WIP, ending Finished Goods, and unadjusted COGS.

Allocation Base Used for Method 2

Applied overhead in WIP, Finished Goods, and COGS, not total job costs.

Knack Example: POHR

$80\%$ of direct labor cost: \9,600 \div \$12,000$.

Knack Example: Total Applied OH

$$\$8,000.00$$

Knack Example: Actual OH

$\$8,400$: $\$5,300$ indirect labor + $\$3,100$ factory depreciation.

Knack Example: OH Status

$\$400$ underapplied because actual OH exceeds applied OH.

Knack Example: Method 1 Adjusted COGS

$\$10,800$: $\$10,400$ unadjusted COGS + $\$400$.

Knack Example: Method 2 Allocation Division

$\$80$ to WIP, $\$120$ to Finished Goods, and $\$200$ to COGS.

COGM Adjustment Rule

COGM should not be changed from applied OH to actual OH because COGM must agree with completed job costs and always reflects applied OH.

Activity-Based Costing (ABC)

A supplemental costing system that uses multiple activity pools and rates to assign overhead more accurately.

ABC vs. Traditional Normal Costing

ABC uses multiple activity rates and assigns costs based on the activities each product or customer uses.

Nonmanufacturing Costs Assigned Internally by ABC

Traceable sales commissions, shipping, warranty, service, and finished-goods warehouse costs.

Organization-Sustaining Costs

Costs supporting the whole organization that are not caused by a specific product or customer.

ABC Treatment of Organization-Sustaining Costs

Treated as period expenses; ABC does not allocate them to products or customers.

ABC Treatment of Unused Capacity Costs

Does not assign them to products; products receive only the capacity costs they use.

Activity Cost Pool

A group of overhead costs related to one activity.

First-Stage Allocation

Assigning overhead resource costs to activity cost pools.

Activity-Rate Formula

$$\text{Total cost in an activity pool} \div \text{total amount of the related activity}$$

Second-Stage Allocation

Assigning activity-pool costs to products or customers based on their activity usage.

Second-Stage Cost Formula

$$\text{Product activity usage} \times \text{activity rate}$$

Total ABC Product Cost

Direct materials + direct labor + all overhead assigned from the activity pools.

ABC Unit Product Cost Formula

$$\text{Total ABC product cost} \div \text{number of units produced}$$

Product or Customer Margin

Revenue minus traceable direct costs and ABC activity costs for that product or customer.