cost ch 6

production departments

Departments that produce goods or services that are sold to consumers.

support departments

Departments that facilitate and support production departments but do not produce goods or services that are sold to consumers. Also known as service departments.

support services

All services provided by support departments that facilitate and support production departments.

single rate method

A cost allocation method that allocates all support department costs (both fixed and variable) to cost objects using a single rate.

dual rate method

A cost allocation method that uses two rates (one for fixed and one for variable costs) to allocate support department costs to cost objects.

direct method

A method of allocating support department costs to production departments, Under the […], no support costs are allocated between support departments.

step down method

A method of allocating support department costs to production departments. In this method, support departments are ranked. Higher-ranked support departments allocate costs to lower-ranked support departments as well as to production departments, but lower-ranked support departments do not allocate costs to higher ranked support departments.

reciprocal method

A method of allocating support department costs in which all support departments allocate costs to other support departments as well as to production departments.

joint costs

Production costs that are shared between multiple product lines.

joint products

Products that result from a single production process.

split off point

The point of production at which joint production processes are complete and subsequent costs can be traced to unique product lines.

separable cost

Any cost incurred after the split-off point in a production process. […] are assigned to specific products rather than allocated to multiple products.

by products

Incidental products that are created during a manufacturing process. In the context of joint production processes, they have minimal economic value.

physical units method

A method of allocating joint costs such that all product lines are allocated joint costs on the basis of a consistent physical measurement such as quantity, weight, length, or volume.

sales value at split off method

A method of allocating joint costs such that joint costs are prorated to production lines based on each production line’s sales value at the split-off point.

net realizable value method (NRV method)

A method of allocating joint costs such that joint costs are prorated to production lines based on each production line’s NRV, which is calculated as revenue - separable costs.

constant gross margin method

A method of allocating joint costs such that all production lines are allocated the amount of joint costs necessary to produce the companywide gross margin.

gross profit

Profit - COGS (which includes both separable and joint costs).

gross margin

Gross profit divided by revenue.