ACCT 2301 Test 2
Terms
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- Job Order Costing System (definition)
- Costs are collected by job because there is a wide variety of distinct products.
- Process-Costing System (definition)
- Production costs are estimated by dividing the process costs for the given period by the output of the period.
- What do production costs consist of?
- Direct materials, direct labor, and overhead
- What is overhead?
- All production costs other than direct materials and direct labor.
- Actual Cost System (definition)
- only actual costs of direct materials, direct labor, and overhead are used to determine unit cost.
- Why are strict actual cost systems rarely used?
- Because they cannot provide accurate unit cost information on a timely basis.
- How is predetermined overhead rate calcuated?
- By dividing the total estimated annual overhead by the total estimated level of associated activity or cost driver. (at the beginning of the year)
- How do you find applied overhead?
- Multiply the predetermined overhead rate by the actual use of the associated activity for the period.
- Overhead variance
- The difference between actual over head and applied overhead.
- Underapplied Overhead
- Actual overhead is greater than applied overhead
- Overapplied overhead
- Actual overhead is less than applied overhead
- How is overhead variance adjusted at the end of the year?
- It is assigned to cost of goods sold
- Plantwide overhead rate
- a single overhead rate calculated by using all estimated overhead for a factory divided by the estimated activity level across the entire factory.
- Departmental overhead rate
- estimated overhead for a department divided by the estimated activity level for that same department
- Job-Order Cost Sheet
- Prepared for every order, keeps track of all information pertinent to a job.
- Materials Requisition Form
- a source document that records the type, quantity, and unit price of the direct materials issued to each job.
- Time ticket
- the means by which direct labor costs are assigned to individual jobs
- normal cost of goods sold
- cost of goods sold before an adjustment for an overhead variance
- Sequential Processing
- units must pass through one process before they can be worked on in later processes
- Parallel processing
- producing a good that requires two or more sequential processes to achieve a finished good
- In process costing, how is the work in progress account handled?
- Each producing department has its own WIP account. As goods are completed in one department, they are transferred to the next department.
- Transferred-in costs
- costs transferred from a prior process to a subsequent process
- production report
- the document that summarizes the manufacturing activity that takes place in a process department for a given period of time
- What is a production report divided into?
- Unit info section-Two major subdivisions- units to account for and units accounted for Cost info section-costs to account for and costs accounted for
- How does the WIP account work for service and manufacturing firms?
- Because services are provided so quickly, there are no WIP inventories.
- equivalent units of output
- the complete units that could have been produced given the total amount of manufacturing effort expended for the period under consideration.
- What are the 2 categories of units in the FIFO costing method?
- Units started and completed, and units started but not finished (EWIP)
- When do FIFO and weighted average methods yield the same results?
- If product costs do not change from period to period or there is no BWIP inventory.
- How do you calculate unit cost under the weighted average method?
- Unit cost equals costs of the period divided by output of the period.
- What is the physical flow schedule?
- provides an analysis of the physical flow of units
- What 2 calculations are needed for a physical flow analysis?
- Units started and completed in this period, and units started
- What is the relationship between total units to account for and total units accounted for?
- They must be equaled
- What is cost reconciliation?
- it checks to see if the costs to account for are exactly assigned to inventories.
- What is the main disadvantage of the weighted average method?
- Reduced accuracy in computing unit costs for current-period output and for units in BWIP. If the unit cost in a process is relatively stable from one period to the next, the weighted average method is reasonably accurate.
- What do you do when there are different percentage completion figures for manufacturing inputs?
- Equivalent unit calculations must be done for each category of manufacturing input.
- What are two major factors that impair the ability of unit-based plantwide and departmental rates to assign overhead costs accurately.
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1.The proportion of nonunit-related overhead costs to total overhead costs is large
2.The degree of product diversity is great - What is a unit-level activity?
- an activity that is performed each time a unit is produced.
- What are the 4 types of activity-based costing?
- Unit-level, batch-level, product-sustaining, and facility-sustaining
- What is unit-level costing?
- it varies with output volume
- What is batch-level costing?
- Varies with the number of batches produced
- What is product-sustaining costing?
- Varies with the number of product lines
- What is facility-sustaining costs?
- Necessary to operate the plant facility but does not vary with units, batches, or product lines
- What is a nonunit-level activity driver?
- factors that measure the consumption of non-unit-level activities by products and other cost objects.
- What are unit-level activity drivers?
- they measure the consumption of unit-level activities
- What are activity drivers?
- factors that measure the consumption of activities by products and other cost objects and can be classified as either unit-level or nonunit-level
- What is product diversity?
- products consume overhead activities in systematically different proportions.
- What is consumption ratio?
- the proportion of each activity consumed by a product
- What are the 2 major stages involved in functional-based overhead costing?
- overhead costs are assigned to an organizational unit, and overhead costs are then assigned to products.
- what is an activity dictionary?
- it lists the activities in an organization along with some critical activity attributes.
- What are activity attributes?
- Financial and nonfinancial information items that describe individual activities.
- What is a resource driver?
- factors that measure the consumption of resources by activities.
- What are upstream costs?
- Costs that occur before product manufacturing, such as research and development and product design costs.
- What are downstream costs?
- Costs that occur after product manufacturing such as marketing, distribution and customer service costs.
- What are activity inputs?
- the resources consumed by the activity in producing its output
- What are activity outputs?
- the result or product of an activity
- What is process-value analysis?
- an approach that focuses on processes and activities and emphasizes systemwide performance instead of individual performance.
- What is an activity output measure?
- the number of times the activity is performed.
- What is a driver analysis?
- the effort expended to identify those factors that are the root causes of activity costs.
- What is activity analysis?
- the process of identifying, describing, and evaluating the activities that an organization performs
- What are the 4 outcomes that activity analysis should produce?
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1.What activities are done
2.How many people perform the activities
3.The time and resources required to perform the activities
4.an assessment of the value of the activities to the organization - What are value-added activities?
- Activities that are necessary for a business to achieve corporate objectives and remain in business.
- Nonvalue-added activities
- all activities other than those that are absolutely essential to remain in business.
- What are nonvalue-added costs?
- Costs that are caused either by non-value-added activities or by the inefficient performance of value-added activities.
- What is activity elimination?
- Focuses on nonvalue-added activities
- What is activity selection?
- Choosing among different sets of activities that are caused by competing strategies
- What is activity reduction?
- It decreases the time and resources required by an activity.
- What is activity sharing?
- It increases the efficiency of necessary activities by using economies of scale.
- What is cycle time?
- the length of time it takes to produce a unit of output from the time raw materials are received until the good is delivered to finished good inventory.
- What is velocity?
- the number of units of output that can be produced in a given period of time
- What are costs of quality?
- the costs of performing activities because poor quality may or does exist.
- What are control activities?
- Activities performed by an organization to prevent or detect poor quality
- What are control costs?
- the costs of performing control activities
- What are prevention costs?
- costs incurred to prevent poor quality in the products or services being produced.
- What are appraisal costs?
- costs incurred to determine whether products and services are conforming to their requirements or customer needs.
- What are failure activities?
- activities performed by an organization or its customers in response to poor quality
- What are failure costs?
- costs incurred by an organization because failure activities are performed.
- Internal failure costs
- Costs incurred when products and services do not conform to specifications or customer needs
- What are external failure costs?
- Costs incurred when products and services fail to conform to requirements or satisfy customer needs after being delivered to customers