Tulum
What is an activity cost pool? Give an 2 examples
The overhead cost attributed to a distinct activity.
Examples: machine setup, manufacturing, ordering materials, factory supervising
True or false: Process costing is more accurate than job order costing
False - Job order costing is more accurate than process costing because it uses a significant amount of data and allocates the overhead more accurately.
What is the order of least to most accurate costing systems: Job order costing, activity based costing, process costing?
Process Costing -> Job Order Costing-> Activity Based Costing
Give 3 examples of cost drivers
Number of square feet, machine hours, direct labor hours, number of parts assembled, amount of material used
At breakeven, what does net income equal?
0
What costs remain the same in total regardless of activity level but the unit cost varies inversely with activity?
Fixed costs
What is the formula for predetermined overhead rate?
Estimated annual overhead costs / Estimated annual operating activity
- More than on activity base ban be used in each department to better assign the overhead costs
What is the starting point in cost behavior analysis?
Measure the key business activities (sales, miles driven, room occupancy, direct labor, units of outputs)
What does it mean to put the current assets on the balance sheet in order of liquidity?
Put them in order of easiest to hardest to convert into cash
What cost remains the same per unit but vary directly and proportionately at every activity level?
Varaible costs
What is the formula for cost of good manufactured?
Beginning WIP inventory +Total Manufacturing costs - Ending WIP Inventory
Manufacturing overhead applied using the predertimed rate is less than the actual manufacturing overhead accured. Is MOH under or overapplied? How do we solve this issue to apply the MOH correctly?
Underapplied - increase COGS becasue an additional amount of overhead needs to be applied
List an example of each: fixed, variable, and mixed costs?
Fixed costs: Rent, property taxes, insurance, supervisor salaries, depreciation on buildings and equipment, supervisor salaries
Variable costs: Direct material costs, direct labor costs
Mixed cost: car rental, utilities
What activity base should be assumed to assign manufacturing overhead under the traditional costing system? How many activity bases were normal with the traditional system?
direct labor hours
The traditional system only allocated based on one activity base.
What is the contribution margin?
Revenue - variable costs = Contribution margin
It is the revenue left over after variable costs are covered. The left over revenue can be used toward fixed costs and target net income
Definition: range of activity that the company expects to operate at during the year
Term:?
Relevant range (aka normal range)
What method is more accurate, the regression analysis or the high low method? Why?
Regression analysis is more accurate becasue it considers all data points compared to high low method only considering the highest and the lowest data point in its analysis
Definition: How specific costs respond to changes in the level of business activity (sales volume or quantity of good) and affect a company's profit.
Another definition: sorting the income statement into variable and fixed costs so we can play with the costs to optimize profit
Term:?
Cost behavior analysis
What is the formula for cost of goods sold?
Beginning Finished Goods inventory + Cost of goods manufactured - ending finished goods
Pros and cons of activity based costing
Pros
1. More cost pools results in more accurate product costing
2. Better control over overhead costs
3. Allows for better management decisions
Cons
1. More expensive than traditional systems
2. more complex
What are the 4 steps of activity based costing?
1. Identify all resource consuming activates. Allocate estimated overhead costs to appropriate cost pool with unique identifier.
2. Identify the cost driver for each pool
3. Compute the activity based overhead rate for each pool.
4. Assign overhead costs to products
Definition: How much the sales can drop before the company starts losing money. We call it the cushion sometimes.
Term: ?
Margin of safety
When the company is at breakeven, what costs must be covered by sales?
Fixed and variable costs
Definition: Lost potential benefit that could have been obtained by following an alternative course of action
Term: ?
Oppurtunity cost
How can a company decrease its fixed cost component of thier cost structure?
How can a company decrease its variable cost component of thier cost structure?
Decrease variable costs: Investing in robotic equipment and technology to replace human labor (wages is the variable cost being reduced)
Decrease fixed costs: outsourcing their production to replace to costs of a factory (facorty depreciation, rent, property taxes)