Product Costs – Occur inside factory or during production – DL, DM, and MOH. Period Costs – Occur outside the factory/production, generally operating expenses Direct versus Indirect
costs: Direct Costs – Conveniently and easily traceable to the product, worth accounting for Indirect Costs – Difficult to trace to the product or not worth accounting for Malcolm
Badrige Award - started by Congress Continuous improvement – nothing is good enough, value of always seeking improvement, balanced scorecard helps Customer orientation –
focus on needs of customers, flexible production and design Just-in-time – inventory arrives on an as needed-basis, hold less inventory, products pulled through process, modern
system Total Quality management – always improve quality, focus on continuous improvement, modern system Lean business model – avoid any waste but still keep customer happy
Opportunity cost – cost of forgone or lost opportunity Sunk cost – already incurred, unavoidable and irrelevant, in the past Out of pocket cost – future cash outlay, relevant to decision
making Direct Labor – salary costs associated with a specific product where the worker is working on that product Manufacturing Overhead - Costs involved in production but not easily
related to a specific unit of production Raw Materials inventory – Direct and indirect materials used in production, asset on balance sheet Indirect materials – used to make products
but not easily associated to a specific product AND worth accounting for (put in overhead). Examples, screws, buttons, cleaning supplies for machines, glue Direct Materials – used on
product, initially raw materials Prime costs – Direct materials + Direct labor Conversion costs- Direct labor + Overhead Period costs – not associated with production, go on income
statement Product costs – associated with production, capitalized as an asset on balance sheet, DM, DL, or OH, necessary to finish production Finished Goods- products ready to be
sold Goods in process – products still be worked on, not complete, Work in process, costs included from partially complete items Days sales in raw materials – lower is better, time to
use raw materials in production, end materials/used materials x 365 = days sales in raw materials Inventory turnover – Raw used/(average raw balance) Cost of goods manufactured –
total cost of goods completed/finished in period (not sold) Value chain – sequence of activities that add value products/services of a company Clock Card – shows time spent on job,
only goes to find labor costs (not jobs) Cost accounting system – accumulate & assign costs, 3 inventory accounts, types are job order & process, based on perpetual system, gives
timely info about costs and inventory, focus on cost control (total & per unit) Job – production activities for customized product Job Order Manufacturing/Production: produces
customized products/services, called customized production, GIP = total cost of all unfinished jobs Job Cost Sheet: Records costs of a job, specific to a single job, not used for financial
statements, track only manufacturing costs, Materials Ledger card: record of raw materials items (quantity, costs, units used and remaining) Materials Requisition: production manager
form to request manufacturing materials Predetermined Overhead Rate: created before period to assign overhead, used for perpetual inventory systems Overapplied OH – Credit
balance, amount applied is over actual, immaterial charged to cogs Underapplied OH – Debit balance, amount applied is under actual, immaterial charged to cogs Time ticket – cost
accounting source document, shows hours worked on job, determines only employee labor costs, journal is debit GIP & credit payroll Overhead Closing – Small amounts are closed only
to COGS, material amounts closed GIP, FG and COGS Manufacturing Costs = DM + DL + OH Direct materials Purchases = DM used + Ending – Beginning DM used = Beginning +
Purchases – Ending Ending = Beginning + Purchases - DM used in production Goods In Process Manufacturing costs = COGM +Ending – Beginning COGM = Beginning + Manufacturing
Costs – Ending Ending = Beginning + Manufacturing Costs – COFGM Finished Goods COGM = COGS + Ending – Beginning COGS = Beginning + COGM – Ending Ending = Beginning +
COGM – COGS Plantwide overhead rate – Total budgeted OH costs/DL or machine hours, only one cost pool, used bc its simple, good for labor intensive company with few products
Deparmental overhead rate – stage 1: assign to departments (cost object), stage 2: assign to products (cost object), formula = department overhead costs/total unit number in
department allocation base, allows each department its own rate/activity base, multiple overhead rates, use when departments consume resources differently. Activity based costing –
takes activities to make stuff & these activities drive costs, used because OH affected by many factors, assign overhead based on input, usable for any cost object, more costly than
other methods, activities can be multiple tasks, multiple overhead rates, cost object = unit in first stage and production activities in second stage Cost object – the product Cost pool –
sum of costs from same activity, pooling helps to reduce number of cost assignments Activity Based Costing Steps: 1.Identify activities and the costs they cause. 2. Trace overhead
costs to cost pools 3. Determine an activity rate for each activity cost pool. 4. Assign overhead costs to cost objects. Activity rate = total cost in pool/measure of activity in pool
Example: set up cost pool activity rate = $1,000/500 batches = $2/batch Facility level costs – for the facility as a whole, not traceable to individual products, same regardless of units
produced Batch level costs – same regardless of units produced Unit Break Even = Fixed costs/Contribution margin per unit, Units to hit target income=(fixed costs + pretax
income)/contribution margin per unit, Sales Break Even = Fixed costs/Contribution margin %, Sales to hit target income=(fixed costs + pretax income)/contribution margin %. High Low
Method = Slope (Variable cost per unit) = (high cost – low cost)/(High units – low units) Intercept (Fixed costs) = Total costs – (variable costs per unit x Number of units) Composite
Unit – consists of specific number of units in each product in proportion to their sales mix Contribution margin per unit - sales price/unit – variable cost/unit, Contribution margin ratio
– unit CM/selling price, Cost-Volume-Profit-Analysis – assumes production level = sales level, imprecise method providing approximate profit sensitivity to changes, predicts how
changes in price and cost affect break-even, works with multiple products Cost-Volume-Profit-chart – break even chart, shows sales, fixed costs, variable costs and break-even point.
Curvilinear cost – non-linear, changes with volume at non-constant rate, increase with volume at variable rate Degree of operating leverage – CM$/pretax income, relative measure of
fixed costs in cost structure, Estimated line of cost behavior – scatter diagram line showing cost volume relationship, found with least squares or high/low method High Low method –
uses only 2 points to find cost line (highest & lowest), simple Least squares regression – stat method to find est. cost line, most complex Margin of safety – expected sales above breakeven sales, expressed in dollars, % or units Mixed cost – combination of fixed and variable cost Relevant range of operations – firm’s normal range of operating, excludes very high/low
points Sales mix – ratio of sales volume for various products, assumed to be constant Scatter diagram – display past cost and unit data in graph form with volume on horizontal axis &
cost on veritcal, visually shows relationship between cost and volume (units), this is where the estimated line of costs is drawn, Step-wise cost - constant for a range & then steps up,
usually fixed or variable not split between both Absorption costing (full costing) – includes all variable costs plus Fixed overhead per unit. It can be converted to variable costing.
Difference is how fixed overhead is treated. Variable costing (direct/marginal) – main idea is only costs that change in total with changes in production level are in product costs
Contribution format – separately reports variable and fixed costs, easy to use for CVP Contribution margin income statement – income statement under variable costing Contribution
margin report – shows only sales less variable costs ending in contribution margin, excludes fixed costs and net income Controllable costs – manager can determine and affect amount
(uncontrollable not affected by managers)
Financial Accounting
Provide information about the
Purpose
performance and financial
position of a business.
Balance sheet, income
Report types statement, and statement of
cash flows.
Standards
GAAP
Reporting
Generally the entire company
Entity
Time
Annual, quarterly or monthly
Periods
Creditors, Investors,
Users of
government agencies, other
information
external stak eholders
Management Accounting
Provide information for
planning, evaluating, and
rewarding performance.
No set standard, many
different reports
None
A part of the company's
value chain
Any interval
Management, customers,
and others in the value
chain.