Review for Final Exam, ACCT-2302 (SAC)

Chapter 14: Cost Classification and Manufacturing Costs

Types of Cost Classification

• By Behavior:
  • Variable Cost: Constant per unit, changes with volume.
  • Fixed Cost: Fixed in total across production levels.
  • Mixed Cost: Combination of variable and fixed components.
• By Traceability:
  • Direct: Traceable to a specific cost object.
  • Indirect: Cannot be traced to a single cost object.
• By Relevance:
  • Sunk Cost: Already incurred, unavoidable.
  • Opportunity Cost: Potential benefit forgone.
• By Function:
  • Product: Integral part of finished product.
  • Period: Associated with a time period.

Elements of Manufacturing Costs

• Direct Material: Part of the product.
• Direct Labor: Applied to material for conversion.
• Factory Overhead: Other manufacturing costs.

Manufacturing Costs

• Product: Direct material, direct labor, overhead.
• Conversion: Direct labor and overhead.
• Period: Costs within a time period (selling and administrative).

Manufacturing Statement Report Format

• Direct Materials, Direct Labor, Factory Overhead, Total
  • Manufacturing Costs
• Add: Beginning Goods in Process
• Less: Ending Goods in Process
• Cost of Goods Manufactured

Manufacturing Inventories

• Raw Materials
• Work-In-Process (WIP)
• Finished Goods

Chapter 15: Cost Accounting Systems

Cost Accounting Systems

• Job Order Cost
• Process Cost

Job Costing Elements

• Material
• Labor
• Factory Overhead

Job Costing

• Job: Special order for a customer.
• Job Cost Sheet: Total costs (direct material, direct labor, overhead).

Factory Overhead

• Applied on a predetermined rate basis.
• Formula: Estimated Overhead Costs / Estimated Activity Base.
• Disposal of Overhead Balance: Adjusting for under-applied or over-applied.

Chapter 16: Process Cost Characteristics

Process Characteristics

• Continuous process, same processing for all units.
• Separate WIP maintained per department.

Equivalent Units

• Defined as units that could be completed with all effort applied.
• Used for cost allocation each period.

Equivalent Unit Costs

• Material Costs: Allocated to finished units.
• Conversion Costs: Allocated throughout production.

End of Period Processes

• Determine physical units, compute equivalent units, compute unit costs, assign and reconcile costs.

Equivalent Unit Cost Methods

• FIFO
• Weighted-Average

Example Calculation

• Compute equivalent units for conversion using given manufacturing activity data.

Chapter 17: Overhead Rate Methods

Plant-wide Overhead Rate Method

• Traditional Costing: Single overhead rate.
• Formula: Overhead = Estimated Costs / Estimated Activity Base.

Activity-Based Costing (ABC) Method

• Multiple overhead rates for different activities.
• Cost Allocation Process: Identify activities, cost pools, and drivers; compute and assign costs.

Chapter 18: Cost Behavior and High-Low Method

Cost Behavior

• Fixed Costs
• Variable Costs
• Mixed Costs

High-Low Method

• Divides mixed costs into fixed and variable components using high and low data points.
• Four-step process to determine fixed costs.

Break-Even Analysis

• Contribution Margin and Ratio.
• Break-Even Points (Units/Dollars).

Target Net Income

• Calculating required sales and units to achieve a specific net income.

Chapter 19: Variable and Absorption Costing

Variable Cost Assignment Purposes

• Product costing and pricing, inventory valuation, decision making.

Costing Method Comparisons

• Absorption Costing: All manufacturing costs as product costs.
• Variable Costing: Only variable costs as product costs.
• Contribution Margin: Total revenue minus total variable costs.
• Reporting: Absorption costing for external/tax purposes.

Chapter 20: Budget Process

Budget Process Structure

• Annual budgets, continuous budgets.

Master Budget Components

• Operating Budgets: Sales, production, selling expense, general/administrative.
• Capital Expenditures Budget.
• Financial Budgets: Cash, income statement, balance sheet.

Chapter 21: Standards and Variance Analysis

Definitions of Standards

• Ideal, Normal/Practical.

Benefits of Standards

• Aids pricing, budgeting, performance evaluation, and control.

Cost Variance Analysis

• Examines differences between actual and budgeted costs.
• Cost and Efficiency Variance Formulas.

Analysis

• Variances computed for materials, labor, overhead.

Chapter 22: Responsibility Accounting

Levels of Responsibility

• Cost Center
• Profit Center
• Investment Center

Cost Classifications

• Direct and Indirect Costs.

Responsibility Center Reporting

• Performance and Responsibility Reports.

Investment Center Evaluation

• Return on Investment (ROI)
• Residual Income (RI)

Transfer Pricing

• Transaction amounts within company divisions.
• Approaches: Market-based, cost-based, negotiated.

Chapter 23: Relevant Costs

Relevant Costs

• Applicable to specific decisions, avoidable, future costs that differ.

Keys to Analysis

• Focus on relevant revenues, costs, profits.

Product Decisions

• Dropping products/segments, product mix, sell or process further.

Chapter 24: Capital Budgeting/Analysis

Capital Budgeting Process

• Plans, evaluates, and controls long-term investments.

Relevant Costs

• Future costs differing between alternatives.
• Opportunity and Sunk Costs.

Evaluation Methods/Indicators

• Non-PV methods: Cash Payback, Accounting Rate of Return.
• PV Methods: Net Present Value, Internal Rate of Return.

Pay Back Period

• Time to recover the investment.

Accounting Rate of Return

• Measures average return over asset's life.

Net Present Value

• Computes expected net monetary gain or loss from a project.
• Example calculation provided.