Chapter 7 Job Costing

Actual cost Cost of job determined by actual direct material and labor cost plus overhead applied using an actual overhead rate and an actual allocation base. Account in the general ledger that summarizes a set of subsidiary ledger accounts. Unit of a product that is easily distinguishable from other units. Record of the cost of the job kept in the accounting system. irm that produces jobs. Cost of job determined by actual direct material and labor cost plus overhead applied using a predetermined rate and an actual allocation base. #$cess of applied overhead costs incurred over actual overhead during a period. Comple$ job that often takes months or years and re&uires 'ork of many departments( divisions( or subcontractors. Cost of job determined by standard *budgeted+ direct material and labor cost plus overhead applied using a predetermined overhead rate and a standard *budgeted+ allocation base. Account that records financial transactions for a specific customer( vendor( or job. #$cess of actual overhead costs incurred over applied overhead costs.

Control account Job Job cost sheet Job shop !ormal cost

"verapplied overhead %roject

)tandard cost

)ubsidiary ledger account Underapplied overhead

Chapter , %rocess Costing

#&uivalent units irst-in( first-out * . "+ process costing "peration "peration costing !umber of complete physical units to 'hich units in inventories are e&ual in terms of 'ork done to date. .nventory method 'hereby the first goods received are the first ones charged out 'hen sold or transferred. )tandardized method of making a product that is repeatedly performed. /ybrid costing system used in manufacturing goods that have some common characteristics and some individual characteristics. 0anufacturing costs incurred in one department and transferred to a subse&uent department in the manufacturing process. Report that summarizes production and cost results for a period1 generally used by managers to monitor production and cost flo's. .nventory method that for product costing purposes combines costs and e&uivalent units of a period 'ith the costs and the e&uivalent units in beginning inventory.

%rior department costs

%roduction cost report

2eighted-average process costing

Chapter 9 Activity-:ased Costing

Activity-based costing *A:C+ Costing method that irst assigns costs to activities and then assigns them to products based on the products6 consumption of activities. actor that causes an activity6s costs. Classification of cost drivers into general levels of activity( e.g. volume( batch( product. %rocess that begins by attempting to increase price to meet reported product costs( losing demand( reporting still higher costs( and so on until the firm is out of business. Allocation method that has a separate cost pool for each department( 'hich has its o'n overhead allocation rate or set of rates. Allocation method that uses one cost pool for the entire plant by using one overhead allocation rate( or one set of rates( for all of a plant6s departments.

Cost driver Cost hierarchy 5eath spiral

5epartment allocation method

%lant'ide allocation method

Chapter 34 undamentals of Cost 0anagement

Activity-based cost management Actual activity Appraisal costs Conformance to specification Cost of &uality system Use of activity analysis to make decisions and manage costs. Actual volume for the period. Cost incurred to detect individual units of products that do not conform to specifications. 5egree to 'hich a good or service meets specifications. A system that reflects the tension bet'een incurring costs to ensure &uality and the cost incurred 'ith &uality failures. Customer6s anticipated level of product or service *including tangible and intangible features+. Costs incurred 'hen nonconforming products and services are detected after being delivered to customers. Costs incurred 'hen nonconforming products and services are detected before being delivered to customers. 7ong-run e$pected volume. Amount of production possible assuming only the e$pected do'ntime for scheduled maintenance and normal breaks and vacations. Costs incurred to prevent defects in the products or services being produced. #$penditures or the amounts spent on a specific activity. Cost driver rate multiplied by the cost driver volume. Amount of production possible under ideal conditions 'ith no time for absenteeism. 5ifference bet'een resources used and resources supplied.

Customer e$pectations of &uality #$ternal failure costs

.nternal failure costs

!ormal activity %ractical capacity

%revention costs Resources supplied Resources used 8heoretical capacity Unused resource capacity

Chapter 33 )ervice 5epartment and Joint Cost Allocation

:y-products 5irect method "utputs of joint production processes that are relatively minor in &uantity or value. Cost allocation method that charges costs of service departments to user departments 'ithout making allocations bet'een or among service departments. )ales price of a final product minus additional processing costs necessary to prepare a product for sale. Cost center( such as a production or marketing department( 'hose costs are not allocated to another cost center. Cost center 'hose costs are charged to other departments in the organization. Cost of a manufacturing process 'ith t'o or more outputs. "utputs from a common input and common production process. Joint cost allocation based on the proportional values of the joint products at the split-off point. Joint cost allocation based on measurement of the volume( 'eight( or other physical measure of the joint products at the split-off point. 0ethod to allocate service department costs that recognizes all services provided by any service department( including services provided to other service departments. 5epartment that provides services to other subunits in the organization. )tage of processing that separates t'o or more products. 0ethod of service department cost allocation that allocates some service department costs to other service departments. 5epartment that uses functions of service departments.

#stimated net realizable value

inal cost center

.ntermediate cost center Joint cost Joint products !et realizable value method %hysical &uantities method

Reciprocal method

)ervice department )plit-off point )tep method

User department

Chapter 3; undamentals of <ariance Analysis

Cost variance analysis #fficiency variance Comparison of actual input amounts and prices 'ith standard input amounts and prices. 5ifference bet'een budgeted and actual results arising from differences bet'een the inputs that 'ere budgeted per unit of output and the inputs actually used. <ariance that results in an addition to operating profit. :udgets of financial resources the cash budget and the budgeted balance sheet. :udget that indicates revenues( costs( and profits for different levels of activity. #$pected monthly costs at different output levels. )tandard input price times standard &uantity of input allo'ed for actual good output. :udgeted income statement( production budget( budgeted costs of goods sold( and supporting budgets. 5ifference bet'een actual costs and budgeted costs arising from changes in the cost of inputs to a production process or other activity. <ariance that arises because the volume used to apply fi$ed overhead differs from the estimated volume used to estimate fi$ed costs per unit. Analysis of the causes of differences bet'een budgeted profits and the actual profits earned. 5ifference bet'een operating profit in the master budget and operating profit in the fle$ible budget that arises because the actual number of units sold is different from the budgeted number( also kno'n as sales volume variance. 5ifference bet'een the actual revenue and actual units sold multiplied by budgeted selling price. %rice variance for fi$ed overhead. rom providing standard &uantities of inputs used to produce a unit of output and the standard prices for the inputs. An accounting method that assigns costs to cost objects at predetermined amounts. :udget for a single activity level1 usually the master budget. 5ifference bet'een budgeted and actual results *e&ual to the sum of the price and efficiency variances+. <ariance that reduces operating profit. 5ifference bet'een planned result and actual income.

avourable variance inancial budgets le$ible budget le$ible budget line le$ible production budget "perating budgets %rice variance

%roduction volume variance

%rofit variance analysis )ales activity variance

)ales price variance )pending *or budget+ variance )tandard cost sheet

)tandard costing )tatic budget 8otal cost variance Unfavourable variance <ariance

Chapter 37 Additional 8opics in <ariance Analysis

Controllability .mpact .ndustry volume variance 0anagement by e$ception #$tent to 'hich an item can be managed. 7ikely monetary effect from an activity *such as a variance+. %ortion of the sales activity variance due to changes in industry volume. Approach to management re&uiring that reports emphasize the deviation from an accepted base point( such as a standard( a budget( an industry average( or a prior period e$perience. %ortion of the activity variance due to changes in the company6s proportion of sales in the markets in 'hich the company operates. <ariance that is e$pected to occur if certain conditions affect operations. <ariance that arises from a change in the relative proportion of inputs *a materials or labor mi$ variance+. 5ifference bet'een e$pected output from a given level of inputs and the actual output obtained from those inputs. %rice variance based on the &uantity of materials purchased. <ariance arising from the relative proportion of different products sold. <ariance occurring in multiproduct companies from the change in volume of sales( independent of any change in mi$.

0arket share variance

%lanned variance %roduction mi$ variance %roduction yield variance

%urchase price variance )ales mi$ variance )ales &uantity variance