GAP, backward looking, verifiability. public
Forward looking, higher tolerance of verafiability
combination of work you do for customers (idea= customers care about each step)
Process management technique
Lean Production, theory of constraints, Sig xigma
identify value in specific products + services, identify the business process that delivers value, organize work arragements around the flow of the business process, create a pull system that responds to customer orders, continuously pursue perfection in the business process
Theory of Constraints
based on the observation that effectively managing the constraint is the key to success
Process improvement method relying on customer feedback + fact-based data gathering + analysis techniques to drive process improvement.
Importance of ethical standards in business
trust necessary to do business with people, must trust employees, supplies, cost of business goes up if trust is lower (i.e. asking for higher rate of return)
Institute of management accountants, set standards for management accountants.
IMA code of conducts
Confidence, confidentiality, Integrity, Credibility
Key Provisions of Sarbanes oxley
1. Requires ceo + cfo to certify in writing the accuracy of their company's financial status. 2. Established public compnay accounting Oversight board. 3. Places power to hire, compensate + terminate public accounting firms in the hands of the audit comitee. 4. Restricts audit firms (ex: prohibitory then from providing a variety of non-audit services to an audit client. )
Enterprise risk management
managing any risk that could sink the company
Corporate Social Responsibility
Ben and Jerry's buy milk locally to help dairy Farmers in Vermont
Planning and control Cycle
Planning, Implementing plans, Controlling (measure performance), Comparing actual to planned performance
Direct materials, Direct labor, manufacturing overhead
Direct material + labor
Direct labor + manufacturing overhead
Examples of manufacturing overhead
Indirect labor and products
Selling and administrative
direct materials, direct labor, manufacturing overhead
include all selling + administrative costs
Costs of goods manufactured
Total manufacturing cost + beginning work in process -ending wip
Cost of goods sold
Beg inventory final goods + CGM + CGS
how costs behave in response to activity + volume
difference between the costs of 2 options
what you lose out on
cost you wont get back job orders
A company produces many units of a single product. One unit of product is indistinguishable from the other units of product. Enables you to assign the average cost for each unit.
Many different products are produced each period. Requires tracing or allocating costs to each job + maintaining cost records for each job.
Job cost sheet
List of budgeted or actual costs of materials and labor that are required to produce a product.
Predetermined overhead rate =estimated total manufacturing overhead cost for the coming period/estimated total units in the allocation base for the coming period.
exists when the amount of overhead applied to jobs during the period using the predetermined overhead rate is less than the toal amount of overhead actually incurred during the period
exists when the amount of overhead applied to jobs duirng the period using the predetermined overhead rate is greater than the total amount of overhead actually incurred during the period.
disposition of under or overapplied overhead
Work in process, cost of goods sold, finished goods. Or PearCo's method= Cost of goods sold
Estimated capacity or actual capacity
Calculating predetermined overhead rates using an estimated, or budgeted amount of the allocation base has been criticized because: Basing the predetermined overhead rate upon budgeted activity results in product costs that fluctuate depending on the activity level. 2. Calculating predetermined rates based upon budgeted activity charges products for costs that they do not use.
Similarities between job-order and process costing
Both system assign material, labor and overhead costs to products and they provide a mechanism for computing unit product costs. Both systems use the same manufacturing accounts, including manufacturing overhead, raw materials, work in process, and finished goods. The flow of costs through the manufacturing accounts is basically the same.
Differences between job-order and process costing
process costing accumulates cost by department, job order costing systems accumulated by individual jobs. Process costing systems compute unit costs by department. Job order costing systems compute unit costs by job
used when batches of many different products pass through the same processing. department. A hybrid of job-order and process costing because it possesses attributes of both approaches.
Designed to provide managers with cost information for strategic and other decisions.
Differences between activity and traditional based costs
trad =all manufacturing costs, ABC= some manufacturing and some non manufacturing costs. ABC uses more cost pools.
2 stages allocation system
Step 1: Trace costs to activity cost pools (note the focus is on activities, not departments) Step 2: Using the cost drivers identified for each activity, calculate cost of performing each activity.
abc cost hiearchy
combine their activities into 5 classification: Unit level (dm cost) batch level (setup cost) Product level (design cost) Organization-sustaining (IT support) Customer-level (sales calls).
Traditional Cost System
reports a higher
Traditional v. ABC
Traditional cost overcosts lower quality (surestarts) and traditional cost system undercosts the longlife(high quality)
ABC does not conform to GAAP
When ABC is more likley to be useful
A large proportion of non unit-level activities: (i.e. a machine setup is not required every time a unit is produced), Product diversity: when the consumption ratios differ widely between products, no single cost driver will accurately assign the resulting overhead costs.
ABC improvements over traditional
Valuable clues on where to focus improvement efforts. Used for benchmarking.
used to compare activity cost information with world class standards of performance achieved by other organizations.