Ch. 3 Job Costing
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33 terms
Terms | Definitions |
|---|---|
 absorption costing | most common approach to product costing required for external financial reports |
| process costing | making the same thing in large quantities continuous flow of virtually identical units simple |
| job order costing | produces many different products complicated cost accumulated by job |
| applied overhead | at beginning: POHR=estimated total MOH cost estimated total activity level during period: applied MOH=POHR(actual activity level) |
| adjustment of MOH | actual MOH-applied MOH if actual > applied, MOH underapplied if actual < applied, MOH overapplied conservative/easy to put everything in COGS |
| unit cost | expenditure incurred in producing one unit of a good or service usually as an average cost |
| unit cost | total cost/total units shows efficiency so should be monitored over time |
| accounting cost | only explicit costs no implicit costs |
| economists | explicit and implicit costs analysis begins with scarcity total economic cost=total financial cost + total opportunity cost |
| 3 Key steps of managerial accounting | 1. Find the alternatives 2. evaluate the alternatives 3. decide |
| sunk costs | past costs that have already been incurred and cannot be recovered can recover part of sunk cost at selling should be ignored when making decisions fixed costs are sunk costs |
| prospective costs | future costs that may be incurred or changed/avoided if an action is taken |
| differential costs | the increase of decrease in costs as result of one more/less unit of output eg marginal cost only ones that matter in decisions |
| relevant cost | avoidable/differential cost differs between alternatives being considered eliminate a lot of calculations/unnecessary data |
| contribution margin | marginal profit per unit sale expand production if and only if price > marginal cost |
| marginal cost | = total cost(Q-1) - total cost (Q) where it decreases, economies of scale where it increases, diseconomies of scale |
| profit maximization | independent of economies of scale |
| contribution margin | sales revenue - variable cost measures ability to cover variable costs with revenue leftover (contribution) covers fixed cost plus profit helps gauge success/failure of product line by comparing cont to covering fixed cost high CM: labor intensive low CM: capital intense |
| net operating income | contribution margin - fixed cost (both manufacturing and non manufacturing) increase in # units sold * CM per unit = increase in NOI |
| contribution margin ratio | contribution margin / sales |
| Job cost Data Collection Forms | 1. Material requisition 2. time ticket 3. Job cost sheet |
| break even point | where costs = sales amount of units needed to be sold to make the company's revenues equal to expenses NOI=0 so contribution margin = fixed expenses (b/c CM = NOI + fixed expenses |
| break even point in units | fixed expense / contribution margin per unit |
| target profit | goal profit 1. identify target goal = NOI 2. NOI = sales- variable expense - fixed expense 3. solve # units |
| structural cost | basic capacity, capability can only be eliminated with significant effort ex: process and capabilities such as buildings and professors requires year to year funding |
| discretionary cost | point in time expenditure decision by current conditions requires point in time funding ex: advertising, R & D, special projects |
| capacity | max output of resource such as machine, person, factory etc. 1. nonproductive capacity 2. idle capacity 3. productive capacity can be measured in physical terms (labor hour, machine hour, square footage) |
| nonproductive capacity | waste, nonvaluatic |
| idle capacity | not creating profits buffer for uncertain demand periodic demand such as seasonality strategic decision such as planned growth some is necessary |
| productive | creating profits but could be improved |
| capacity utilization | Xactual / Xmax where X=activity volume |
| daily machine cost | yearly cost / operational days per year |
| unused capacity | (1- capacity utilization) * daily machine cost |
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