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by: Freddie Parisian


Freddie Parisian
GPA 3.84


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Class Notes
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This 8 page Class Notes was uploaded by Freddie Parisian on Monday October 26, 2015. The Class Notes belongs to BUSACC0040 at University of Pittsburgh taught by DhinuSrinivasan in Fall. Since its upload, it has received 38 views. For similar materials see /class/229435/busacc0040-university-of-pittsburgh in Accounting at University of Pittsburgh.




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Date Created: 10/26/15
Exam 1 Study Guide Chapter 2 Managerial Accounting and Cost Concepts 0 ManufacturingProduct Costs 0 There are 3 components of manufacturing costs I Direct Materials anything that is an integral part of the product and can be conveniently traced directly to it 0 Example a radio in a car the radio is a specific material used in the nal product the car Direct Labor labor costs that can be easily traced to individual units of product 0 Example wages of workers on an assembly line for making cars the workers labor is how the product gets completed I Manufacturing Overhead costs that cannot be traced directly to specific units produced Example indirect labor such as the janitor of a factory or indirect materials such as cleaning supplies used in the factory both these materials and this form of labor are essential in the making of the products but are not directly affecting their production 0 Within product costs there are 2 ways of grouping these components I Prime Costs 0 Direct Materials Direct Labor I Conversion Costs 0 Direct Labor Manufacturing Overhead o Nonmanufacturing Period Costs 0 Marketing and selling cost Costs necessary to get the order and deliver the product I Example advertising costs of marketing a product 0 Administrative costs All executive organizational and clerical costs I Example salaries paid to corporate executives 0 Cost Classi cations 0 Variable Costs I Total Variable Costs change when activity changes 0 Example long distance phone bill based on the number of minutes used the longer you talk on the phone the larger the bill will be I Variable Cost Per Unit average cost per unit used remains the same regardless of amount of units 0 Example long distance cost per minute the cost per unit of usage one minute will always be constant 0 Fixed Costs I Total Fixed Costs remain unchanged when activity changes 0 Example basic phone bill for local calls you pay one price and the cost is the same regardless of the amount of local calls you make I Fixed Cost Per Unit average cost per unit used changes depending on how many units are used 0 Example basic phone bill per call the cost per call declines if the amount of local calls increases since the cost of the phone plan remains constant 0 Differential CostsRevenues 0 These are the differences in costs and revenues among alternatives I Example of Differential Revenue 0 Job Awill pay you 20000 and Job B will pay you 15000 the differential revenue is 5000 I Example of Differential Cost 0 Job A costs you 100 to commute and Job B costs you 50 the differential cost is 50 0 Opportunity Cost 0 The potential benefit that is given up when one alternative is chosen over another I Example Ifyou were not attending college you could be earning 15000 per year Your opportunity cost of attending college for one year is 15000 0 Sunk Cost 0 These costs cannot be changed by any decision and should be ignored when making decisions I Example you buy a car for 10000 whether you drive it or leave it in your garage the car still cost you 10000 Chapter 3 lobOrder Costing o 4 documents used 0 Bill of Materials document that lists the type and quantity of each type of direct material needed to complete a unit of product Materials Requisition Form document that specifies the type and quantity of 0 materials to be drawn from the storeroom and identi es the job that will be charged for the cost of the materials 0 Job Cost Sheet form prepared for a job that records the materials labor and manufacturing overhead costs charged to that particular job 0 Employee Time Ticket hourbyhour summary of the employee s activities throughout the day basically the amount of hours worked and the rate at which the employee is paid per hour 0 Application of Manufacturing Overhead for Jobs 0 Predetermined overhead rate POHR 39 POHR estimated total manufacturing overhead cost for the period estimated total units in the allocation base for the period 0 The allocation base is a cost driver such as units produced direct labor hours or machine hours 0 Applied Overhead I Applied Overhead POHR Actual activity in units of the allocation base o This actual activity is what was actually done and the POHR was found by using estimates only use estimates for computing POHR and only use actual activity for computing Applied Overhead 0 Example I Estimated Overhead cost 240000 and Estimated activity 120000 direct labor hours 0 POHR 2 per direct labor hour I Actual activity 100000 direct labor hours 0 Applied Overhead 200000 2 100000 0 At the end of the period if the applied overhead and the actual overhead cost are not equal then you must adjust it by adding or subtracting the difference from the Cost of Goods Sold COGS Section on the Income Statement If you have overapplied your applied overhead is greater than your actual overhead cost then you subtract the difference from COGS If you have underapplied your applied overhead is less than your actual overhead cost then you add the difference to the COGS Chapter 4 Process Costing 0 Costs are traced through and applied to departments 0 2 Essential Features of Processing Departments The activity in the processing department is performed uniformly on all of the units passing through it I The output of the processing department is homogeneous 0 Equivalent Units of Production 0 Equivalent units are partially complete and are a part of work in process inventory I 2 units that are 50 complete are equivalent to 1 completed product 0 Example I You start producing 15000 units You have completed 10000 units and 5000 units are 30 complete 0 You have 11500 equivalent units 10000 completed units 5000 30 o Calculating the cost per equivalent unit for the period 0 Cost per equivalent unit costs for the period equivalent units of production for the period I Example 0 Production costs are 27600 for the 11500 equivalent units of production 0 240 per equivalent unit 27600 11500 0 Weighted Average Method 0 Makes no distinction between work done in prior and current period 0 Blends together units and costs from prior period and current period 0 Concentrates on Work in Process 0 Example I There were 5400 units completed and transferred out of the department during the period and 900 units left in work in process For the work in process units materials were 60 complete and the conversion labor and overhead were 30 complete 0 For materials 5940 equivalent units were produced 5400 completed units 540 units in work in process 0 The 540 units comes from multiplying the 900 units in work in process by 60 o For conversion 5670 equivalent units were produced 5400 completed units 270 units in work in process 0 The 270 units comes from multiplying the 900 units in work in process by 30 0 Production Report 0 3 sections I A quantity schedule showing the ow of units and the computation of equivalent units I A computation of cost per equivalent unit I A reconciliation of cost ows for the period 0 Total cost for units completed and transferred from the processing department 0 Total cost for partially completed units remaining in work in process 0 Review example in the slides for chapter 4 0 Operation Costing 0 Operation costing employs some aspects of both joborder and process costing I Material costs charged to batches like in joborder costing I Conversion costs charged to batches like in process costing


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