Scribd
Upload
658 views16 pages

Cost Measurement Study Notes

Uploaded by

MUNAWAR ALI
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF or read online on Scribd
658 views16 pages

Cost Measurement Study Notes

Uploaded by

MUNAWAR ALI
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF or read online on Scribd
You are on page 1/ 16
MODULE 4 COST MEASUREMENT 21 COST MEASUREMENT AA primary purpose of cost measurement is to allocate the costs of production (direct materials, direct ‘manufacturing labor, and manufacturing overhead) to the units produced. It also provides important in tion for management decisions, such as prosluct pricing decisions, Cost measurement is achieved through a costing system (job-order, process, activity-based) as described in this module, Before you begin the module, you should review the following key cost measurement terms BASIC COST MEASUREMENT TERMINOLOGY Costing, 1 gis system for allocating costs to groups of unique products made to customer 2. Process costing is a system for allocating costs to homogeneous units of a mass-prodkiced product. 3. Hybrid-costing is a system that blends the characteristics of both the job order and process eostin systems. Firms using this system typically produce large numbers of closely related products. 4. Activity-based costing (ABC) is a cost system that focuses on activities, determines their costs, and then uses appropriate cost drivers to ace costs to the products based on red in ABC: a. Acost driver is a factor ses a cost to be incurred. Cost drivers may be volime-related (e.g, repair costs may depend on the volume of machine hours) and transaction-related (purehas- ing costs may depend on the number of purchase transactions). b. Cost pools are groupings of related costs accumulated together to be allocated to a product oF some other cost abject. &. Non-value-added costs are the cost of uetivities that cun be eliminated without the customer per- 12 4 decline in product quality or perfo added cost is the cost of activities that ea 1e activities. The follow terminology is encom be eliminated wit out the customer per is the sequence of for services. This sequence includes research and development, product design, manufactur marketing, distribution, and customer service. £ Engineered costs are determined from industrial engineering studies that examine how activities are performed and if/how performance ean be improved Activity-based management (ABM) integrates ABC with other concepts such as Total Quality Man- agement (TQM) and target costing to produce a management system that strives for excellence through cost reduction, continuous process improvement, and productivity gains 6. Backflush costing is a costing system that omits recording some or all of the journal entries to track the purchase and production of goods, Goods are costed after they have been completed Acost management system (CMS) is a planning and control system that measures the cost of signifi- cant activities, identifies non-value-added costs, andl identifies activities that will improve orp: tional performance. Cost of Goods Manufactured and Cost Flows 8. Product costs are costs that can be associated with the production of spes tach to a physical unit a jc goods. Product costs at- «d become an expense in the period in which the unit to which they attach is sold. Product costs normally include direct ng labor, direct n head. Period costs cannot be associated (or matched!) with manufactured goods (e.g., advertising ex penditures). Period costs become expenses when incurred. 9. Prime costs are easily traceable (o specific units of production and inelude direct manufacturing labor and direct materials. Direct costs are those easily traced to a specific business segment (e.g, product, division, department). Indirect costs ate not easily traceable to specific segments and include factory overhead 10. Direct materials is the cost of materials disectly and conven terial items (nails, glue) are not deemed conveniently materials along with production supplies. nufact terials, and factory over- ly twaceable to a product. Mi sceable. These items are treated as indirect MODULE 44 COST MEASUREMENT. Dircet manufacturing labor is the cost of labor directly transforming a produet. ‘This theoretically should include fringe benefits, but frequently does not. This is contrasted with indirect manufacturing labor, which is the cost of supporting labor (e.g... material handling labor, factory supervisors). Factory (manufacturing) overhead normally incluces indirect m: cost, and other production facility costs such as plant depreciatio manufac ‘uring labor Conversion costs include direct manufacturing labor and manufacturing overhead, ‘They’re the costs of converting direct materials into finished products. Cost assignment encompasses both east tracing (assi allocation (assignment of indirect costs (© the cost abject). A cost abject is the item (product, depart- ‘ment, process, ete.) for which cost is being determined. 1g labor costs, supplies taxes, ete, It is comprised of all sosts that are not direct materials or d nent of direct costs to a cost object) and cost 15. Direct materials inventory includes the cost of materials awaiting entry into the production system, Work in process inventory includes the cost of units being produced but not yet completed. Finished goods inventory includes the cost of units completed but unsold. 16, Cycle time (or throughput time) is the time required to complete a good from the start of the produc tion process until the product is finished. 17, Product life-cycle costing tracks the accumulation of costs that occur starting with the research and development for a product and ending with the time at which sales and customer support are withdrawn, 18. Computer-integrated manufacturing (CIM) is a highly automated and integrated producti process that is controlled by computers. 4. A flexible manufacturing system (FMS) is a series of computer controlled manufacturing processes that can be easily changed to make a variety of products. Joint and By-Products 19, Joint costs are costs common to multiple products that emerge at a splitoff point. Joint costing is 2 Cost Behn 20, system of assigning joint costs to joint produets whose overall sales values are relatively significant ‘When a produet has insignificant sales value relative to the other products, itis called a by-product Cost estimation is the examination of past relationships of costs and level of activity t develop predictions of future costs, Fixed costs clo not vary with the level of activity within the relevant range for a given period of time (usually one year), for example, plant depreciation Variable costs vary proportionately in total with the activity level throughout the relevant r direct materials). Stepped costs (or semifixed costs) are fixed over relatively short ra pervisors’ salaries). Fixed, variable, nge (e.g ges of product fixed costs are diagrammed below Leesan) [a 1 a Tevels (e.g. ste Dal A Production Level B. Mixed costs (semivariable) are costs that have a fixed component and a variable component. These components are separated by using the Scattergraph, high-low, or linear regression methods. Relevant range is the operating range of activity in which cost behavior patterns are valid (A to B in the preceding illustration). ‘Thus, it is the production range for which fixed costs remain constant (e.g, 1123 if production doubles, an additional shift of salaried foremen would be added and fixed costs would increase). 26. Nonlinear cost function is a cost function that is not described by a straight line over the relevant range, 27. Alearning curve is a function that demonstrates how productivity improves as workers become more proficient at producing the pro A. Cost of Goods Manufactured Regardless of which costing system is used, a cost of goods manufactured (CGM) statement is pre- pared to summarize the manufueturing activity of the period. CGM for a manufacturing firm is equivalent to purchases for a merchandising firm. Although it may take different forms, essentially the CGM state- rent is a summary of the direct materials andl work in process (WIP) accounts BWIP + DM + DML + MOH - EWI ict.

You might also like