Understanding Cost Terms & Purposes in Manufacturing

School: Rutgers University - Course: ACCOUNT 275 - Subject: Accounting

Ch 2: Intro to Cost Terms & Purposes Notes Actual costcost that has occurred Budgeted Costpredicted cost cost driver - variable that "drives costs" relevant range - normal "expected" activity level or volume Direct Costdirect costs - costs that can easily be traced to cost object Indirect Costindirect costs - costs that can't be easily traced Variable Costvariablemake more candy bars, ingredients cost more Fixed Costfixedrent will be the same is I make 0 candy bar or 100,000 when discussing specific activity or time frame Unit CostDMunit costs will change depending on how many units yo 2-28DL MOH Units produced500010000 DM0.250.25 Total VC12502500 Total FC25002500 Total Cost37505000Find total cost first then un Units produced500010000 Unit Cost0.750.5 Types of InventoryProduct CostsDM + DL + MOHinventoriable costs 2-36Other costsperiod costs 2-39Manufacturing 2-41DMWork in Process BIBI PurchasesDM Used DM usedDL EIMOH COGM EI Other Notesprime costs - all direct manufacturing costs (DM + DL)

conversion costs - DL + MOH OT and idle time - part of indirect OH cost 2-28Variable costs, fixed costs, relevant range 1Relevant range -> units we can produce units/month5,000 months/year12 units/year60,000Annual releva 2FMCrent/month rent14400months/year depreciation650rent/year total FMC15,050 VMC units3900 DM0.4 VMC/month1560 12 VMC/year18,720 3Next year demand increases by 100%FMC current monthly demand3900rent current annual demand46800depreciation depreciation next year monthly demand7800total FMC next year annual demand93,600 machine can produce 60,000 units/yearVMC purchase another machine and double our capacityunits DM$/unit next year's relevant range 0-120,000 10% Discount total VMC