CHAP 8

- Under Absorption, fixed overhead is assigned to the product

through predetermined fixed O/H rate and is not expensed until

the product is sold.

- Fixed expenses are divided into two parts.
Direct fixed expenses (eliminated if the segment is
eliminated).
Common fixed expenses (apply to two or more subunits).
- Segment margin (contribution margin minus direct fixed
expense) is important for evaluating subunits.

CHAP 6
- The cost of goods transferred out is the unit cost multiplied by
the units completed.
- The cost of EWIP is the unit cost multiplied by the equivalent
units in EWIP.
- Five Steps in Preparing a Production Report:
1. Physical flow analysis
2. Calculation of equivalent units
Equivalent units = units completed of the period + equivalent units in EWIP

3. Computation of unit cost

4. Valuation of inventories (goods transferred out and EWIP)

Cost of goods transferred out = unit cost x units completed
Cost of EWIP = unit cost x equivalent units in EWIP

5. Cost reconciliation
+ Units to account for: units started and units in BWIP are

listed

+ Units accounted for: the units completed and transferred

out and the units started but not completed (EWIP) are listed

*Nonuniform application
CHAP 7

- Value-added activities: Activities that are necessary for a

business to achieve corporate objectives and remain in business.
- Nonvalue-added activities: All activities other than those that
are absolutely essential to remain in business.
- Cycle time (Time/Units Produced) and velocity (Units
Produced/Time)
- Prevention costs: Costs incurred to prevent damage to the
environment.
- Detection costs: Costs incurred to detect poor environmental
performance.
- Internal failure costs: Costs incurred after contaminants are
produced but before they are introduced into the environment.
- External failure costs: Costs incurred after contaminants are
introduced into the environment.