accounting 202 learnsmart chapter 1
differential costs, opportunity costs and sunk costs are all cost classifications used in:
decision making
as the level of activity moves outside of the relevant range, fixed costs
increase or decrease in discrete steps
direct materials and direct labor are both
manufacturing costs
a company purchased a 12 month insurance policy on oct 1 at a cost of $1200. on the december 31 annual financial statements:
$300 is reported as an expense and $900 is reported as an asset
discretionary fixed costs include:
-advertising -management training programs
the contribution approach to constructing income statements
-aids in decision making -distinguishes between fixed and variable costs
differential cost is
-aka incremental costs -the difference in cost between two alternatives
step-variable costs
-can be adjusted quickly as conditions change -may include total salaried employee expense
cost behavior:
-categorizes costs as fixed, mixed and variable -refers to how a cost will change as activity level changes
cost objects include:
-customers -organizational subunits -anything for which cost data is desired
manufacturing costs include
-direct labor -direct materials -manufacturing overhead
fixed costs that can be cut back or eliminated without significant damage to a company's long term goals are _____ fixed costs and _____ fixed costs cannot be easily changed or eliminated
-discretionary -committed
other names for manufacturing overhead include:
-factory overhead -indirect manufacturing costs -factory burden
indirect labor costs include
-factory security guard wages -assembly-line supervisor salary
how individual costs react to changes in activity level is referred to as cost
behavior
sales revenue minus variable expenses equals
contribution margin
the relative proportion of each type of cost in an organization is known as the company's
cost structure
selling and administrative costs are
direct or indirect costs
fixed costs that usually arise from annual spending decisions by management are _____ fixed costs
discretionary
the contribution approach to constructing income statements distinguished between ________ costs
fixed and variable
a fixed cost remains fixed ____ within the relevant range of activity
in total
what is not a cost classification associated with decision making?
indirect costs
manufacturing overhead costs include
indirect materials, factory supervisors' salaries, and factory depreciation
the revenue from selling one additional unit is called
marginal revenue
the accrual concept that costs incurred to generate a revenue are expensed in the same period the revenue is known as the _______ principle
matching
A cost that contains both variable and fixed elements
mixed cost
a potential benefit that is forfeited or lost when one decision is chosen over another is called
opportunity cost
materials that go into the final product
raw materials
cost assumptions are reasonable valid within the ________ ______ of activity
relevant range
contribution margin is
sales revenue minus variable costs
contribution margin is:
sales revenue minus variable costs
mixed costs are commonly known as ________ costs
semi-variable
Costs that have already been incurred and can not be changed by decisions made in the current period or in the future periods are called __________ costs.
sunk
should never be considered when making a decision
sunk costs
period costs are always expensed on the income statement in the period which
they are incurred
direct labor is also called
touch labor
which type of cost changes it total, in direct proportion to changes in activity level?
variable
units that are partially complete are found in
work in process
two broad classifications of costs
-manufacturing costs -nonmanufacturing costs
an activity base
-measures whatever causes costs to vary -is sometimes called a cost driver
an activity base:
-measures whatever causes costs to vary -is sometimes called a cost driver
prior to being recorded on the income statement, manufacturers' product costs flow through
-raw materials -finished goods -work in progress
within the relevant range activity, variable costs
-remain constant per unit -vary in total
opportunity costs:
-should be considered in decision making -are benefits that are given up when selecting one alternative over another
within the relevant range, fixed costs
-should not be expressed on a per unit basis when making decisions -remain constant in total regardless of changes in activity -generally include rent and supervisor salaries
committed fixed costs include
-top management salaries -real estate taxes
what are differences between the traditional and contribution format to income statements
-traditional income statements focus on class classifications. contribution format statements focus on cost behavior -compared to traditional statements, contribution format statements provide management with a tool to make decision making easier
common activity bases include:
-units sold -direct labor hours -machine hours
manufacturing costs can be divided into 3 categories:
-direct materials -direct labor -manufacturing overhead
A dress manufacturer would consider the cost of relatively inexpensive items like thread to be part of:
-indirect materials -manufacturing overhead