Ch.1 Accounting
All costs associated with the general management of an organization
Administrative costs
Cost of Goods sold for a merchandising company can be computed as:
Beg merchandise inventory+ purchase= ending merchandise inventory
based on the accrual concept that costs incurred to generate a particular revenue should be recognized as expenses in the same period that the revenue is recognized
Matching Principle
Direct materials + Direct Labor+ Manufacturing OH=
Product cost
Gross margin=
Sales - COGS
Mixed Cost equation
Y= a +bx
A measure of whatever causes the incurrence of a variable cost
activity base
Total variable cost is different depending on _____ ______-
activity level
These are examples of what cost? - executive compensation, accounting, secretarial, PR
administrative costs
Represent organizational investments with a multiyear planning horizon that can't be significantly reduced even for short periods of time without making fundamental changes
committed fixed costs
Fixed costs can be either....
committed or discretionary
A cost that is incurred to support a number of objects but cannot be traced to them individually
common cost
The amount remaining from sales revenue after all variable expenses have been deducted
contribute margin
Provides managers with an income statement that clearly distinguishes between fixed and variable categories and helps aid in planning, controlling, and decision making
contribution format income statement
Direct labor + Manufacturing overhead=
conversion cost
Direct labor + manufacturing overhead=
conversion cost
Refers to how a cost reacts to changes in the level ofactivity
cost behavior
Anything for which cost data are desired-including products, customers, and organizational subunits
cost object
Traditional Income statement organizes costs into 2 categories:
cost of goods sold and selling and administration
The relative proportion in each type of cost behavior is known as its ....
cost structure
A mixed cost expressed on a per unit bases ______ as the level of activity ________
decreases, increases
The average fixed cost per unit progressively ___________ as level of activity ________
decreases, increases
Manufacturing Overhead fixed costs may include: -___________ -Insurance ___________ taxes -Rent -Supervisory ______-
depreciation, property, salaries
Manufacturing overhead includes other indirect costs teat cannot be traced; EX: ________ of manufacturing equipment, _______ costs, _______ taxes, and _______ premiums
depreciation, utility, property, insurance
A future cost that differs between any two alternatives
differential costs
Future revenue that differs between any two alternatives
differential revenue
A cost that can be easily and conviniently traced to a cost object
direct cost
Manufacturing companies have two categories of ______ ________, one _____ _____, and _______ ________-
direct cost, indirect cost, manufacturing overhead
Consists of labor costs that can be conveniently traced back to individual units of product; also called touch labor
direct labor
Raw materials that become an integral part of the finished product and whose costs can e conveniently traced back to the finished product
direct materials
cost objects an be either
direct or indirect
For Manufacturing companies, product costs include, -______ materials -______ labor -Manufacturing _________
direct, direct, overhead
Usually arise from annual decisions by management to spend on certain fixed cost items
discretionary fixed cost
Traditional income statements do not _______ between _____ and _________ costs which is why we have the _______ format income statement
distinguish, fixed, variable, contribiution
Period costs are not ______ not the income statement in the period in which they are incurred using the usual rules of accrual accounting
expensed
Traditional Format Income states meets are prepared primarily for ________ reporting purposes and rely on cost classifications for preparing financial statements (_______ and ______ _____-) to depict the financial consequences of ______ transactions
external, period, product costs, past
Examples of committed Fixed costs: - Investments in _______- and equipment -Real estate ______ -insurance ________-- -________ of top management
facilities, taxes, premiums, salaries
consist of completed units of product that have not yet been sold to customers
finished goods
A cost that remains constant, in total, regardless of changes in the level of activity
fixed cost
Average fixed price per unit=
fixed cost/ # of units
Differential costs can be _______ or ________
fixed, variable
Examples of variable costs include: -cost of _______ ________ -_______ materials -_______ labor -variable elements of manufacturing ___________: indirect materials, _______, _________- -Variable elements of Selling and Admin: commission and shipping costs
goods sold, direct, direct, overhead, supply, power
sales- cogs=
gross margin
Most common activity bases include: -Direct labor -______ -Machine ______ -Units _______ -Units _______ -Number of miles ________ by a sales-person -Number of pounds of laundry cleaned by a hotel -Numberof calls handled by a company
hours, hours, produced, sold, driven
An increase in cost from one alternative to another; AKA differential cost
incremental cost
A cost that cannot be easily and conviniently traced to a specific cost object
indirect cost
Common cost is an...
indirect cost
Referes to employees where the cost of compensating these people cannot be easily traced to specific units of product. EX: janitors, people who play an essential role i running a manufacturing facility
indirect labor
Raw materials, such as glue used to make a chair, whose costs CANNOT be easily traced to finished products.
indirect materials
Because product costs are initially assigned to inventories, they are also known as....
inventorial costs
Management consoltants ordinarily assume that costs are strictly linear. This is referred to as..
linearity assumption
Includes all manufacturing costs except direct materials and direct labor
manufacturing overhead
Manufacturing overhead includes all __________- costs except __________ materials and direct ________
manufacturing, direct, labor
Contains both variable and fixed elements
mixed costs
Gross Margin- Selling and Admin expenses=
net operating income
Fixed costs are_______ affected by changes in activity level
not
Only those indirect costs associated with ___________ the ___________- are included in manufacturing overhead
operating, factory
The potential benefit that is given up when one alternative is chosen over anotehr
opportunity cost
Selling Expense + Admin Expense=
period cost
All costs that are NOT product costs
period costs
Direct Materials + Direct Labor=
prime cost
Sum of materials cost and direct labor cost (materials cost+ direct labor)
prime cost
Direct materials and direct labor are referred to as .....
prime costs
Include all costs involved in acquiring or making a product
product costs
Product costs "attach" to a unit of product as it is ________ or __________ and they stay attached to each unit of product as long as it remains in ________ awaiting _________
product, manufactured, inventory, sale
Materials that go into the final product
raw materials
Manufacturing overhead includes a portion of _______ materials known as __________ materials and _________ labor.
raw, indirect, indirect
The range of activity within which the assumption that cost behavior is strictly linear is reasonably valid; important for fixed costs
relevant range
Examples of discretionary fixed costs are: -Advertising _______ -Public relations -Management-development ________ -_________ for students
research, programs, internships
Selling and Administration Fixed Costs may include: -Administrative _______ -Advertising -Depreciation of ___-_________ goods
salaries, non-manufacturing
Per unit variable cost is the ________ no matter activity level
same
Period costs includes _________ _________ ______ such as: sales _______, advertising, executive ________, public relations, ______ costs of admin offices
selling and administrative costs, commission, salaries, rental
Include all costs that are incurred to secure customer orders and get the finished product to the customer
selling costs
Non-Manufacturing costs include:
selling costs and administrative costs
A cost that already has been incurred and cannot be changed by any decision made now or in the future; irrelevant and should always be ignored
sunk cost
A manufacturers product costs flow through ____ inventory accounts on the ______ _______. These are:
three, balance sheet, raw materials, work in process, finished goods
Fixed Manufacturing OH + Fixed Selling Expense + Fixed admin expense=
total fixed cost
A cost that varies, in total, in direct proportion to changes in the level of activity
variable cost
Direct materials + direct labor + Variable Manufacturing OH=
variable manufacturing cost
What are the three categories of cost behavior?
variable, fixed, mixed
Assume the activity base is the total _______- of goods and service provided by the organization
volume
consists of units of product that are only partially complete and will require further work before they are ready for sale to the customer
work in process
