Chapter 1: Managerial Accounting and Cost Concepts

manufacturing and nonmanufacturing

manufacturing companies often separate their cost into two broad categories ________ & ______________

direct material, direct labor, & manufacturing overhead

manufacturing cost divided into 3 categories

discretionary fixed costs

Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research.

cost object

anything for which cost data are desired - including products, customers, and organizational subunits

raw materials

materials that become on integral part of the finished product and whose costs can be conveniently traced to the finished product are _______

raw materials

materials that go into the final product

differential cost

A future cost that differs between any two alternatives.

product costs (inventoriable costs)

All costs that are involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead.

prime cost

Direct Materials + Direct Labor

admin costs

Manufacturing costs include all of the following categories except ________. administrative costs direct labor direct materials manufacturing overhead

common cost

a cost that is incurred to support a number of cost objects but that cannot be traced to them individually. it is a type of indirect cost

activity base

a measure of whatever causes the incurrence of a variable cost

Adminstrative Costs

all costs associated with the general management of an organization

matching principle

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

mixed cost

both variable and fixed cost elements

Financial accounting

concerned with reporting financial information to external parties, such as stockholders, creditors, and regulators in this context costs are classified in accordance with externally imposed rules to enable the preparation of financial statements

direct cost

cost that can be easily and conveniently traced to specified cost object

fixed costs

cost that remains constant in total regardless of changes in the level of activity. not affected by change sin activity

differential cost (diff b/t alternatives) sunk cost opportunity cost (foregone benefit)

decision making involves what cost classifications

manufacturing overhead

depreciation utility cost property taxes insurance fall under _____

relevant in making business decisions

differential costs are always _________

product cost

direct materials + direct labor + manufacturing overhead

variable manufacturing cost

direct materials + direct labor + variable manufacturing overhead

period costs

do not flow through the inventory accounts on the balance sheet and are not included n COGS in the income statemetn instead they are recorded as selling and admin exp in the income statemetn during period incurred

total fixed cost

fixed manufacturing overhead + fixed selling expense + fixed administrative expense

product costs

flow through 3 inventory acc on balance sheet prior to being recognized as part of COGS in the income statement

differential revenue

future revenue that differs between any two alternatives

period

generally, costs are recognized as expenses on the income statement in the ____ that benefits form the cost

cost behavior

how a cost reacts to changes in the level of activity

fixed cost

in total these costs are not affected by changes in the activity level within the relevant range

variable cost

in total these costs increase and decrease in proportion to changes in the activity level

selling costs

include all costs that are incurred to secure customer orders and get the finished product to the customer

direct labor

labor costs that can be easily traced to individual units of product

raw material, work in process, finished goods

manufactures product cost flow-through 3 inventory acc on the balance sheet

selling costs and administrative costs

nonmanufacturing cost divided into 2 categories

traditional income statement format

organizes costs into 2 categores COGS and selling and adin exp. sales - cogs = gross margin. gross margin minus sellin and admin exp = net operating income

incurred

period costs are expensed on the income statement in the period in which they are ______

committed fixed 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. remain unchanged in the short term

period cost

selling expenses + administrative expenses

prime costs

sum of direct materials and direct labor

irrelevant

sunk cost are _________

marginal cost

the cost of producing one more unit of a good

cost structure

the relative proportion of fixed, variable, and mixed costs in an organization

variable cost

vaires, in total in direct proportion to changes in level of activity

period cost or product cost

when preparing a balance sheet and income statemetn companies need to classify their costs as ______ or _________

sunk cost

A cost that has already been incurred and that cannot be changed by any decision made now or in the future.ignore it

Contribution Approach to Income Statement

An income statement format that organizes costs by their behavior. Costs are separated into variable and fixed categories rather than being separated into product and period costs for external reporting purposes.

opportunity cost

Cost of the next best alternative use of money, time, or resources when one choice is made rather than another

conversion cost

Direct Labor + Manufacturing Overhead

indirect materials

Small items of material such as glue and nails that may be an integral part of a finished product, but whose costs cannot be easily or conveniently traced to it.

contribution margin

The amount remaining from sales revenues after all variable expenses have been deducted.

indirect labor

The labor costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced to particular products.

product cost (inventoriable) Period cost (expensed)

The purpose of preparing financial statements involves what cost classification

relevant range

The range of activity within which the assumption that cost behavior is strictly linear is reasonably valid

direct labor

____________ is sometimes called touch labor

indirect cost

a cost that cannot be easily and conveniently traced to a specified cost object

manufacturing overhead

all manufacturing costs except direct materials and direct labor

period costs

all the costs that are not product costs (selling and administrative expenses)

incremental cost

an increase in cost between two alternatives

managerial accounting

concerned with providing information to managers within an organization so that they can formulate plans, control operations, and make decisions In this context, costs are classified in diverse ways that enable managers to predict future costs, to compare actual costs to budgeted costs to assign costs to segments of the business, and to properly contrast eh cost associated with competing alternatives.

decremental costs

decreases in cost from one alternative to another

fixed cost

per unit these costs decrease as the activity level rises and increase as the activity level falls

variable cost

per unit these costs remain constant

contribution form ate income statements

prepared for internal management purposed use cost classification for predicting costs behavior (variable and fixed costs) to better inform decisions affecting the future

traditional income statements

prepared primarily for external reporting purposes rely on cost classification for preparing financial statement s(product and period costs) to depict the financial consequences of past transactions

marginal revenue

the additional income from selling one more unit of a good; sometimes equal to price

sold

product costs are not recorded as expenses on the income statement in the period in which they are incurred instead they are recorded as expense in the period in which the related products are _____

direct materials

raw materials that become an integral part of the product and that can be conveniently traced directly to it

manufacturing costs, direct materials direct labor manufacturing overhead nonmanufacturing costs selling costs admin cost

the purpose of acc for cost in manufacturing comp involves what cost classifications

direct and indirect costs

the purpose of assigning cost to cost objects involves what cost classifications

variable cost (proportional to activity) fixed cost (constant in total) Mixed cost

the purpose of predicting cost behavior in response to changes in activity involves what cost classification

conversion cost

the sum of direct labor cost and manufacturing overhead cost

1. for assigning costs to cost objects 2. for manufacturing companies 3. for preparing financial statements 4. for predicting cost behavior 5. for making decisions

types of cost classifications