Managerial Accounting Chapter 2 & 3

Cost of Direct Materials Used

Beg Inventory material (raw) + purchases - End Inv material (raw)

COGM equation

Beginning Inventory WIP + [direct material + direct labor + manufacturing overhead] - Ending Inventory WIP

Which of the following are considered nonmanufacturing costs:

Company presidents salary, sales commissions.

Sunk Costs

Costs that have already been incurred and can not be changed by decisions made in the current period or future periods.

conversion cost equation

Direct Labor + Manufacturing Overhead

Prime Cost equation

Direct Materials + Direct Labor

Costs that can be easily and conveniently traced to a specific product are called:

Direct costs

__________ fixed costs can be cut-back or eliminated without significant damage to a company's long-term goals. ___________ fixed costs are not easily changed or eliminated.

Discretionary, Committed

Non manufacturing costs are product costs.

False

Period costs are also called inventoriable costs.

False

Period costs are not expensed in the same period in which they are incurred.

False

Service organizations have gross margins

False

When using the high-low method, fixed costs are calculated before variable costs are determined.

False

service organization

No product to purchase, like in a merchandising or manufacturing operation.

Direct Materials

Raw materials that are physically and directly associated with manufacturing the finished product and can be directly traced

Gross Margin

Sales Revenue - COGS ( shows how much the firm is making)

Marginal Cost

The cost of producing one more unit.

Relevant range

The level of activity within which variable and fixed cost assumptions are valid.

per unit product cost equation

Total Product Cost / Number of Units Produced

A company can have indirect labor costs

True

A mixed cost has a minimum cost of having a service available and ready for use.

True

Period costs are expensed when incurred.

True

Presenting fixed costs on an average per unit basis can be misleading.

True

Product costs "attach" to units of product as they are purchased for resale or produced.

True

When mixed costs are represented by a straight-line, the steeper the slope, the higher the variable cost per unit.

True

Cost behavior is considered linear whenever:

a straight line approximates the relationship between cost and activity.

conversion cost

all manufacturing costs other than direct material costs

Why are product costs required by GAAP?

because it's in the COGS account it will appear as an expense on one's financial statement for (external users) must be regulated

COGS equation

beginning inventory (finished goods) + COGM - ending inventory (finished goods)

The variable cost per unit using the high-low method is calculated as:

change in cost divided by change in activity.

When using the high-low method, if the high or low levels of cost do not match the high or low levels of activity:

choose the periods with the highest and lowest level of activity and their associated costs.

The relative proportion of each type of cost in an organization is known as the company's

cost structure

Cost objects include:

customers, organizational subunits, anything for which cost data is desired.

Differential costs, opportunity costs and sunk costs are all cost classifications used in ____________.

decision making

In an automobile manufacturing plant, the assembly-line workers are considered to be ____________ ____________ costs.

direct labor

A laptop computer manufacturer would consider the computer's processor chip to be a(n):

direct material cost

Product Cost Equation

direct materials + direct labor + manufacturing overhead

Manufacturing costs can be divided into three categories:

direct materials, direct labor, and manufacturing overhead.

In a least-squares regression line, the vertical intercept (a) of the line represents the total

fixed cost

Operating Income Equation

gross margin - selling and administrative expenses

A fixed cost remains fixed __________ within the relevant range of activity.

in total

Manufacturing Overhead

includes all manufacturing costs except direct materials and direct labor

Product costs flow through the inventory accounts until the goods are sold, at which time they become an expense in the cost of goods sold section on the ________ __________.

income statement

A manufacturing cost that cannot be easily traced to a specific cost object is a(n):

indirect cost

Examples of committed fixed costs:

investments in facilities and equipment, real estate taxes, insurance expenses, and salaries of top management.

The high-low method

is based on the rise-over-run formula for the slope of a straight line.

A method that uses all the available data points to divide a mixed cost into its fixed and variable components is called:

least-squares regression

Indirect materials and indirect labor are classified as:

manufacturing overhead

A dress manufacturer would consider the cost relatively inexpensive items like thread to be part of:

manufacturing overhead, indirect materials

Cost objects:

may be assigned costs to help control spending; can be products, customers, or jobs.

cost driver

measures whatever causes costs to vary.

Variable costs vary _________ within the relevant range of activity.

per unit

Direct materials, direct labor, and manufacturing overhead are all

product costs

Fixed Costs

remain constant in total with the relevant range of activity.

Within the relevant range of activity, variable costs:

remain constant per unit, vary in total.

Fixed and variable costs should only be computed if a(n) ______________ shows the relationship to be approximately linear.

scattergraph

COGM

the manufacturing costs associated with the goods that were finished during the period

Direct Labor

the work of factory employees, the labor, that can be physically and directly associated with converting raw materials into finished goods

The high-low method:

uses only two data points, is based on periods where the activity tends to be unusual.

When using the high-low method, the slope of the line equals the ________ cost per unit of activity.

variable

Variable Costs

vary in total, in direct proportion to changes in activity level.