ACC 2203 Chapter 1

A company purchased a 12 month insurance policy on October 1 at a cost of $1,200. On the December 31 annual finance statement

$300 is reported as a expense and $900 is reported as an asset

Cost object

Anything for which cost data are desired. Examples: are products, customers, geographic regions, and parts of the organization such as departments or divisions. is anything for which cost data are desired—including products, customers, and organizational subunits.

The equation for a straight line makes it easy to calculate the total mixed cost for any activity level outside the relevant range T/F

False

The fixed portion of a mixed cost represent the cost incurred for the actual consumption of a service T/F

False

A mixed cost has a minimum cost of having a service available and ready for use T/F

True

When mixed cost are represented by a straight-line, the steeper the slope, the higher the variable cost per unit T/F

True

cost behavior

categories costs as fixed, mixed and variable. Refers to how a cost will change as activity level changes

Direct labor

consists of labor costs that can be easily traced to individual units of product. This is sometimes called touch labor because workers typically touch the product while it is being made

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

cost structure

Manufacturing costs include

direct labor, manufacturing overhead, direct materials

fixed costs that usually arise from annual spending decisions by management are _____ fixed cost

discretionary

Which of the following are most likely fixed cost

factory rent, insurance, admin salaries

Selling cost

include all costs that are incurred to secure customer orders and get the finished product to the customer. These costs are sometimes called order-getting and order-filling costs

product cost can also be known as

inventorial costs

Direct cost

is a cost that can be easily and conveniently traced to a specified cost object.

Indirect cost

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

common cost

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

matching principle

is 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.

an activity base

is sometimes called a cost driver, measures whatever causes costs to vary

Factory cost such as cleaning supplies, taxes, insurance, and janitor wages are classified as

manufacturing overhead

a cost that contains both variable and fixed cost elements is a ____ cost

mixed

common activity bases include:

number of purchase orders, units sold, machine hours, direct labor cost

Indirect labor

refers to employees, such as janitors, supervisors, materials handlers, maintenance workers, and night security guards, that play an essential role in running a manufacturing facility; however, the cost of compensating these people cannot be easily or conveniently traced to specific units of product

Direct materials

refers to raw materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product.

the level of activity within variable and fixed cost assumptions are valid is known as the __ __

relevant range

A differential cost analysis considers the change in _____and subtracts the change in both ________

revenues; variables

Common cost

shared by multiple cost objects in a company

within the relevant range, _______ costs remain constant on a per unit basis

variable

y=a+bx

variable cost per unit of activity

Variable cost

varies, in total, in direct proportion to changes in the level of activity. Example: include cost of goods sold for a merchandising company, direct materials, direct labor, variable elements of manufacturing overhead, such as indirect materials, supplies, and power, and variable elements of selling and administrative expenses, such as commissions and shipping costs

Prior to being recorded on the income statement, manufacturers' product cost flow through:

work in progress, finished goods, raw materials