ACCT 202 Test 1

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Mixed Cost

A cost that contains both fixed and variable components

Sunk Cost

A cost that has already been incurred and that cannot be changed by any decision made now or in the future. -is never relevant ad should be disregarded when making decisions.

Variable Cost

A cost that varies, in total, in direct proportion to changes in level of activity. A variable cost is constant per unit. Remain constant per unit and vary in total

Differential Cost

A future cost that differs between any two alternatives. -the difference in cost between two alternatives -also known as incremental cost

Activity Base

A measure of whatever causes the incurrance of a variable cost. -Sometimes called a cost driver For example, the total cost of X-ray film in a hospital will increase as the number of X-rays taken increases. Therefore, the number of X-rays is the activity base that explains the total cost of X-ray film.

Selling Costs

All costs that are incurred to secure customers orders and get the finished product or service into the hands of the customer.

Product 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.

Administrative Costs

All executive, organizational, and clerical costs associated with the general management of an organization rather than with manufacturing or selling.

Contribution Approach

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.

Incremental Cost

An increase in cost between two alternatives

Raw Materials

Any materials that go into the final product

Cost Object

Anything for which cost data are desired. Examples of cost objects are products, customers, jobs, and parts of the organization such as departments or divisions.

Period Costs

Costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued.

Prime Cost

Direct materials cost plus direct labor cost.

Direct Labor

Factory labor costs that can be easily traced to individual units of product. Also called touch labor.

Differential Revenue

Future revenue that differs between any two alternatives -the total difference in total revenue between 2 alternatives which may involve more than a single unit

Committed Fixed Costs

Investments in facilities, equipment, and basic organizational structure that can't be significantly reduced even for short periods of time without making fundamental changes.

Direct Materials

Materials that become an integral part of a finished product and whose costs can be conveniently traced to it.

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.

Marginal Cost

The cost incurred to produce one more unit of a product

Indirect Labor

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

Managerial Accounting

The phase of accounting that is concerned with providing information to managers for use within the organization.

Financial Accounting

The phase of accounting that is concerned with reporting historical financial information to external parties, such as stockholders, creditors, and regulators.

Opportunity Cost

The potential benefit that is given up when one alternative is selected over another.

Relevant Range

The range of activity within which assumptions about variable and fixed cost behavior are valid.

Cost Structure

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

Cost Behavior

The way in which a cost reacts to changes in the level of activity

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.

Direct Cost

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

Indirect Cost

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

Common Cost

a cost that is incurred to support a number of cost objects but that cannot be traced to them individually. For example, the wage cost of all pilot of a 747 airliner is a common cost of all of the passengers on the aircraft. Without the pilot, there would be no flight and no passengers. But no part of the pilot's wage is caused by any one passenger taking the flight.

Fixed Cost

a cost that remains constant, in total, regardless of changes in the level of activity within the relevant range. If a fixed cost is expressed on a per unit basis, it varies inversely with the level of activity.

Manufacturing Overhead

all manufacturing costs except direct materials and direct labor EX. Factory costs such as cleaning supplies, taxes, insurance, and janitor wages

Conversion Cost

direct labor cost + manufacturing overhead cost

Marginal Revenue

extra revenue from the sale of one additional unit of output

inventoriable costs

synonym for product costs

Matching Principle

the accrual concept that costs incurred to generate a revenue are expensed in the same period the revenue

Work in Process

units of product that are only partially complete and will require further work before they are ready for sale to the customer

Finished Goods

units of product that have been completed but not yet sold to customers


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