BUS 203 LS #2

FIXED COST? FACTORY RENT, FACTORY INSURANCE, ADMINISTRATIVE SALARIES, OR ELECTRICITY TO OPERATE FACTORY MACHINES

FACTORY RENT FACTORY INSURANCE ADMINISTRATIVE SALARIES

product costs

direct materials, direct labor and manufacturing overhead attach to units of product as they are purchased for resale or produced. also called inventoriable costs expensed in the same period in which the related products are sold

manufacturing costs include

direct materials, indirect labor, and direct labor

income statement hold what

product costs flow through the inventroy accounts until the goods are sold, at which time they become an expense in the cost of goods sold section on

indirect materials

relatively insignificant materials that are not worth tracing the costs with ex) glue, nails and thread

cost assumption are reasonably valid within the_______ ________ of activity.

relevant range

variable costs

remain constant per unit and vary in total

contribution margin

sales revenue-variable expenses =

format of contribution income statement

sales-variable expenses=contribution margin-fixed expenses=net income

What is true about fixed costs?

should not be expressed on a per unit basis when making decisions generally include rent and supervisor salaries remain constant in total within the relevant range of activity

Y=a + bX, b means....

slope of the line variable cost per unit of activity

when using account analysis, an account is classified as either fixed or variable based on

the analyst's prior knowledge of how the cost behaves

high low method

the change in cost divided by the change in units = the variable cost per unit

rise-over-run

the high-low method is based off of this

relevant range

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

cost structure

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

what is the high-low method based on

the rise over run formula for the slope of a straight line

Y IS

the total mixed costs

why do managers use cost behavior

to predict costs will change as the level of activity changes

calculating fixed cost with the high-low method

using either the high or low level of activity and after the variable cost is calculated

mixed costs

vary in total within the relevant range of activity

fixed costs

vary per unit constant in total

when is cost behavior considered linear

when a straight line approximates the relationship between cost and activity

when should fixed and variable costs be computed?

when the scattergraph shows the relationship to be approximately linear

a) variable

which type of cost changes in total, in direct proportion to changes in activity level? -variable -fixed -opportunity -differential

when is the fixed cost calculated

after the variable cost is calculated using either the high or low level of activity

inventoriable costs

become part of inventory on the balance sheet another name for a product cost

how can you make a fixed cost look like a variable cost

by expressing the fixed costs per unit in internal reports

contribution format income statement

can assist with management decision making separates costs into their fixed and variable components

period costs

costs expensed on the income statement when incurred are

selling costs

costs incurred to obtain customers' orders

what are the components of prime costs

direct labor direct materials

committed fixed costs

fixed costs that cannot be easily changed and often lock a company into a multi-year decision

discretionary fixed cost items

fixed costs that usually arise from annual spending decisions by management

cost behavior

how individual costs change as the level of activity increases or decreases

when are period costs expensed on the income statement

in the period in which they are incurred

where are period costs expensed on an income statement

in the period in which they are incurred

engineering cost approach

includes analysis of what cost behavior should be and is based on an engineer's evaluation of the production methods

indirect labor

includes manufacturing costs only

raw materials

materials that go into the final product

semi-variable costs

mixed costs are commonly known as this

when should the high-low method be used

only if a scattergraph plot indicates a linear relationship between cost and activity and it only uses two data points

contribution format income statement

organizes costs by behavior