Ch.1 Accounting

All costs associated with the general management of an organization

Administrative costs

Cost of Goods sold for a merchandising company can be computed as:

Beg merchandise inventory+ purchase= ending merchandise inventory

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

Matching Principle

Direct materials + Direct Labor+ Manufacturing OH=

Product cost

Gross margin=

Sales - COGS

Mixed Cost equation

Y= a +bx

A measure of whatever causes the incurrence of a variable cost

activity base

Total variable cost is different depending on _____ ______-

activity level

These are examples of what cost? - executive compensation, accounting, secretarial, PR

administrative 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

committed fixed costs

Fixed costs can be either....

committed or discretionary

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

common cost

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

contribute margin

Provides managers with an income statement that clearly distinguishes between fixed and variable categories and helps aid in planning, controlling, and decision making

contribution format income statement

Direct labor + Manufacturing overhead=

conversion cost

Direct labor + manufacturing overhead=

conversion cost

Refers to how a cost reacts to changes in the level ofactivity

cost behavior

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

cost object

Traditional Income statement organizes costs into 2 categories:

cost of goods sold and selling and administration

The relative proportion in each type of cost behavior is known as its ....

cost structure

A mixed cost expressed on a per unit bases ______ as the level of activity ________

decreases, increases

The average fixed cost per unit progressively ___________ as level of activity ________

decreases, increases

Manufacturing Overhead fixed costs may include: -___________ -Insurance ___________ taxes -Rent -Supervisory ______-

depreciation, property, salaries

Manufacturing overhead includes other indirect costs teat cannot be traced; EX: ________ of manufacturing equipment, _______ costs, _______ taxes, and _______ premiums

depreciation, utility, property, insurance

A future cost that differs between any two alternatives

differential costs

Future revenue that differs between any two alternatives

differential revenue

A cost that can be easily and conviniently traced to a cost object

direct cost

Manufacturing companies have two categories of ______ ________, one _____ _____, and _______ ________-

direct cost, indirect cost, manufacturing overhead

Consists of labor costs that can be conveniently traced back to individual units of product; also called touch labor

direct labor

Raw materials that become an integral part of the finished product and whose costs can e conveniently traced back to the finished product

direct materials

cost objects an be either

direct or indirect

For Manufacturing companies, product costs include, -______ materials -______ labor -Manufacturing _________

direct, direct, overhead

Usually arise from annual decisions by management to spend on certain fixed cost items

discretionary fixed cost

Traditional income statements do not _______ between _____ and _________ costs which is why we have the _______ format income statement

distinguish, fixed, variable, contribiution

Period costs are not ______ not the income statement in the period in which they are incurred using the usual rules of accrual accounting

expensed

Traditional Format Income states meets are prepared primarily for ________ reporting purposes and rely on cost classifications for preparing financial statements (_______ and ______ _____-) to depict the financial consequences of ______ transactions

external, period, product costs, past

Examples of committed Fixed costs: - Investments in _______- and equipment -Real estate ______ -insurance ________-- -________ of top management

facilities, taxes, premiums, salaries

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

finished goods

A cost that remains constant, in total, regardless of changes in the level of activity

fixed cost

Average fixed price per unit=

fixed cost/ # of units

Differential costs can be _______ or ________

fixed, variable

Examples of variable costs include: -cost of _______ ________ -_______ materials -_______ labor -variable elements of manufacturing ___________: indirect materials, _______, _________- -Variable elements of Selling and Admin: commission and shipping costs

goods sold, direct, direct, overhead, supply, power

sales- cogs=

gross margin

Most common activity bases include: -Direct labor -______ -Machine ______ -Units _______ -Units _______ -Number of miles ________ by a sales-person -Number of pounds of laundry cleaned by a hotel -Numberof calls handled by a company

hours, hours, produced, sold, driven

An increase in cost from one alternative to another; AKA differential cost

incremental cost

A cost that cannot be easily and conviniently traced to a specific cost object

indirect cost

Common cost is an...

indirect cost

Referes to employees where the cost of compensating these people cannot be easily traced to specific units of product. EX: janitors, people who play an essential role i running a manufacturing facility

indirect labor

Raw materials, such as glue used to make a chair, whose costs CANNOT be easily traced to finished products.

indirect materials

Because product costs are initially assigned to inventories, they are also known as....

inventorial costs

Management consoltants ordinarily assume that costs are strictly linear. This is referred to as..

linearity assumption

Includes all manufacturing costs except direct materials and direct labor

manufacturing overhead

Manufacturing overhead includes all __________- costs except __________ materials and direct ________

manufacturing, direct, labor

Contains both variable and fixed elements

mixed costs

Gross Margin- Selling and Admin expenses=

net operating income

Fixed costs are_______ affected by changes in activity level

not

Only those indirect costs associated with ___________ the ___________- are included in manufacturing overhead

operating, factory

The potential benefit that is given up when one alternative is chosen over anotehr

opportunity cost

Selling Expense + Admin Expense=

period cost

All costs that are NOT product costs

period costs

Direct Materials + Direct Labor=

prime cost

Sum of materials cost and direct labor cost (materials cost+ direct labor)

prime cost

Direct materials and direct labor are referred to as .....

prime costs

Include all costs involved in acquiring or making a product

product costs

Product costs "attach" to a unit of product as it is ________ or __________ and they stay attached to each unit of product as long as it remains in ________ awaiting _________

product, manufactured, inventory, sale

Materials that go into the final product

raw materials

Manufacturing overhead includes a portion of _______ materials known as __________ materials and _________ labor.

raw, indirect, indirect

The range of activity within which the assumption that cost behavior is strictly linear is reasonably valid; important for fixed costs

relevant range

Examples of discretionary fixed costs are: -Advertising _______ -Public relations -Management-development ________ -_________ for students

research, programs, internships

Selling and Administration Fixed Costs may include: -Administrative _______ -Advertising -Depreciation of ___-_________ goods

salaries, non-manufacturing

Per unit variable cost is the ________ no matter activity level

same

Period costs includes _________ _________ ______ such as: sales _______, advertising, executive ________, public relations, ______ costs of admin offices

selling and administrative costs, commission, salaries, rental

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

selling costs

Non-Manufacturing costs include:

selling costs and administrative costs

A cost that already has been incurred and cannot be changed by any decision made now or in the future; irrelevant and should always be ignored

sunk cost

A manufacturers product costs flow through ____ inventory accounts on the ______ _______. These are:

three, balance sheet, raw materials, work in process, finished goods

Fixed Manufacturing OH + Fixed Selling Expense + Fixed admin expense=

total fixed cost

A cost that varies, in total, in direct proportion to changes in the level of activity

variable cost

Direct materials + direct labor + Variable Manufacturing OH=

variable manufacturing cost

What are the three categories of cost behavior?

variable, fixed, mixed

Assume the activity base is the total _______- of goods and service provided by the organization

volume

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

work in process