Chapter 1 ACCT

Selling costs include

Sales salaries, sales commissions, & advertising

Y = a + Bx

Y(total mixed cost) a(total fixed cost) b(variable cost per unit) x(level of activity)

Cost object

anything for which cost data are desired Ex. products, customers, geographic regions & parts of the organization like departments or devisions

direct labor cost example

automobile assembly line workers

manufacturing overhead examples

cleaning supplies, taxes, insurance

nonmanufacturing operations

depreciation, utility costs, property taxes and insurance premiums

differential cost

differs between alternatives

Product costs

inventoriable

common activity bases include

machine hours, direct labor hours, & units sold

indirect manufacturing cost, factory overhead, & factory burden

manufactoring overhead

semivariable costs

mixed costs

indirect labor costs example

salaries of factory supervisors and factory maintenance personnel

contribution margin equals

sales revenue - variable expenses

Contribution approach income statement

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

What cost remains constant on a per unit basis within the relevant rage?

variable cost

Raw materials

Any materials that go into the final product

Variable costs examples

COGs, direct materials, commissions

Common cost

Cost that is incurred to support a number of cost objects but can't be traced to them individually Ex. wage cost of a pilot of a 747 airliner is a common cost of all the passengers on the aircraft, without the pilot there would be not flight & passengers. But no part of the pilot's wage is caused by any one passenger taking the flight

conversion cost

Direct labor & overhead costs incurred to change raw materials into finished products

Discretionary fixed cost

Fixed costs that usually arise from annual spending decisions by management

Managerial Accounting

Phase of accounting that is concerned with providing info to managers for use within the organization

Nonmanufacturing costs

Selling & administrative costs

Manufacturing costs include

direct labor, direct materials, & manufacturing overhead

A laptop computer manufacturer would consider the computer's processor chip to be a

direct material (materials that become an integral part of a finished product & can be traced)

period costs

expensed

Examples of fixed costs

factory rent, factory insurance, administrative salaries

Indirect labor costs include

factory security guard wages assembly-line supervisor salary; janitors, materials handlers, maintenance workers & night security guards

administrative costs include

general management costs such as executive compensation, general accounting, secretarial, public relations, ect.

within the relevant range, fixed costs

generally include rent & supervisor salaries remain constant in total regardless of changes in activity should not be expressed on a per unit basis when making decisions

as the level of activity moves outside of the relevant range, fixed costs

increase or decrease in discrete steps

a cost that is not easily traced

indirect Ex. Factory's manager's salary for Campbell Soup (also a common cost)

Manufacturing Overhead costs include

indirect materials, factory supervisors' salaries and factory depreciation

raw materials

materials that go into final products

Indirect materials example

nails, glue & thread

sunk cost

never relevant and should be disregarded when making decisions

a potential benefit that is forfeited or lost when one decision is chosen over another

opportunity cost

inventoriable costs

product costs

Prior to being recorded on the income statement, manufactures' product costs flow throug

raw materials, finished goods, & work in process

marginal revenue

revenue obtained from selling one additional unit of product

differential revenue is

the difference in cost between two alternatives also known as incremental cost

relevant range

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

period costs are expensed in

the period that they are incurred & don't flow through the inventory accounts Ex. sales commissions

Committed fixed cost include

top management salaries real estate taxes