cost acct ch 1

opportunity costs

-The potential benefit that is given up when one alternative is selected over another. -These costs are not usually found in accounting records but must be explicitly considered in every decision.

product costs

-includes all the costs that are involved in acquiring or making a product. -"attach" to a unit of product as it is purchased or manufactured and they stay attached to each unit of product as long as it remains in inventory awaiting sale. -They are also called "inventoriable" costs for this reason

purposes of cost classification

1.Assigning costs to cost objects 2.Accounting for costs in manufacturing companies 3.Preparing financial statements 4.Predicting cost behavior in response to changes in activity Making decisions

finished goods costs

: consists of completed units of product that have not yet been sold to customers.

c. sunk cost

A cost incurred in the past that is not relevant to any current decision is classified as a(n): a. period cost b. opportunity cost c. sunk cost d. differential cost

b. $78,000

Abburi Company's manufacturing overhead is 60% of its total conversion costs. If direct labor is $52,000 and if direct materials are $28,000, the manufacturing overhead is: a. $34,667 b. $78,000 c. $42,000 d. $120,000

administrative

All executive, organizational, and clerical costs. ________________________ costs can be either direct or indirect costs.

b. sales less variable production, variable selling, and variable administrative expenses

Contribution margin is: a. sales less cost of goods sold b. sales less variable production, variable selling, and variable administrative expenses c. sales less variable production expense d. sales less all variable and fixed expenses

selling

Costs necessary to secure the order and deliver the product. _____________________ costs can be either direct or indirect costs.

relevant, irrelevant

Decisions involve choosing between alternatives. The goal of making decisions is to identify those costs that are either ______________ or _____________ to the decision.

c. be either fixed or variable

Differential costs can: a. only be fixed costs b. only be variable costs c. be either fixed or variable d. be sunk costs

manufacturing overhead

Examples of ______________________________: •Depreciation of manufacturing equipment •Utility costs •Property taxes •Insurance premiums incurred to operate a manufacturing facility

account analysis

In _____________________ , each account is classified as either variable or fixed based on the analyst's knowledge of how the account behaves.

committed fixed cost

Long-term, cannot be significantly reduced in the short term

discretionary fixed cost

May be altered in the short-term by current managerial decisions

manufacturing overhead

Only those indirect costs associated with operating the factory are included in _________________________.

traditional, contribution

Prepare income statements for a merchandising company using the _____________ and _____________ formats.

True

True or False: Prime cost is the sum of direct materials cost and direct labor cost.

raw materials

includes any materials that go into the final product.

activity base

is a measure of whatever causes the incurrence of a variable cost

Work in Process

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

fixed cost

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

variable cost

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

differential revenue

A difference in revenue between two alternatives is called ___________________

cost driver (an activity base)

A measure of what causes the incurrence of a variable cost

contribution

The __________________ income statement format is used as an internal planning and decision-making tool.

engineering

The ___________________ approach classifies costs based upon an industrial engineer's evaluation of production methods, and material, labor, and overhead requirements.

contribution margin

The ____________________ is the amount remaining from sales revenues after all variable expenses have been deducted.

matching principle

The ______________________ 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

cost structure

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

cost structure

To help make such distinctions, costs are often categorized as variable, fixed, or mixed. The relative proportion of each type of cost in an organization is known as its __________________.

differential costs, sunk costs, opportunity costs

To make decisions, it is essential to have a grasp on three concepts: _________________, _________________, and ______________________

True

True or False: A cost can be direct or indirect. The classification can change if the cost object changes

True

True or False: A direct cost is a cost that can be easily traced to the particular cost object under consideration

False

True or False: A fixed cost fluctuates in total as activity changes but remains constant on a per unit basis over the relevant range.

False

True or False: Depreciation is always considered a period cost for external financial reporting purposes in a manufacturing company.

True

True or False: Product costs are also known as inventoriable costs.

contribution format

Used primarily by management.

traditional format

Used primarily for external reporting.

direct labor

_____________ are those labor costs that can be easily traced to individual units of product. Example: Wages paid to automobile assembly workers

manufacturing overhead

_______________ includes all manufacturing costs except direct material and direct labor. These costs cannot be readily traced to finished products. -Includes indirect materials that cannot be easily or conveniently traced to specific units of product. -Includes indirect labor costs that cannot be easily or conveniently traced to specific units of product.

direct materials

_________________ are raw materials that become an integral part of the product and that can be conveniently traced directly to it. Example: An in-dash display unit (audio, nav, etc.) installed in an automobile

differential costs

___________________ (or incremental costs) are the difference in cost between any two alternatives.

cost behavior

__________________________refers to how a cost will react to changes in the level of activity. The most common classifications are: •Variable costs. •Fixed costs. Mixed costs.

sunk costs

__________________have already been incurred and cannot be changed now or in the future. These costs should be ignored when making decisions.

mixed cost

a ________________ contains both variable and fixed elements.

indirect

a lot of ______________ costs are shared and necessary to do business

constant

a variable cost per unit is ________________

cost object

is anything for which cost data are desired—including products, customers, and organizational subunits.

managerial accounting

is concerned with providing information to managers within an organization so that they can formulate plans, control operations, and make decisions.

financial accounting

is concerned with reporting financial information to external parties, such as stockholders, creditors, and regulators.

relevant range

is the range of activity within which the assumption that cost behavior is strictly linear is reasonably valid.

selling and administrative costs

period costs include:

raw materials, work in process, finished goods

product costs include:

conversion cost

refers to the sum of direct labor and manufacturing overhead.

in total

variable costs vary per unit/in total.

direct materials, direct labor, manufacturing overhead

what are the three basic manufacturing costs categories?

direct costs

•Costs that can be easily and conveniently traced to a unit of product or other cost object. •Examples: direct material and direct labor

Indirect costs

•Costs that cannot be easily and conveniently traced to a unit of product or other cost object. •Example: manufacturing overhead

common costs

•Indirect costs incurred to support a number of cost objects. These costs cannot be traced to any individual cost object.