Managerial accounting, chapter 2; Accounting 221

What is the formula used in order to find the mixed cost on the high-low method? ***IMPORTANT!!!

1) (Cost at the high activity level - cost at the low activity level) DIVIDED BY (High activity level - low activity level) Gives you VARIABLE COST 2) Total cost (highest cost) - VARIABLE COST = Fixed cost element (solved for) 3) Total cost (solved for) = Fixed cost + Variable cost TIMES activity level

What are the three different types of manufacturing costs?

1) Direct costs 2) Direct labor 3) Manufacturing overhead

What are the three different kinds of costs when predicting cost behavior in response to changes in activity?

1) Fixed costs 2) Variable costs 3) Mixed costs

What are the three different costs when making decisions?

1) Opportunity costs 2) Sunk costs 3) Differential costs

When you're preparing financial statements, what are the two costs involved?

1) Period costs 2) Product costs

What are the two categories of non manufacturing costs?

1) Selling costs 2) Administrative costs

What are the two different types of non manufacturing costs?

1) Selling costs 2) Administrative costs

In the context that a bus can hold up to 40 people and each bus is rented for 1,000$ a day, what's the relevant range?

1,000.. Each bus is 1,000$ no matter what. That's the range. This is a FIXED COST, a STRAIGHT LINE, b/c the 1,000$ is paid, it does not fluctuate, only for the fact that you can rent another one for another 1,000$

What is a mixed cost?

A cost that contains both fixed and variable costs

What is a common cost?

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

Salary of accountant in charge of accounts receivable in the East is known as what type of cost?

A direct administrative cost

Give an example for a mixed cost:

A fixed cost.. Say 1,000$ for the festival A variable cost... 5$ per person in the variable

What is the term sometimes referred to as a cost driver?

Activity base

For a cost to be variable, it must be variable with respect to something. The something is its:

Activity base. The measure of whatever causes the incurrence of a variable cost.

Costs associated with general management of an organization rather than with manufacturing or selling is known as what type of cost?

Administrative costs

Costs involved in the overall, general organization as a whole are under:

Administrative costs

What are some examples of discretionary fixed costs?

Advertising, research, public relations, management development programs, and internships for students

What are some examples of selling costs?

Advertising, shipping, sales travel, sales commission, sales salaries, costs of finished goods warehouses

What costs are included within the manufacturing overhead costs?

All costs operating factory costs besides direct labor and direct materials Ex. Indirect materials, indirect labor, maintenance and repair, heat and light, property taxes, depreciation <— ONLY WHEN ITS MANUFACTURING FUNCTIONS!!!

Salary of CFO who oversees all of the company's regions is know as what type of cost?

An indirect administrative cost

What is a cost object?

Anything that cost data can be derived for

Why doesn't conversion cost include direct material costs?

Because it's purpose is to show you how much it costs to convert the raw material to the finished product.. The things needed for that is direct labor cost and MOH (indirect labor cost and indirect material)

Why is activity level referred to as an independent variable while cost is referred to as a dependent variable?

Because the activity level determines how much the cost will be.

What are the two different categories that fixed costs breaks down into?

Committed fixed costs and discretionary fixed costs

What's the difference between committed fixed costs and discretionary fixed costs?

Committed fixed costs represent costs that are on-going and remain on-going even through short-coming usually because it would do more harm than good to pull back from them... Discretionary fixed costs represent costs that usually arise from annual decisions by management to spend on certain fixed cost items.

What is the term that shows you how much was incurred to convert material to finished product?

Conversion cost

The sum of direct labor cost and manufacturing overhead make up what term?

Conversion cost..

If I were to say that living in an apartment next to school is better than living in an apartment away from school because of the cost decrease due to less mileage and gas, i'd be basing my analysis off of:

Cost drivers // activity base of miles driven, gasoline burnt

What are some examples of variable cost?

Cost of goods sold for a merchandising company, direct materials, direct labor, variable elements of manufacturing overhead - such as supplies, and power, and variable elements of selling and administrative expenses, such as commission and shipping costs.

What term refers to cost that can easily be traced to a specific cost object?

Direct cost

What are the two different costs when assigning costs to cost objects?

Direct costs and indirect costs

Labor that can easily be traced back to the final product is called:

Direct labor

Product costs = manufactured goods. What equals manufactured goods?

Direct labor, direct materials, and manufactured overhead

What are some of the most common examples of activity bases in which variable costs vary?

Direct labor-hours, machine-hours, units produced, and units sold... # miles driven by salesperson, # of lbs of laundry cleaned by a hotel, # of called handled by technical support staff at a software company

What is touch labor synonymous for?

Direct labor... They are touching the product

What's the difference between direct material and indirect material costs?

Direct material is material that lends itself into the creation of an end product, like the wood that is used to create a chair.. or seats on a metro. Indirect material is material are minor items used in the process of creating the product out of the major (direct) materials... Examples: Soldering the chairs to the metro, or gorilla gluing the wood to the chair

What are some examples of administrative costs?

Executive compensation, general accounting, secretarial costs, public relation costs

A cost that remains constant, in total, regardless of changes in the level of activity is known as a:

Fixed cost

What does common cost fall under?

Indirect cost, a common cost is something that cannot be linked to anything in particular

Physical labor that cannot be traced back to one particular product without at least high amounts of time and money being wasted is called:

Indirect labor

What are some examples of committed fixed costs?

Insurance expenses, salaries of top management, investment in facilities and equipment

What is the formula used to find the mixed cost on the least-regression method?

It uses each point to calculate the total mixed cost... Y (Total cost) a (Fixed cost) b (Variable cost) X (Activity level) Y = A + bX

If a variable unit is expressed in a per unit basis, would it be a variable cost or a fixed cost?

It would be fixed because if all units are equal, then the price is remaining constant.

What are some examples of indirect labor?

Janitors, material handlers, night security guards

What is synonymous with factory overhead, factory burden, indirect manufacturing?

Manufacturing overhead

Can indirect costs be easily traced?

No

Do manufacturing overhead costs contain any costs outside of operating the factory?

No, MOH costs are only those that are associated with operating the factory

All selling and administrative costs are known as what type of costs?

Period costs

What is the term that describes all costs that are not product costs?

Period costs

What is the second step for both the high-low method and the least-squares regression method?

Plot the activity on the horizontal axis

What is the first step for both the high-low method and the least-squares regression method?

Plot the cost on the vertical axis because the amount of cost incurred during a period depends on the level of activity for the period (variable cost)

The sum of direct material cost and direct labor make up what term?

Prime cost

All costs involved in acquiring or making a product are known as what type of costs?

Product costs

What is the difference between period costs and product costs?

Product costs make up the sum of operating the factory (inventory costs)... Period costs make up the sum of selling and administrative costs

Inventorial costs are another name for what type of costs? Why?

Product costs, because they are the costs that make up the value of the inventory

The range of activity within which the assumption that cost behavior is strictly linear is called the:

Relevant range

All costs used to secure customer orders and get the finished products to the customer are known as what type of costs?

Selling costs A.K.A. Order getting and order filling costs

Mixed costs are also known as:

Semivariable costs

What are some examples of fixed costs?

Straight-line depreciation, double-declining depreciation (the formula makes it fixed), insurance, rent, supervisory salary

What is an example of a direct cost?

The amount of money you pay for the wood to make the wood chair

What is an example of an indirect cost?

The factory manager at Campbell soup, the cost cannot be traced to one specific product, he is overlooking all of them

What is an example of a common cost?

The factory manager at Campbell's factory, he is watching over the direct labor for the different soups, but his cost cannot be attributed to any one of the soups.. so he is a common cost, also an indirect cost

What cost varies, in total, in direct proportion to changes in the the level of activity?

Variable cost

Explain the equation for mixed costs:

Y = a + bX Y = the total mixed cost a = the total fixed cost (the vertical intercept of the line) b = the variable cost per unity of activity (the slope of the line) X = the level of activity For a mixed cost graph, you need to take into account the fixed cost that has a relative range and the variable cost

Are indirect materials included in manufacturing overhead cost?

Yes

Is administrative costs split into two different categories?

Yes, direct and indirect administrative costs