Accounting quiz #1 terms

Cost per unit ratio

(Direct materials+Direct labor+Man OH)/(Total number of units)

Ethical Standards

1. Competence 2. Confidentiality 3. Integrity 4. Credibility

Direct cost

A cost that can be easily and conveniently traced to a specified cost object. Example: If a company made 10,000 brochures for a specific customer, then the cost of the paper used to make brochures would be a direct cost of that customer.

Indirect cost

A cost that cannot be easily and conveniently traced to a specified cost object. Example: A Campbell soup factory may produce dozens of varieties of canned soup. The factory managers salary would be an indirect cost of a particular variety such as chicken noodle soup.

Fixed cost

A cost that remains constant, in total, regardless of changes in the level of activity. Example: Rent and insurance costs

Variable cost

A cost that varies, in total, in direct proportion to changes in the level of activity. Example: Supplies and power costs of the factory.

Budget

A detailed plan for the future that is usually expressed in formal quantitative terms.

Activity base

A measure of whatever causes the incurrence of a variable cost. Example: Direct labor-hours, machine hours, units produced

Segment

A part of or activity of an organization about which managers would like cost, revenue, or profit data. Examples include: product lines, customer groups, divisions, plants, and departments.

Activity-based costing (ABC)

A technique that attempts to assign overhead costs more accurately to products than the simpler methods discussed thus far.

Facility-level activities

Activities that are carried out regardless of which products are produced, how many batches are run, or how many units are made. Examples include: General factory administration and plant building and grounds

Period cost

All costs that are not product costs. Example: Sales commissions, advertising, executive salaries, public relations, and the rental costs of administrative offices are all period costs.

Activity (ABC)

An event that causes the consumption of overhead resources. Examples include: setting up machines, billing customers, maintaining equipment, and preparing shipments.

Unadjusted Cost of goods sold equation

Beginning finished goods inventory + cost of goods manufactured - Ending finished goods inventory

Cost of Goods Sold

Beginning merchandise inventory+Purchases-Ending merchandise inventory

Finished goods inventory

Completed units of product that have not yet been sold to customers. Example: Footballs ready to be shipped from factory.

Predetermined Overhead

Computed by dividing the total estimated manufacturing overhead cost for one period by the estimated total amount of the allocation base.

Managerial Accounting

Concerned with providing information to managers for use within the organization so they can formulate plans, control operations, and make decisions. -Reports to managers inside the organization for: planning, controlling, and decision making -Emphasizes decisions affecting the future -Emphasizes relevance -Emphasizes timeliness -Emphasizes segment reports -Need not follow GAAP/IFRS -Not mandatory

Batch-level activities

Consist of tasks that are performed each time a batch is processed. Examples: Processing purchase orders, setting up equipment, packing shipments to customers, and handling materials.

IMA's overarching ethical principle

Honesty, Fairness, Objectivity, and Responsibility.

Administrative costs

Include all costs associated with the general management of an organization rather than with manufacturing or selling.

Product costs

Include all costs in acquiring or making a product. EXample: For manufacturing companies, these costs include direct materials, direct labor, and manufactoring overhead.

The cost of goods manufactured

Includes the manufacturing costs associated with units of product that were finished during the period.

Planning

Involves establishing goals and specifying how to achieve them.

Controlling

Involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change.

Direct labor

Labor costs that can be easily traced to individual units of product. Example: Assembly line workers at Toyota.

Unit-level activities

Performed each time a unit is produced. Examples include: processing units on machines, processing units by hand, and consuming factory supplies.

Indirect materials

Raw materials used to make a product. Example: The glue used to assemble an Ethan Allen chair.

Job cost sheet

Records the materials, labor, and manufacturing overhead costs charged to a job.

Indirect labor

Refers to employees, such as janitors, supervisors, materials handlers, maintenance workers, and night security guards, that play an essential role in running a manufacturing facility; however, the cost of compensating these people cannot be easily or conveniently traced to specific units of product.

Direct materials

Refers to raw materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product. Example: The electronic components that Apple uses in its iPhones.

Product-level activities

Relate to specific products and typically must be carried out regardless of how many batches or units of the product are manufactured. Examples include: Testing new products, administering parts inventories, and designing products.

Contribution margin

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

Raw materials inventory

The materials that go into the final product. Example: The plastics produced by DuPont are these materials used by Hewlett-Packard in its personal computers.

Manufacturing overhead

The third manufacturing cost category, includes all manufacturing costs except direct materials and direct labor. Example: Rent on the factory building

Cost of goods manufactured equation

Total manufacturing costs + Beginning work in process inventory - Ending work in process inventory

Work in process inventory

Units of product that are only partially complete and will require further work before they are ready for sale to the customer. Example: Unfinished cake in a food manufactoring business.

Job-order costing

Used in situations where many different products, each with individual and unique features, are produced each period.