ACCT Chapter 1

Memorize traditional and contribution format of income statements

"Using Different Cost Classifications for Different Purposes" Page 41 of text

Sunk cost

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

Raw Materials > WIP > Finished Goods

Balance Sheet

COGS

Beg. Inventory + Purchases - Ending Inventory

Finished goods goes to where on the income statement once it is sold?

Cost of Goods sold

Finished goods > Cost of Goods Sold

Income Statement

Manufacturers' product costs flow through

Raw materials, work in process, and finished goods

Total fixed cost

Remain constant

Variable per unit cost

Remain constant

Fixed per unit cost

Vary

Total variable costs

Vary

Mixed cost

Vary in both per unit and total

COGM

WIP > Finished Goods Credit side for WIP Debit side for Finished Goods

Y = a + bX

Y = Total Mixed Cost a = Total Fixed Cost b = Variable Cost Per Unit of Activity X = Level of Activity

Work in Process

direct labor and manufacturing overhead

Conversion costs

direct labor and overhead costs

Variable manufacturing cost

direct materials + direct labor + variable manufacturing overhead

Prime costs are

direct materials and direct labor

Product costs

direct materials, direct labor, manufacturing overhead

Administrative costs include

executive compensation and public relations costs

True or false: all of a company's depreciation, property taxes and insurance premiums are considered as manufacturing overhead

false

Net income

gross margin - selling and administrative expenses

Manufacturing overhead costs include

indirect materials and indirect labor (factory supervisors' salaries and factory depreciation)

Thread in jeans are considered as

indirect materials and manufacturing overhead

Relevant Range

level of activity within variable and fixed cost assumptions are valid

Direct materials and direct labor are both

manufacturing costs

Indirect materials and indirect labor are classified as

manufacturing overhead

Period costs

non manufacturing costs; selling and administrative

Contribution margin

sales revenues - all variable expenses

Nonmanufacturing costs

selling costs and administrative costs

Differential cost is

taking the difference between net income and costs (subtract net incomes to find the difference, subtracts costs to find differences, subtract net income difference from cost difference to find differential net income)

Opportunity cost

the potential benefit that is given up when one alternative is selected over another

Period costs are expensed on the income statement in the period in which

they are incurred using the usual rules of accrual accounting