Accounting 202 Test #1

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Corporate Social Responsibility

A concept whereby organizations consider all stakeholders in decision making

Common cost

A cost incurred to support a number of cost objects but cannot be traced to them individually (type of indirect cost)

Direct cost

A cost that can be easily and conveniently traced to a specific cost object...To be traced to a cost object such as a particular product, the cost must be caused by the cost object

Indirect cost

A cost that cannot be easily, conveniently traced to a cost object

Fixed cost

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

Budget

A detailed plan for the future that is expressed in formal, quantitative forms

Cost driver

A factor, such as machine hours, that causes overhead costs

Strategy

A game plan that enables a company to attract customers by distinguishing itself from competitors

Activity base

A measure of whatever causes the incurrence of a variable cost, also called a cost driver

Allocation base

A measure such as direct labor hours that is used to allocate manufacturing overhead

Enterprise Risk Management

A process used by a company to identify those risks and develop responses to them that enable it to be reasonably assured of meeting its goals

Business process

A series of steps that are followed in order to carry out some task in business

Common-size financial statement

A vertical analysis in which each financial statement account is expressed as a percentage

Selling cost

All costs incurred to secure customers' orders and get the finished product to the customer (advertising, commissions, etc.)

Product cost

All costs involved in acquiring or making a product (direct materials, direct labor, and manufacturing overhead)

Period cost

All the costs that aren't product costs (selling and administrative expenses), expensed on the income statement

Discretionary fixed costs

Arise from annual decisions to spend money on certain fixed cost items

Overhead application

Assigning overhead cost to jobs

Independent variable

Causes variation in the cost

Performance Report

Compares budgeted data to actual data to identify and learn from performance

Finished goods

Completed units of product that have not yet been sold to customers

Direct labor

Consists of labor costs that can be easily (physically and conveniently) traced to individual units of products, sometimes called touch labor because direct labor workers typically touch the product while it is being made

Value chain

Consists of the major business functions that add value to a company's products and services

Mixed cost

Contains both variable and fixed cost elements

Sunk cost

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

Dependent variable

Cost, depends on the level of activity for the period

Administrative cost

Costs associated with general management rather than manufacturing or selling

Working capital

Current assets - current liabilities

Incremental cost

Differential cost, difference in cost between any 2 alternatives

Variable cost

Direct proportion to changes in the level of activity

Predetermined overhead rate

Dividing total estimated manufacturing overhead cost for the period by the estimated total amount of the allocation base

Planning

Establishing goals and how to achieve them

Vertical analysis

Focuses on relations among financial statement accounts at a given point in time

Controlling

Gathering feedback to ensure a plan is being properly executed or modified as circumstances change

Cost behavior

How a cost reacts to a change in a level of activity

High-low method

Identifying the period with the highest and lowest level of activity, and then calculating slope (y2-y1/x2-x1)...this gives us variable cost, which we use to calculate that portion of the mixed cost

Negative financial leverage

If ROA < after tax cost of financing, leverage is negative

Positive financial leverage

If ROA>after tax cost of financing, leverage is positive

Indirect materials

Included as part of the manufacturing overhead, not traceable to a specific cost...(glue, minor items, etc.)

Manufacturing Overhead

Includes all manufacturing costs except direct materials and direct labor (ie. indirect materials, indirect labor, maintenance and repairs, depreciation on manufacturing facilities)...Selling and administrative not included here!

Indirect labor

Labor costs that cannot be physically traced to a particular product, or that be traced only at great cost and inconvenience)

Lean production

Management process that only caters business productions to customer orders

Cost of goods manufactured

Manufacturing costs associated with the goods that were finished during the period

Direct materials

Materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product

Committed fixed costs

Organizational investments for a multiyear plan

Opportunity cost

Potential benefit that's given up when one alternative is selected over another

Inventoriable cost

Product costs that are assigned to inventory

Cost structure

Proportion of each type of cost (variable, fixed, and mixed) in a company

Contribution approach

Provides managers with an income statement that distinguishes between types of costs

Relevant range

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

Financial leverage

Refers to borrowing money to acquire assets in an effort to increase sales and profits

Contribution margin

Sales-Variable expenses

Decision making

Selecting a course of action from competing alternatives

Conversion cost

Sum of direct labor and manufacturing overhead

Prime cost

Sum of direct materials cost and direct labor

Raw materials

The materials that go into the final product

Horizontal analysis

Trend analysis, analyzing financial data over time (percentage change from year to year)

Work in process

Units of product that are only partially complete and will require further work before they are ready for sale

If overhead is overapplied

We credit COGS

If overhead is underapplied

We debit COGS


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