Accounting 203 - Chapter 1

3 Manufacturing costs:

- direct Materials - direct Labor - manufactoring overhead

Sunk Costs

A cost that has already been incurred and what was lost from choosing this option

Committed fixed costs

Cannot be easily changed or eliminated

High low method:

Only uses 2 data points is based on periods where the activity tends to be unusual

Within the relevant range of activity, cost assumptions are....

Reasonably Valid

Period costs are expensed when incurred. T/F?

True

Product costs are also called inventoriable costs. T/F?

True

Cost Objects:

- may be assigned costs to help control spending - can be products, customers, or jobs

Selling Costs include:

- sales salaries - advertising - sales commissions

Differential revenue

The difference in revenues between 2 alternatives

Income statement focusing on product and period costs is prepared using

Traditional format

Semi-variable costs are mixed cost. T/F?

True

The cost of relatively insignificant Direct materials is treated as indirect materials because it is not worth the time and cost to directly trace them to the products. T/F?

True

The relevant range of activity is approximated by straight line T/F?

True

Cost data is desired is called

cost object

Prime costs are

direct materials and direct labor

High Low Method

Rise / Run = Y2 -Y1 / X2 -X1

Computing variable and fixed costs using the high low method

Rise / Run = Y2 -Y1 / X2 -X1 Fixed Cost. = High Y value - (Variable per unit cost x high X value)

Contribution Margin=

Sales Revenue - Variable Costs

Differential costs

The difference in cost between two alternatives - also known as incremental cost

Within the relevant range of activity, fixed costs remain constant in total. T/F?

True

Common activity bases include

Units sold Diret Labor Hours Machine Hours

Fixed costs:

- Generally include rent and supervisor salaries - Remain constant in total regardless of changes in activity -Should not be expressed on a per unit basis when making decisions - The fixed cost per unit becomes progressively smaller as the level of activity increases because the same total cost is spread over more units.

Contribution Format Income statement

- Sales ( Units x Price) Variable Expense - COGS (Begin inventory + purchases - ending inventory) - Administrative ( units x cost of unit) = Total variable expenses Contribution margin = Sales - Total variable expenses Fixed Expenses - Selling expenses - Administrative expenses Net Income = Contribution Margin - Total Fixed Expenses

A traditional income statement starts with

- Sales (Price x Units) - CGOS (Inventory + Purchases - Ending Inventory) = Gross Margin ( Sales - COGS) - Selling Expenses ((Units x Cost per unit) + Fixed Expenses - Administartive expenses (Variable expenses + Fixed expenses) = Total selling & administrative expenses = Net income = Total selling & administrative expenses + Gross Margin

Mixed Costs:

- When mixed costs are represented by straight line, the steeper the slope, the higher the variable cost per unit - A mixed cost has a minimum cost of having a service available and ready to use - the equation of straight line can be used to express the relationship. between mixed costs and level of activity - mIxed costs contain both variable and fixed cost elements

Contribution format income statement

- separates costs into their fixed and variable components - can asset with management decision making

A type of indirect cost incurred to benefit more than one cost object is a

Common Cost

Manufacturing overhead costs include:

Indirect materials. factory supervisors salaries, and factory depreciation

The revenue obtained from selling one additional unit of product

Marginal Revenue

Y = a + bX denotes the

Variable cost per unit of activity Slope of the line

Within the relevant range ____ costs remain constant on a per unit basis

variable

Using high-low method, the fixed cost is caluclated =

After the variable cost per unit is calculated, using either the high or low level of activity.

Discretionary Fixed Costs:

Can be cut-back or eliminated without significant damage to a company's long-term goals

High-Low Method - Variable cost per unit forumla =

Change in cost/change in units

Income statement with distinction between fixed and vaiable costs

Contribution format