Chapter 1 ACCT
Selling costs include
Sales salaries, sales commissions, & advertising
Y = a + Bx
Y(total mixed cost) a(total fixed cost) b(variable cost per unit) x(level of activity)
Cost object
anything for which cost data are desired Ex. products, customers, geographic regions & parts of the organization like departments or devisions
direct labor cost example
automobile assembly line workers
manufacturing overhead examples
cleaning supplies, taxes, insurance
nonmanufacturing operations
depreciation, utility costs, property taxes and insurance premiums
differential cost
differs between alternatives
Product costs
inventoriable
common activity bases include
machine hours, direct labor hours, & units sold
indirect manufacturing cost, factory overhead, & factory burden
manufactoring overhead
semivariable costs
mixed costs
indirect labor costs example
salaries of factory supervisors and factory maintenance personnel
contribution margin equals
sales revenue - variable expenses
Contribution approach income statement
separates costs into their fixed & variable components & can assist with management decision making
What cost remains constant on a per unit basis within the relevant rage?
variable cost
Raw materials
Any materials that go into the final product
Variable costs examples
COGs, direct materials, commissions
Common cost
Cost that is incurred to support a number of cost objects but can't be traced to them individually Ex. wage cost of a pilot of a 747 airliner is a common cost of all the passengers on the aircraft, without the pilot there would be not flight & passengers. But no part of the pilot's wage is caused by any one passenger taking the flight
conversion cost
Direct labor & overhead costs incurred to change raw materials into finished products
Discretionary fixed cost
Fixed costs that usually arise from annual spending decisions by management
Managerial Accounting
Phase of accounting that is concerned with providing info to managers for use within the organization
Nonmanufacturing costs
Selling & administrative costs
Manufacturing costs include
direct labor, direct materials, & manufacturing overhead
A laptop computer manufacturer would consider the computer's processor chip to be a
direct material (materials that become an integral part of a finished product & can be traced)
period costs
expensed
Examples of fixed costs
factory rent, factory insurance, administrative salaries
Indirect labor costs include
factory security guard wages assembly-line supervisor salary; janitors, materials handlers, maintenance workers & night security guards
administrative costs include
general management costs such as executive compensation, general accounting, secretarial, public relations, ect.
within the relevant range, fixed costs
generally include rent & supervisor salaries remain constant in total regardless of changes in activity should not be expressed on a per unit basis when making decisions
as the level of activity moves outside of the relevant range, fixed costs
increase or decrease in discrete steps
a cost that is not easily traced
indirect Ex. Factory's manager's salary for Campbell Soup (also a common cost)
Manufacturing Overhead costs include
indirect materials, factory supervisors' salaries and factory depreciation
raw materials
materials that go into final products
Indirect materials example
nails, glue & thread
sunk cost
never relevant and should be disregarded when making decisions
a potential benefit that is forfeited or lost when one decision is chosen over another
opportunity cost
inventoriable costs
product costs
Prior to being recorded on the income statement, manufactures' product costs flow throug
raw materials, finished goods, & work in process
marginal revenue
revenue obtained from selling one additional unit of product
differential revenue is
the difference in cost between two alternatives also known as incremental cost
relevant range
the level of activity within which variable and fixed cost assumptions are valid
period costs are expensed in
the period that they are incurred & don't flow through the inventory accounts Ex. sales commissions
Committed fixed cost include
top management salaries real estate taxes