Cost Accounting

diff, sunk, none, none, diff, none, diff, opp, diff

Differential, sunk, opportunity, or none? - cost of x-ray film used in old machine - cost of old x-ray machine - salary of head radiology - salary of lab dep - cost of new printer - rent on space - cost of maintaining old machine - benefits of new DNA - cost of electricity

opportunity cost

diff, sunk, opp? benefits from a new DNA analyzer

differential cost

diff, sunk, opp? cost of new color laser printer

sunk cost

diff, sunk, opp? cost of old x-ray machine

something that can be specifically identified to a product. At a manufacturing plant, a worker is putting together a chair, there will be a direct cost for it. The paint for that chair will have a direct cost.

direct cost

conversion cost and prime cost and manufacturing costs

direct labor is...(3)

Direct materials are the raw materials that become an integral part of the product and that can be conveniently traced directly to it. ex: radio in a car

direct materials

Utility cost. variable with the amount of cost per KW, but fixed would be the fixed monthly utility charge.

example of mixed cost

direct material and direct labor

examples of direct cost

contains both variable and fixed cost

mixed cost

direct materials + direct labor + manufacturing overhead

product cost =

direct materials, direct labor, manufacturing overhead

product costs include what

cost of goods sold

product costs that have become expenses can be found in

Assigning costs to cost objects Accounting for costs in manufacturing companies Preparing financial statements Predicting cost behavior in response to changes in activity Making decisions

purposes of cost classifications (5)

cost behavior

refers to how a cost will react to changes in the level of activity

variable, product

steering wheels installed in BMWs

Have already been incurred and cannot be changed now or in the future. These costs should be ignored when making decisions.

sunk costs

matching principle

the BLANK requires that the costs incurred to generate a particular revenue should be recognized as expenses in the same period that the revenue is recognized.

relevant range.

there is a BLANK for purposes of assuming what things cost

fixed manufacturing overhead + fixed selling expense + fixed administrative expense

total fixed cost =

Y = a +bX

total mixed cost line equation

varies

variable cost does what with changes in activity

COGS = beginning merchandise inventory + Purchases - Ending merchandise inventory

COGS equation

Sales Variable expenses: Cost of goods sold Variable selling Variable administrative Contribution margin Fixed expenses Fixed selling Fixed administrative Net operating income

CONTRIBUTION FORMAT INCOME STATEMENT OFFICIAL

direct labor, manufacturing overhead

CONVERSION COSTS INCLUDE (2)

5,000 because it is variable, it is changing based off of the activity.

Cyber Devices manufacturers PCTV products that enable people to watch television content on their computers. It sells its product to retailers for $50. A tuner component that goes into each of these devices costs $5 to acquire. The total variable cost at an activity level of 1,000 units equals BLANK.

1,300 / 200 = 6.5 so need 7 workers. 7(2500) = 17,500

In a small manufacturing facility, one welder is needed for every 200 hours of machine-hours or fewer in a month. The welder is paid a monthly salary of 2,500. If the total monthly requirements are 1,300 machine-hours, the total salaried employee expense is BLANK.

variable, product.

apples processed and canned by del monte

variable, period

commissions paid to automobile salespersons

Long term, cannot be significantly reduced in the short term Examples: Depreciation on Buildings, equipment, real estate taxes

committed fixed cost

Indirect costs incurred to support a number of cost objects. These costs cannot be traced to any individual cost object.

common costs

internal/management

contribution format is for..

management

contribution format is used primarily by

direct labor + manufacturing overhead

conversion cost =

Decisions involve choosing between alternatives. The goal of making decisions is to identify those costs that are either relevant or irrelevant to the decision. To make decisions, it is essential to have a grasp on three concepts: differential costs, sunk costs, and opportunity costs.

cost classifications for decision making

variable, fixed, and mixed costs

cost classifications for predicting cost behavior (3)

income statement

cost of goods sold is on the...

concerned with providing information to managers within an organization so that they can formulate plans, control operations, and make decisions.

cost/managerial accounting is...

fixed, product

depreciation of factory equipment

examples of manufacturing overhead

depreciation of manufacturing equipment, utility costs, property taxes, insurance premiums (only those costs for operating the factory)

Or incremental costs are the difference in cost between any two alternatives. A difference in revenue between two alternatives is called differential revenue. Both are always relevant to decisions. Differential costs can be either fixed or variable.

differential costs

Direct labor costs are those labor costs that can be easily traced to individual units of product. ex. wages to car assembly workers.

direct labor

work in process to convert direct materials into finished goods

direct labor and manufacturing overhead costs are added to

prime costs and manufacturing costs

direct materials are... (2)

May be altered in the short-term by current managerial decisions Examples: Advertising, Research and Development

discretionary fixed cost

inventory on the balance sheet

everything going into making a product would be under... what on the what

manufacturing overhead. so still has to do with manufacturing, but can't be directly traced.

example of indirect cost

concerned with reporting financial information to external parties, such as stockholders, creditors, and regulators

financial accounting is...

Consists of completed units of product that have not yet been sold to customers. Finished goods inventory on balance sheet.

finished goods costs

A cost that remains constant, in total, regardless of changes in the level of the activity If expressed on a per unit basis, the average fixed cost per unit varies inversely with changes in activity.

fixed cost

constant

fixed cost does what with changes in activity

varies

fixed cost per unit

variable because depends on how much people want to buy and product because buns go into what wendy's makes.

hamburger buns in wendy's restaurant. V/F Per/Prod

sales - variable expenses. then subtract fixed to get net operating income

how can you find contribution margin?

some costs will change, others will remain the same.

if a firm increases its activity level,

300 expensed, 900 in prepaid insurance which is an asset. instead, one-half of the cost would be recognized as an expense each year. The reason is that both years—not just the first year—benefit from the insurance payment. The unexpensed portion of the insurance payment is carried on the balance sheet as an asset called prepaid insurance.

if i paid 1200 for insurance in october what would it say in december

assembly line supervisor salary and factory security guard wages

indirect labor costs include

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. Since indirect materials and indirect labor are difficult to trace to specific products, their costs are included in manufacturing overhead.

indirect labor refers to

Includes all the costs that are involved in acquiring or making a product "Attach" to a unit of product as it is purchased or manufactured and they stay attached to each unit of product as long as it remains in inventory awaiting sale.

product costs

examples of period costs

property taxes on corporate headquarters, sales commissions.

includes any materials that go into the final product (on balance sheet.)

raw materials

fixed, product

salary of supervisor overseeing production of printers

Costs necessary to secure the order and deliver the product. Selling costs can be either direct or indirect costs.

selling costs

variable because don't know how many customers will want them and period cost because nothing is contributing to MAKING the apples here.

shipping canned apples to customers V/F Per/Prod

relevant range

the activity pertaining to the fixed cost as well as the variable cost

external reporting

traditional format used mostly for what

COGS and gross margin then S&A expenses for external reporting

traditional format will focus on

examples of activity bases

units produced, machine hours, labor hours, miles driven

A cost that varies, in total, in direct proportion to changes in the level of activity. A variable cost per unit is constant.

variable cost

constant

variable cost per unit is

Do.

variable expenses for contribution format include or don't include COGS?

direct materials + direct labor + variable manufacturing overhead

variable manufacturing cost =

sales, variable expenses, contribution margin, fixed expenses, net operating income

what accounts are in the contribution format? (5)

Sales, COGS, gross margin, selling and administrative expenses, net operating income

what accounts are in the traditional format? (5)

finished goods to cost of goods sold

when a manufacturer sells its finished goods to customers, the costs are transferred from

raw materials to work in process

when direct materials are used in production, their costs are transferred from

both fixed and variable and make sure you multiply for units.

when finding selling and administrative expenses for traditional, you have to use

cost of goods sold

when inventory goes through a sale it becomes...

finished goods inventory on the balance sheet

when the product is completely finished it would go into what on the what

1. fixed 2. fixed 3. variable 4. variable

which costs are variable and which are fixed when it comes to the number of ice cream cones sold? 1. lighting 2. wages of store manager 3. the cost of ice cream 4. cost of napkins

Inventory on balance sheet. Consists of units of product that are only partially complete and will require further work before they are ready for sale to the customer.

work in process

Fixed selling Fixed administrative

FIXED EXPENSES ON CONTRIBUTION

FALSE

T or F: fixed costs increase in total throughout the relevant range

the level of activity

X

the total mixed cost

Y

the total fixed cost

a

All executive, organizational, and clerical costs. Administrative costs can be either direct or indirect costs.

administrative costs

discretionary fixed. period cost

advertising dental office V/F Per/Prod

cost driver. a measure of what creates a variable cost.

an activity base

cost object

any item for which cost data is desired is called

in total it will increase. Per unit it will decrease.

as the level of activity increases, how will a mixed cost in total and per unit behave?

the variable cost per unit of activity

b

costs still part of the manufacturing process but can't tie them directly to one good. Supervisor roaming the floor.

indirect cost

direct materials + direct labor

prime cost =

manufacturing cost. what does it take to make that item? anything doing with manufacturing, NOT corporate or selling or advertising.

product cost is the...

committed, discretionary

2 types of fixed costs

direct materials, direct labor, manufacturing overhead

3 basic manufacturing cost categories

raw materials, work in process, finished goods

3 manufacturing product costs

TRUE

Opportunity costs are not usually found in accounting records.

direct material, direct labor.

PRIME COSTS INCLUDE (2)

FALSE discretionary do though

T or F: committed fixed costs arise from annual decisions by management

TRUE

T or F: discretionary fixed costs can often be reduced to zero for short periods of time without seriously impairing the L-R goals of the company

FALSE

T/F: An opportunity cost cannot be changed by any decision made now or in the future.

TRUE

T/F: An opportunity cost is the potential benefit that is given up when one alternative is selected over another.

TRUE. same with differential

T/F: Opportunity costs are costs that must be explicitly considered in every decision a manager makes.

FALSE. an individual cost may be indirect to one cost object, and direct to another cost object.

T/F: an individual cost is either direct or indirect, regardless of the cost object

TRUE

T/F: differential costs are sometimes found in accounting records

FALSE

T/F: the contribution approach calculates gross margin by deducting the cost of goods sold from sales.

FALSE

T/F: the contribution approach is mainly used for external reporting purposes

FALSE

T/F: the contribution approach is not useful for merchandising companies

TRUE

T/F: the contribution approach separates costs into fixed and variable categories

Sales Cost of Goods Sold Gross margin Selling and administrative expenses Net operating income

TRADITIONAL FORMAT INCOME STATEMENT OFFICIAL

FALSE

TRUE OR FALSE: as volume increases, unit fixed cost and total fixed cost will change.

cost structure

The relative proportion of variable, fixed, and mixed costs in a company is known as the company's:

example of relevant range

The relevant range of activity pertains to fixed cost as well as variable costs. For example, assume office space is available at a rental rate of 30,000 per year in increments of 1,000 square feet. Fixed costs would increase in a step fashion at a rate of 30,000 for each additional 1,000 square feet (vary with how many square feet you want.)

Cost of goods sold Variable selling Variable administrative Contribution margin

VARIABLE EXPENSES ON CONTRIBUTION

manufacturing overhead costs

indirect materials, indirect labor, maintenance and repairs on production equipment, depreciation, and insurance on manufacturing facilities are

fixed because insurance and period cost because corporate.

insurance on IBM's CORPORATE headquarters V/F Per/Prod

fixed because insurance is fixed. product because factory is where product is made.

insurance on factory producing contacts V/F Per/Prod

balance sheet

inventory is on the...

direct labor

is sometimes called "touch labor"

glue going into making the radio/indirect. not necessarily traceable.

manufacturing overhead

Manufacturing overhead includes all manufacturing costs except direct material and direct labor. These costs cannot be readily traced to finished products. includes indirect materials and indirect labor.

manufacturing overhead definition

conversion costs, manufacturing costs

manufacturing overhead is...(2)

cost involved in producing one more unit of product

marginal cost

the revenue that can be obtained from selling one more unit of product

marginal revenue

semi variable costs

mixed costs are also referred to as

selling and administrative costs

nonmanufacturing costs

work in process to finished goods

once units of product are completed, their costs are transferred from

The potential benefit that is given up when one alternative is selected over another. These costs are not usually found in accounting records but must be explicitly considered in every decision.

opportunity costs

selling expense + administrative expense

period cost =

include all selling and administrative costs. usually expenses and end up on the income statement.

period costs