ACC 202 Ch. 2 &3

Place these in order in which they appear on a schedule of cost of goods sold: unadjusted cost of goods sold, cost of goods available for sale, add: underapplied overhead, adjusted cost of goods sold, deduct: finished goods inventory, ending

1. Cost of goods available for sale. 2. Deduct: finished goods inventory, ending 3. Unadjusted cost of goods sold 4. Add: underapplied overhead 5. Adjusted cost of goods sold

Direct cost

A cost that can be easily and conveniently traced to a specific cost object.

Cost object

Anything for which cost data are desired- including products, customers, jobs, and organizational subunits.

Purpose of direct and indirect costs

Assign costs to cost objects

Cost of goods sold =

Beginning merchandise inventory+ purchases- Ending merchandise inventory

Variable cost=

Change in cost/ change in activity

Fixed costs that are long- term and cannot be significantly reduced in the short- term

Committed

2 types of fixed costs

Committed and Discretionary

Behavior of cost- Fixed cost per unit decreases as the activity level rises and increases as the as the activity level rises and increases as the activity level falls

Fixed cost per unit

Labor costs that cannot be physically traced to particular products, or that can be traced only at great cost and inconvenience, included as part of manufacturing overhead

Indirect labor

Materials such as solder and glue, included as part of manufacturing overhead

Indirect materials

Used in situations where many different products, each with individual and unique features, are produced each period.

Job- order costing

Purpose of differential, sunk, and opportunity costs

Making decisions

Includes all manufacturing costs except direct materials and direct labor. Includes items such as indirect materials, indirect labor, maintenance and repairs on production equipment, heat and light, property taxes, depreciation, and insurance on manufacturing facilities.

Manufacturing overhead

Indirect manufacturing cost, factory overhead, and factory burden

Names for manufacturing overhead

Selling, general, and administrative costs or just selling and administrative costs

Nonmanufacturing costs

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

Opportunity cost

The input factor used to compute the applied overhead for the job

Predetermined overhead rate

The range of activity within which the assumption that cost behavior is strictly linear is reasonably valid, or the range of activity over which the graph of the cost is flat.

Relevant range

All costs that are incurred to secure customer orders and get the finished product to the customer.

Selling costs

Raw materials

The materials that go into the final product

Y=, a=, b=, X=

Total mixed cost, total fixed cost (y- intercept), variable cost per unit of activity (slope), the level of activity

T/ F: Because the variable cost per unit equals the slope of the straight line, the steeper the slope, the higher the variable cost per unit.

True

T/F: The term conversion cost is used to describe direct labor and manufacturing overhead because these costs are incurred to convert materials into the finished product.

True

Varies, in total, in direct proportion to changes in level of activity.

Variable cost

Behavior of cost- Total variable cost increases and decreases in proportion to changes in the activity level.

Variable cost in total

Executive compensation, general accounting, secretarial, public relations, and similar costs involved in the overall, general administration of the organization as a whole are examples of....

administrative costs

Product costs _____ to units of product as the goods are purchased or manufactured, and they remain _____ed as the goods go into inventory waiting sale.

attach

Cost is known as the _________ ________ because the amount of cost incurred during a period depends on the level of activity for the period.

dependent variable

A difference in costs between any two alternatives

differential cost

A difference in revenues between any two alternatives

differential revenue

Some of the most common activity bases (5)

direct- labor hours, machine- hours, units produced, miles driven, and units sold

A differential cost is also known as an _______ cost

incremental

The equation for a straight- line can be used to express the relationship between ________ _____ and the ______ __ ________.

mixed costs, level of activity

The predetermined overhead rate is multiplied by the actual allocation base incurred by a job to find:

overhead applied to job

All selling and administrative expenses are treated as _______ _______.

period costs

Contribution margin is _____ ________ minus _________ costs

sales revenue, variable

Advertising, shipping, sales travel, sales commissions, sales salaries, and costs of finished goods warehouses are examples of....

selling costs

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

sunk cost

Mixed costs are commonly known as semi- ______ costs; they have both a fixed and a variable component.

variable

To obtain the contribution margin, deduct _______ ________ from ______.

variable expenses, sales

3 common classifications for cost behavior

variable, fixed, and mixed

Variable cost= y2-y1/x2-x1=

(Cost at the high activity level- Cost at the low activity level)/ (High activity level- low activity level)

Indirect cost

A cost that cannot be easily and conveniently traced to a specific cost object

Purpose of Manufacturing and Nonmanufacturing costs

Accounting for costs in manufacturing companies

A measure of whatever causes the incurrence of a variable cost.

Activity base

All costs associated with the general management of an organization rather than with manufacturing or selling.

Administrative costs

A cost that is incurred to support a number of cost objects but cannot be traced to them individually.

Common cost

The amount remaining from sales revenues after variable expenses have been deducted. It contributes toward covering fixed expenses and then toward profits for the period.

Contribution margin

The sum of direct labor cost and manufacturing overhead cost.

Conversion cost

How a cost reacts to changes in the level of activity

Cost behavior

The relative proportion of each type of cost in an organization.

Cost structure

Labor costs that can be easily (physically and conveniently) traced to individual units of product.

Direct labor

Sometimes called touch labor because the workers typically touch the product while it is being made

Direct labor

Widely used allocation bases in manufacturing

Direct labor cost, direct labor hours, machine hours, units of product

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

Direct materials

3 types of Manufacturing costs and whether they are direct or indirect

Direct materials (direct cost), Direct Labor (direct cost), and Manufacturing Overhead (indirect cost)

Advertising and Research and Development

Examples of discretionary fixed costs

T/F: To be traced to a cost object such as a particular product, the cost does not have to be caused by the cost object.

False, it must

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

Fixed cost

Behavior of cost- Total fixed cost is not affected by changes in the activity level within the relevant range.

Fixed cost in total

Purpose of variable, fixed, and mixed costs

Predicting cost behavior in response to changes in activity

Purpose of product and period costs

Prepare financial statements

The sum of direct materials cost and direct labor cost

Prime cost

All costs involved in acquiring or making a product.

Product costs

In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead.

Product costs

Sometimes called order- getting or order- filling costs

Selling costs

2 categories of nonmanufacturing costs

Selling costs and administrative costs

T/ F: Only those costs associated with operating the factory are included in manufacturing overhead

True

T/ F: Raw materials may include both direct and indirect materials

True

T/ F: The activity base under consideration is the total volume of goods and services provided by the organization.

True

T/F: Administrative costs can be either direct or indirect costs

True

T/F: Selling costs can be either direct or indirect costs

True

Behavior of cost- Variable cost per unit stays constant

Variable cost per unit

Mixed cost line equation

Y= a+bX

In ________ ________, all manufacturing costs, both fixed and variable, are assigned to units of product- units are said to fully absorb manufacturing costs.

absorption costing

In ______ __________, an account is classified as either variable or fixed based on the analyst's prior knowledge of how the cost in the account behaves.

account analysis

For a cost to be variable, it must be variable with respect to something. That something is its _______ ____.

activity base

The fixed portion of a mixed cost represents the minimum cost of having a service ready and ________ for use.

available

Variable cost is ________ if expressed on a per unit basis.

constant

The variable portion represents the cost incurred for actual __________ of the service.

consumption

An activity base is sometimes referred to as a ____ ______.

cost driver

Decreases in cost should be referred to as _______ costs.

decremental

A predetermined overhead rate is calculated by dividing the _______ total manufacturing overhead by the _______ total amount of the allocation base

estimated, estimated

Period costs are not included as part of the cost of either purchased or manufactured goods; instead, period costs are _________ on the income statement in the period in which they are incurred using the usual rules of accrual accounting.

expensed

When the goods are sold, the costs are released from inventory as _________ (called cogs) and matched against ____ _______ on the income statement.

expenses, sales revenue

Straight- line depreciation, insurance, property taxes, rent, supervisory salaries, administrative salaries, and advertising are examples of...

fixed costs

Cost behavior is considered _____ whenever a straight line is a reasonable approximation for the relation between cost and activity.

linear

All the costs that are not product costs

period costs

Sales commissions, advertising, executive salaries, public relations, and the rental costs of administrative offices are examples of _______ _____.

period costs

Because total fixed costs remain constant for large variations in the level of activity, the average fixed cost per unit becomes progressively _______ as the level of activity increases.

smaller

Costs are classified as either _____ or _______.

Direct or Indirect

Fixed costs that may be altered in the short time by current managerial decisions.

Discretionary

Depreciation on buildings and equipment and real estate taxes

Examples of committed fixed costs

Fixed and variable cost elements of a mixed cost can be estimated using the ______- ____ method, which is based on the rise over run formula for the slope of a straight line.

high- low

Activity is known as the _______ ________ because it causes variations in the cost.

independent variable

Janitors, supervisors, materials handlers, and night security guards are examples of.....

indirect labor

Because product costs are initially assigned to inventories, they are also known as __________ _____.

inventoriable costs

Product costs are initially assigned to an _______ account on the balance sheet

inventory

Product costs are recorded as expenses in the period in which the related products are _____.

sold