ACC 202 Final

absorption vs. variable costing

-absorption costing-a costing method that includes all manufacturing costs-DM, DL, and both variable and fixed manufacturing overhead-in unit product costs -variable costing-a costing method that includes only variable manufacturing costs-DM, DL, and variable manufacturing overhead-in unit product costs

direct vs. indirect cost

-direct cost-a cost that can be easily and conveniently traced to a specified cost object -indirect cost-a cost that cannot be easily and conveniently traced to a specified cost object

prime vs. conversion cost

-prime cost-direct materials cost plus direct labor cost -conversion cost-direct labor cost plus manufacturing overhead cost

unit sales to attain the target profit

=(target profit + fixed expenses)/contribution margin per unit

contribution margin ratio

=CM/sales = %

mixed cost

a cost that contains both variable and fixed cost elements

sunk cost

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

target profit analysis

estimating what sales volume is needed to achieve a specific target profit

dollar sales to break even

fixed expenses/CM ratio

total manufacturing costs (3 points)

-DM-materials that become an integral part of a finished product and whose costs can be conveniently traced to it -DL-factory labor costs that can be easily traced to individual units of product -OH-all manufacturing costs except direct materials and direct labor

product vs. period costs

-product costs-all costs that are involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead. -period costs-costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued

fixed cost

a cost that remains constant regardless of changes in the level of activity within the relevant range. If a fixed cost is expressed on a per unit basis, it varies inversely with the level of activity.

variable cost

a cost that varies in direct proportion to changes in the level of activity. A variable cost is constant per unit. change in cost/change in activity

activity-based costing (ABC)

a costing method based on activities that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore fixed as well as variable costs

make or buy decision

a decision concerning whether an item should be produced internally or purchased from an outside supplier

cost driver

a factor, such as machine-hours, beds occupied, computer time, or flight-hours that causes overhead costs

theory of constraints

a management approach that emphasizes the importance of managing constraints

lean production

a management approach that organizes resources such as people and machines around the flow of business processes and that only produces units in response to customer orders

special order

a one-time order that is not considered part of the company's normal ongoing business

internal control

a process designed to provide reasonable assurance that objectives (financial) are being achieved

predetermined overhead rate

a rate used to charge manufacturing overhead cost to jobs that is established in advance for each period. It is computed by dividing the estimated total manufacturing overhead cost for the period by the estimated total amount of the allocation base for the period. =estimated total manufacturing overhead cost/estimated total amount of the allocation base

raw materials (RM)

any materials that go into the final product

cost of goods sold formula

beginning merchandise inventory + purchases - ending merchandise inventory

join costs

costs that are incurred up to the split-off point in a process that produces joint products

unit sales to break even

fixed expenses/contribution margin

traditional income statement format

sales - COGS = GM - S&A = NOI

CM income statement format

sales - VC = CM - FC = NOI

contribution margin

the amount remaining from sales revenues after all variable expenses have been deducted

net present value (NPV)

the difference between the present value of an investment project's cash inflows and the present value of its cash outflows

internal rate of return (IRR)

the discount rate at which the net present value of an investment project is zero; the rate of return of a project over its useful life; PV factor = investment required/annual net cash flows; then find it on the annuity table

payback period

the length of time that it takes for a project to fully recover its initial cost out of the net cash inflows that it generates; payback period = investment required/annual net cash inflow

break-even point

the level of sales at which profit is zero

cost of goods manufactured

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

opportunity cost

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

simple rate of return

the rate of return computed by dividing a project's annual incremental accounting net operating income by the initial investment required; annual incremental net operating income/initial investment

cost equation y=a+bX

total mixed cost = total fixed cost + variable cost per unit of activity x activity level

work in process (WIP)

units of product that are only partially complete and will require further work before they are ready for sale to the customer

finished goods (FG)

units of product that have been completed but not yet sold to customers