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