Chapter 1: Managerial Accounting and Cost Concepts
manufacturing and nonmanufacturing
manufacturing companies often separate their cost into two broad categories ________ & ______________
direct material, direct labor, & manufacturing overhead
manufacturing cost divided into 3 categories
discretionary fixed costs
Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research.
cost object
anything for which cost data are desired - including products, customers, and organizational subunits
raw materials
materials that become on integral part of the finished product and whose costs can be conveniently traced to the finished product are _______
raw materials
materials that go into the final product
differential cost
A future cost that differs between any two alternatives.
product costs (inventoriable 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.
prime cost
Direct Materials + Direct Labor
admin costs
Manufacturing costs include all of the following categories except ________. administrative costs direct labor direct materials manufacturing overhead
common cost
a cost that is incurred to support a number of cost objects but that cannot be traced to them individually. it is a type of indirect cost
activity base
a measure of whatever causes the incurrence of a variable cost
Adminstrative Costs
all costs associated with the general management of an organization
matching principle
based on the accrual concept that costs incurred to generate a particular revenue should be recognized as expenses in the same period that the revenue is recognized
mixed cost
both variable and fixed cost elements
Financial accounting
concerned with reporting financial information to external parties, such as stockholders, creditors, and regulators in this context costs are classified in accordance with externally imposed rules to enable the preparation of financial statements
direct cost
cost that can be easily and conveniently traced to specified cost object
fixed costs
cost that remains constant in total regardless of changes in the level of activity. not affected by change sin activity
differential cost (diff b/t alternatives) sunk cost opportunity cost (foregone benefit)
decision making involves what cost classifications
manufacturing overhead
depreciation utility cost property taxes insurance fall under _____
relevant in making business decisions
differential costs are always _________
product cost
direct materials + direct labor + manufacturing overhead
variable manufacturing cost
direct materials + direct labor + variable manufacturing overhead
period costs
do not flow through the inventory accounts on the balance sheet and are not included n COGS in the income statemetn instead they are recorded as selling and admin exp in the income statemetn during period incurred
total fixed cost
fixed manufacturing overhead + fixed selling expense + fixed administrative expense
product costs
flow through 3 inventory acc on balance sheet prior to being recognized as part of COGS in the income statement
differential revenue
future revenue that differs between any two alternatives
period
generally, costs are recognized as expenses on the income statement in the ____ that benefits form the cost
cost behavior
how a cost reacts to changes in the level of activity
fixed cost
in total these costs are not affected by changes in the activity level within the relevant range
variable cost
in total these costs increase and decrease in proportion to changes in the activity level
selling costs
include all costs that are incurred to secure customer orders and get the finished product to the customer
direct labor
labor costs that can be easily traced to individual units of product
raw material, work in process, finished goods
manufactures product cost flow-through 3 inventory acc on the balance sheet
selling costs and administrative costs
nonmanufacturing cost divided into 2 categories
traditional income statement format
organizes costs into 2 categores COGS and selling and adin exp. sales - cogs = gross margin. gross margin minus sellin and admin exp = net operating income
incurred
period costs are expensed on the income statement in the period in which they are ______
committed fixed costs
represent organizational investments with a multiyear planning horizon that can't be significantly reduced even for short periods of time without making fundamental changes. remain unchanged in the short term
period cost
selling expenses + administrative expenses
prime costs
sum of direct materials and direct labor
irrelevant
sunk cost are _________
marginal cost
the cost of producing one more unit of a good
cost structure
the relative proportion of fixed, variable, and mixed costs in an organization
variable cost
vaires, in total in direct proportion to changes in level of activity
period cost or product cost
when preparing a balance sheet and income statemetn companies need to classify their costs as ______ or _________
sunk cost
A cost that has already been incurred and that cannot be changed by any decision made now or in the future.ignore it
Contribution Approach to Income Statement
An income statement format that organizes costs by their behavior. Costs are separated into variable and fixed categories rather than being separated into product and period costs for external reporting purposes.
opportunity cost
Cost of the next best alternative use of money, time, or resources when one choice is made rather than another
conversion cost
Direct Labor + Manufacturing Overhead
indirect materials
Small items of material such as glue and nails that may be an integral part of a finished product, but whose costs cannot be easily or conveniently traced to it.
contribution margin
The amount remaining from sales revenues after all variable expenses have been deducted.
indirect labor
The labor costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced to particular products.
product cost (inventoriable) Period cost (expensed)
The purpose of preparing financial statements involves what cost classification
relevant range
The range of activity within which the assumption that cost behavior is strictly linear is reasonably valid
direct labor
____________ is sometimes called touch labor
indirect cost
a cost that cannot be easily and conveniently traced to a specified cost object
manufacturing overhead
all manufacturing costs except direct materials and direct labor
period costs
all the costs that are not product costs (selling and administrative expenses)
incremental cost
an increase in cost between two alternatives
managerial accounting
concerned with providing information to managers within an organization so that they can formulate plans, control operations, and make decisions In this context, costs are classified in diverse ways that enable managers to predict future costs, to compare actual costs to budgeted costs to assign costs to segments of the business, and to properly contrast eh cost associated with competing alternatives.
decremental costs
decreases in cost from one alternative to another
fixed cost
per unit these costs decrease as the activity level rises and increase as the activity level falls
variable cost
per unit these costs remain constant
contribution form ate income statements
prepared for internal management purposed use cost classification for predicting costs behavior (variable and fixed costs) to better inform decisions affecting the future
traditional income statements
prepared primarily for external reporting purposes rely on cost classification for preparing financial statement s(product and period costs) to depict the financial consequences of past transactions
marginal revenue
the additional income from selling one more unit of a good; sometimes equal to price
sold
product costs are not recorded as expenses on the income statement in the period in which they are incurred instead they are recorded as expense in the period in which the related products are _____
direct materials
raw materials that become an integral part of the product and that can be conveniently traced directly to it
manufacturing costs, direct materials direct labor manufacturing overhead nonmanufacturing costs selling costs admin cost
the purpose of acc for cost in manufacturing comp involves what cost classifications
direct and indirect costs
the purpose of assigning cost to cost objects involves what cost classifications
variable cost (proportional to activity) fixed cost (constant in total) Mixed cost
the purpose of predicting cost behavior in response to changes in activity involves what cost classification
conversion cost
the sum of direct labor cost and manufacturing overhead cost
1. for assigning costs to cost objects 2. for manufacturing companies 3. for preparing financial statements 4. for predicting cost behavior 5. for making decisions
types of cost classifications