Acct Chapter 2

differential revenue

A difference in revenues between any two alternatives

Sunk Cost

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

account analysis

A way to estimate fixed and variable components, an account is classified as either variable or fixed based on the analyst's prior knowledge of how the cost in the account behaves

engineering approach

A way to estimate fixed and variable components, cost analysis involves a detailed analysis of what cost behavior should be

high-low and least squares regression method

A way to estimate fixed and variable components, estimate the fixed and variable elements of a mixed cost by analyzing past records of cost and activity data.

Period Costs

All the costs that are not product costs. All selling and administrative expenses. Expensed on the income statement in the period in which they are incurred using the usual rules of accrual accounting.

Variable Cost

Cost in direct proportion to changes in the level of activity

Product Costs

Costs involved in acquiring or making a product. Costs "attach" to units of product as the goods are purchased or manufactured, and they remain attached as the goods go into inventory awaiting sale. Assigned to an inventory account on the balance sheet.

activity known

Diagnosing Cost Behavior with a Scatter graph Plot: The ______ ______ as the independent variable because it causes variations in the cost.

Cost

Diagnosing Cost Behavior with a Scatter graph Plot: ______ is known as the dependent variable because the amount of cost incurred during a period depends on the level of activity for the period.

Cost behavior

Diagnosing Cost Behavior with a Scatter graph Plot: _______ _______ is considered linear whenever a straight line is a reasonable approximation for the relation between cost and activity

Administrative Costs

Include all costs associated with the general management of an organization rather than with manufacturing or selling

indirect labor

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

raw materials

The materials that go into the final produc

Conversion Cost

The sum of direct labor cost and manufacturing overhead cost.

Prime Cost

The sum of direct materials cost and direct labor cost

Traditional Income Statement

This type of income statement organizes costs into two categories--cost of goods sold and selling and administrative expenses.

Differential cost

a broader term, encompassing both cost increases and cost decreases between alternatives

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.

common cost

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

Fixed Cost

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

activity base

a measure of whatever causes the occurrence of a variable cost

Selling costs

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

Manufacturing overhead

all manufacturing costs expect direct materials and direct labor

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

contains both variable and fixed cost elements

Committed

fixed costs representing organizational investments with a multiyear planning horizon that can't be significantly reduced even for short periods of time without making fundamental changes

Discretionary

fixed costs usually arise from annual decisions by management to spend on certain fixed cost items

Cost behavior

how a cost reacts to changes in the level of activity

Contribution Income Statement

income statement that clearly distinguishes between fixed and variable costs and therefore aids planning, controlling, and decision making.

Direct Labor

labor costs that can be easily traced to individual units of product

Indirect materials

materials included as part of the manufacturing overhead

Direct Materials

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

selling and administrative expenses

report all period costs that have been expended as incurred.

costs of goods sold

reports the product costs attached to the merchandise sold during the period.

Nonmanufacturing costs

selling, general, and administrative costs are?

contribution margin

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

Opportunity cost

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

relevant range

the range of activity within which the assumption that cost behavior is strictly linear is reasonably valid