BUS 215 Exam #1
Transfer of product costs
- When direct materials are used in production, their costs are transferred from Raw Materials to Work in Process. - Direct labor and manufacturing overhead costs are added to Work in Process to convert direct materials into finished goods. - Once units of product are completed, their costs are transferred from Work in Process to Finished Goods. - When a manufacturer sells its finished goods to customers, the costs are transferred from Finished Goods to Cost of Goods Sold.
Contribution margin income statement
- is for managers and is not GAAP
Predetermined Overhead Rate
A rate used to charge manufacturing overhead cost to jobs that is established in advance for each period.
Examples of selling costs
Advertising, shipping, sales travel, sales commissions, sales salaries, and costs of finished goods warehouses.
Product costs
All costs that are involved in acquiring or making a product, product costs attach to a unit of product as it is purchased or manufactured and stay attached as long as it remains in inventory awaiting sale
Administrative costs
All executive, organizational, and clerical costs associated with the general management of an organization rather than with manufacturing or selling.
are selling and administrative costs indirect or direct?
CAN BE EITHER!
What are the classifications of manufacturing costs?
Direct materials, direct labor and manufacturing overhead
Overhead Applied
POHR x Amount of the allocation base incurred by the job
indirect materials
Raw materials that do not physically become part of the finished product or for which it is impractical to trace to the finished product because their physical association with the finished product is too small.
what does the Contribution margin income statement include?
Sales Variable expenses contribution margin fixed expenses net operating income
Matching principle
The accrual concept that costs incurred to generate a revenue are expensed in the same period the revenue is recognized
Contribution Margin
The amount remaining from sales revenues after all variable expenses have been deducted.
Relevant Range
The range of activity within which assumptions about variable and fixed cost behavior is strictly linear are valid.
Y = a + bX
Y = Total mixed cost a = total fixed cost b = variable cost per unit of activity X = the level of activity
Should opportunity costs be included when making decisions?
Yes, even though they are not usually found in accounting records
direct cost & example
a cost that can be easily and conveniently traced to a specified cost object EX: direct material and direct labor
indirect cost & example
a cost that cannot be easily and conveniently traced to a specified cost object EX: manufacturing overhead
differential costs
a difference in cost between two alternatives - can be fixed or variable
activity base (cost driver)
a measure of whatever causes the incurrence of a variable cost
For a cost to be variable, it must be variable with respect to something. That something is its _______ ____.
activity base
Manufacturing Overhead
all manufacturing costs except direct materials and direct labor that cannot be easily traced to specific products
period costs
all the costs that are not product costs (selling and administrative expenses)
raw materials
any materials that go into the final product
cost object
anything for which cost data are desired
What happens to avg. fixed cost per unit as activity level rises?
becomes progressively smaller
what are the two types of fixed costs?
committed fixed costs and discretionary fixed costs
finished goods cost
consists of completed units of product that have not yet been sold to customers
work in process
consists of units of product that are only partially complete and will require further work before they are ready for sale
variable cost per unit is ____
constant
common cost
cost that is incurred to support a number of cost objects but cannot be traced to them individually
fixed expense
cost that remains constant in total regardless of changes in the level of activity
selling costs
costs necessary to secure the order and deliver the product
sunk costs
costs that have already been incurred and cannot be changed now or in the future
What are other things that are included in manufacturing overhead?
depreciation of manufacturing equipment, utility cost, property taxes, insurance premiums incurred to operate a manufacturing facility ** ONLY THE INDIRECT COSTS ASSOCIATED WITH OPERATING THE FACTORY**
What is relevant to decision making?
differential costs and differential revenue
examples of allocation bases
direct labor hours, direct labor dollars, or machine hours
examples of activity bases
direct-labor hours, machine hours, units produced, units sold
How to calculate predetermined overhead rate?
estimated total manufacturing overhead cost for the coming period/estimated total units in the allocation base for the coming period
examples of administrative costs
executive compensation, general accounting, secretarial, public relations
indirect material example
glue used to make an Ethan Allen Chair
When are period costs expensed?
in the period they are incurred
examples of indirect labor
janitors, supervisors, materials handlers, maintenance workers, night security guards
direct labor
labor costs that can be easily traced to individual units of product
committed fixed costs
long-term, cannot be significantly reduced in the short term
Factory burden is a synonym for ______ ______
manufacturing overhead
discretionary fixed costs
may be altered in the short term by current managerial decisions
direct materials
raw materials that become an integral part of the product and that can be conveniently traced directly to it - the finished product of one company can become the raw materials of another company
What are the manufacturing product costs?
raw materials, work in process, finished goods costs
Indirect Labor
refers to employees that play an essential role in running a manufacturing facility, but the cost of compensating these people cannot be easily or conveniently traces to specific units of product
cost behavior
refers to how a cost will react to changes in the level of activity
nonmanufacturing costs
selling costs and administrative costs
Conversion cost
sum of direct labor and manufacturing overhead B/C both these costs are incurred to convert direct materials into finished products
prime cost
sum of direct materials and direct labor
differential revenue
the difference in revenue between two alternatives
as volume of units increase what happens to fixed expenses per unit?
the fixed cost per unit declines
opportunity cost
the potential benefit that is given up when one alternative is selected over another
Should sunk costs be considered in decision making?
they should be IGNORED
allocation base
used to assign manufacturing overhead to individual jobs
as volume of units increase what happens to variable expenses per unit?
variable costs increase
variable expenses
varies, in total, in direct proportion to changes in the level of activity