Exam 1 Acct 226

Direct costs

Costs that can be easily and conveniently traced to a unit of product or other cost object (example: wood used to make desks)

indirect costs

Costs that cant be easily and conveniently traced to a unit of product or other cost object Example: nails, glue used for desks

Assign costs to objects

Direct (can be easily traced) vs indirect costs (cannot be easily traced)

Costs used to predict behavior

Variable (proportional to activity) vs fixed (constant in total) vs mixed (has variable and fixed elements)

Cost used to make decisions

relevant (differs between alternatives) vs irrelevant (should be ignored) Sunk costs Differential costs Opportunity costs

the variable expense ratio

the variable expense ratio is the ratio of variable expense to sales

Costs on financial statements

Product (inventoriable) vs period (expensed)

CVP relationships

Revenue, cost, profit, and volume can be expressed as below and graphically by preparing a cvp graph

Common costs

are a type of indirect costs incurred to support a number of cost objects. These costs cannot easily be traced to any individual cost object Ex. presidents salary or factory rent

Assign manufacturing costs

direct materials, direct labor, and manufacturing OH