Assignment, Timing, and Behavior of Costs

Question 1

In Managerial Accounting, what are the three ways to categorize costs?

Answer 1

1) Timing (when cost appears on I/S): product vs period
2) Assignment: direct or indirect
3) Behavior: variable cost or fixed cost

Question 2

Product Cost
AKA
Inventoriable Cost

Answer 2

(Categorized by Timing)

A cost you put into inventory first.

Product cost =
Raw (Direct) Materials
+ Direct Labor
+ Manufacturing Overhead

Question 3

Period Cost

Answer 3

(Categorized by Timing)

All costs that are not put into inventory and are all the expenses put in the Income Stmt other than COGS

Question 4

Cost

Answer 4

The sacrifice made, usually measured by the resources given up, to achieve a particular purpose.

A cost can be capitalized or expenses.

Question 5

Expense

Answer 5

The cost incurred when an asset is used up or sold for the purpose of generating revenue.

Question 6

Raw (Direct) Materials

Answer 6

(Part of Product Costs, a Timing category)

All materials that eventually become part of the product.

A Direct Cost.

Direct Materials are what you call the raw materials once they are transferred into Work-in-Process Inventory.

Question 7

Direct Labor

Answer 7

(Part of Product Costs, a Timing category)

Compensation of employees working directly on the products being manufactured.

A direct cost.

Question 8

Manufacturing Overhead

Answer 8

(Part of Product cost, a Timing category)

All other manufacturing costs that are related to the product but cannot be traced in an eco Nic ally feasible way.

Indirect cost.

Question 9

Manufacturing Overhead Indirect Costs

Answer 9

(Part of Product Costs, a Timing category)

Manufacturing Overhead Indirect costs can be broken down into:

1) indirect materials: materials used in production facility that do not end up in the product. Attributed to WIP inventory
2) indirect labor: compensation of employees who Work in production facility but do not work directly on the product
3) other manufacturing Overhead: such as electricity for the plant, rent for the plant, plant depreciation, OT premiums

Question 10

Gross Margin

Answer 10

Revenue - COGS

Revenue - All Product Costs

Question 11

Prime Costs

Answer 11

Direct Materials + Direct Labor

Question 12

Conversion Costs

Answer 12

Direct Labor + Manufacturing Costs

Question 13

Cost Object

Answer 13

An entity that you want to know the cost of.

Question 14

Direct costs

Answer 14

(Assignment of Cost)

A non debatable cost that can be traced to a cost object.

Question 15

Indirect cost

Answer 15

(Assignment of Cost)

A cost that cannot be easily traced to a cost object and needs to be allocated to a cost object by considering some method of attributing. I.e. time, percentage, door space

Question 16

Cost driver

Answer 16

Any event or activity that causes Costs to be incurred.

Question 17

Variable costs

Answer 17

(Behavior Of Cost)

Increase or decrease in TOTAL, in direct proportion to a change in activity of the cost driver.

Cost per unit remains CONSTANT.

Question 18

Fixed costs

Answer 18

(Behavior of Cost)

A cost that is INDEPENDENT of the cost driver.

Cost per unit FLUCTUATES due to changes in activity.

Question 19

Mixed cost
AKA
semi-variable Cost

Answer 19

Contains both fixed and variable components.

I.e. most salespeople are compensated through a salary and a sales commission.

Question 20

Total contribution margin

Answer 20

Revenue - Variable Costs

Question 21

Unit contribution margin

Answer 21

The difference between the product’s sales price and its variable unit cost