ch 1 Flashcards
What is financial accounting?
Financial accounting is concerned with reporting financial information to external parties, such as stockholders, creditors, and regulators.
What is managerial accounting?
Managerial accounting is concerned with providing information to managers within an organization so that they can formulate plans, control operations, and make decisions.
What are the types of cost classifications discussed in this chapter?
The types of cost classifications include assigning costs to cost objects, manufacturing companies, preparing financial statements, predicting cost behavior, and making business decisions.
What are direct costs?
Direct costs are costs that can be easily and conveniently traced to a specified cost object.
What are indirect costs?
Indirect costs are costs that cannot be easily and conveniently traced to a specified cost object.
What are common costs?
Common costs are indirect costs incurred to support a number of cost objects and cannot be traced to any individual cost object.
How do manufacturing companies classify their costs?
Manufacturing companies separate their costs into two broad categories: manufacturing costs and non-manufacturing costs.
What are direct materials?
Direct materials are raw materials that become an integral part of the finished product and whose costs can be conveniently traced to it.
What is direct labor?
Direct labor refers to labor costs that can be easily traced to individual units of product, sometimes called touch labor.
What is manufacturing overhead?
Manufacturing overhead includes all manufacturing costs except direct materials and direct labor, and these costs cannot be readily traced to finished products.
What are prime costs?
Prime costs are the sum of direct materials cost and direct labor cost.
What are conversion costs?
Conversion costs are the sum of direct labor cost and manufacturing overhead costs.
What are selling costs?
Selling costs include all costs necessary to secure customer orders and get the finished product to the customer, and can be either direct or indirect costs.
What are administrative costs?
Administrative costs include all costs associated with the general management of an organization and can be either direct or indirect costs.
What are product costs?
Product costs include all costs involved in acquiring or making a product, and they attach to a unit of product as it is purchased or manufactured.
What are period costs?
Period costs include all selling costs and administrative costs, and these costs are expensed in the income statement in the period incurred.
What is cost behavior?
Cost behavior refers to how a cost will react to changes in the level of activity.
What is a variable cost?
A variable cost is a cost that varies, in total, in direct proportion to changes in the level of activity, while the variable cost per unit remains constant.
What is a fixed cost?
A fixed cost is a cost that remains constant, in total, regardless of changes in the level of activity.
What are committed fixed costs?
Committed fixed costs represent investments with a multiyear planning horizon that cannot be easily adjusted in the short term.
What are discretionary fixed costs?
Discretionary fixed costs usually arise from annual decisions by management and can be easily reduced in the short term.
What is a mixed cost?
A mixed cost is a cost that contains both variable and fixed elements.
What is a differential cost?
Differential costs (or incremental costs) are the difference in cost between any two alternatives.
What is a sunk cost?
A sunk cost is a cost that has already been incurred and cannot be changed now or in the future.
