Ch 2-4 Flashcards
Direct cost?
Can be easily and conveniently traced to a specific cost object
Indirect cost?
Cannot be easily and conveniently traced to a specific cost object
The three manufacturing costs?
Direct materials, direct labor, and manufacturing overhead
Non-manufacturing costs?
Selling costs
Administrative costs
Direct materials?
Become an integral part of the finished product and whose costs can be conveniently traced to the finished product
Direct labor?
Labor costs that can be easily traced to individual units of product
Manufacturing overhead?
Indirect materials, indirect labor, maintenance and repairs on production equipment
- costs associated with operating the factory
Product costs?
All costs involved in acquiring or making a product. Inventoriable costs
- direct materials direct labor manufacturing overhead
Period costs?
All costs that aren’t product costs
- selling and administrative
Prime costs?
Direct materials + direct labor
Conversion costs?
Direct labor costs + manufacturing overhead costs
Variable cost?
Varies in total in direct proportion to changes in the level of activity
Activity base?
Measure of whatever causes the incurrence of a variable cost. AKA cost driver
Fixed cost?
Remains constant in total regardless of changes in the level of activity
Committed fixed costs?
Organizational investments with a multi-year planning horizon that can’t be significantly reduced even for short periods of time without making fundamental changes
Discretionary fixed costs?
Arise from annual decisions by management to spend on certain fixed cost items. AKA managed fixed costs
Mixed costs?
Contain both variable and fixed cost elements.
Y = a + bx
Y = the total mixed cost A = total fixed costs B = variable cost per unit of activity X = the level of activity
High-Low method?
Identify period with the lowest level of activity and the period with highest level of activity.
Cost at high activity level-cost at low activity level/high activity level-low activity level
Variable cost = change in cost/change in activity
Traditional format income statement?
For external reporting purposes.
Sales - COGS = gross margin
Gross margin - selling and admin expenses = net operating income
Cost of goods sold?
Beginning merchandise inventory + purchases - ending merchandise inventory
Contribution format income statement?
Provides managers with an income statement that clearly distinguishes between fixed and variable costs.
- internal planning and decision making tool
Contribution margin?
Amount remaining from sales revenues after variable expenses have been deducted.
- contributes towards covering fixed expenses then towards profits for the period
What are the 4 inventories in manufacturing companies?
Raw materials
Work in process
Finished goods
COGS
Formula for predetermined overhead rate?
Estimated total manufacturing overhead cost/estimated total unite in the allocation base
Journal entry for over-applied close?
Debit manufacturing overhead
Credit COGS
- net operating income increases
Journal entry for under applied close?
Debit COGS
Credit manufacturing overhead
Relevant range?
Range of activity within which the assumption that cost behavior is strictly linear is reasonably valid
Job-order costing?
Used when many different products produced each period.
- costs are traced and allocated to jobs and hen costs of the job are divided by the number of units in the job to arrive at an average cost per unit
Formula for overhead applied to particular job?
POHR x amount of the allocation base incurred by the job
Break-even point?
Fixed/CM per unit
Contribution margin ratio?
Total CM/total sales
Cost object?
Anything for which cost data are desired
