CHAPTER 1: Managerial Accounting and Cost Concepts Flashcards
What are three classifications of manufacturing costs?
- Direct Materials
- Direct Labor
- Manufacturing Overhead
What are Direct Materials?
Raw materials that become an integral part of the product and that can be conveniently traced directly to it.
What are Administrative Costs
All executive, organizational, and clerical costs.
What are Indirect Materials?
Materials used to support the production process.
Examples: lubricants and cleaning supplies used in the automobile assembly plant.
What is Direct Labor?
Those labor costs that can be easily traced to individual units of product.
What is Manufacturing Overhead?
Manufacturing costs that cannot be easily traced directly to specific units produced.
What are Period Costs?
These include all selling costs and administrative costs.
What is Indirect Labor?
Wages paid to employees who are not directly involved in production work.
Examples: maintenance workers, janitors, and security guards.
What are Selling Costs?
Costs necessary to secure the order and deliver the product.
What are Product Costs?
These include direct materials, direct labor, and manufacturing overhead.
Which costs are classified as Prime Costs?
Direct Materials and Direct Labor
Fill the statements with their respective financial statement:
Inventory -
COGS -
Expense -
Inventory - Balance Sheet
COGS - Income Statement
Expense - Income Statement
Which costs are classified as Conversion Costs?
Direct Labor and Manufacturing Overhead
Which of the manufacturing cost is included in both Prime Costs and Conversion Costs?
Direct Labor
What are the three cost behaviors?
- Variable Costs
- Fixed Costs
- Mixed Costs
What are variable costs?
These are costs that changes the total in a constant manner as the activity level rises and falls
What is an Activity Base (Cost Driver)?
It is a measure of what causes the incurrence of variable costs. As the level of the activity base increases, the total variable cost increases proportionally.
What are Fixed Costs?
These are costs that do not change for changes in activity that fall within the “relevant range
What are the two types of fixed costs?
- Committed
- Discretionary
What are Committed Fixed Costs?
These are long-term costs and cannot be significantly reduced in the short term. Examples: Depreciation on Bldg. and Equipment
What are Discretionary Fixed Costs?
These may be altered in the short-term by current managerial decisions. Example: Advertising and R & D
What is the relevant range?
It is the range of activity over which the graph of the cost is flat.
What is the behavior of Variable costs when in a “total basis”?
Total variable cost increases and decreases in proportion to changes in the activity level.
What is the behavior of Variable costs when in a “per unit basis”?
Variable cost per unit remains constant
What is the behavior of Fixed costs when in a “total basis”?
Total fixed cost is not affected by changes in the activity level within the relevant range.
What is the behavior of Fixed costs when in a “per unit basis”?
Fixed cost per unit decreases as the activity level rises and increases as the activity level falls? (INVERSE)
Which format is used primarily for external reporting?
Traditional Format
What are the uses of the contribution format?
- CVP Analysis
- Budgeting
- Segmented reporting of profit data
- Special decisions such pricing and make-or-buy analysis
Which format is primarily used by management.
Contribution Format
What are Direct Costs?
Costs that can be easily and conveniently traced to a unit of product or other cost object.
Examples: Direct Materials and Direct Labor
What are Indirect Costs?
Costs that cannot be easily and conveniently traced to a unit of product or other cost object.
Example: Manufacturing Overhead
What are differential costs (or incremental costs) ?
It is the difference in cost between any two alternatives.
What is differential revenue?
A difference in revenue between two alternatives
What are Opportunity Costs?
The potential benefit that is given up when one alternative is selected over another.
What are Sunk Costs?
These costs have already been incurred and cannot be changed now or in the future. These costs should be ignored when making decisions.
