Chapter 1 - Managerial Accounting and Cost Concepts Flashcards
What is concerned with reporting financial information to external parties, such as stockholders, creditors, and regulators?
Financial accounting
What is concerned with providing information to managers within an organization so that they can formulate plans, control operations, and make decisions?
Managerial accounting
What are costs that can be easily and conveniently traced to a unit of product or other cost object?
Direct costs
What are costs that cannot be easily and conveniently traced to a unit of product or other cost object?
Indirect costs
What are indirect costs incurred to support a number of cost objects?
Common costs
Can common costs be traced to any individual cost object?
No
What are the 3 basic manufacturing cost categories?
- Direct Materials
- Direct Labor
- Manufacturing Overhead
What are raw materials that become an integral part of the product and that can be conveniently traced directly to it?
Direct materials
What are labor costs that can be easily traced to individual units of product?
Direct labor costs
What includes all manufacturing costs except direct material and direct labor?
Manufacturing overhead
Can manufacturing overheads be readily traced to the finished product?
No
Does manufacturing overheads include indirect material and labor?
Yes
What type of indirectcostsare included in manufacturing overhead?
Only the ones that are associated with operating the factory
What are 4 examples of manufacturing overheads?
- Depreciation
- Utility costs
- Property taxes
- Insurance
What 2 things are manufacturing costs often classified as?
- Prime Costs
2. Conservative Costs
What 2 things are classified as prime costs?
- Direct material
2. Direct labor
What 2 things are classified as conversion costs?
- Direct labor
2. Manufacturing overload
What are 2 types of nonmanufacturing costs?
- Administrative costs
2. Selling costs
What are costs necessary to secure the order and deliver the product?
Selling costs
Can selling costs be either direct or indirect costs?
Yes
What are all executive, organizational, and clerical costs?
Administrative costs
Can administrative costs be either direct or indirect costs?
Yes
What includes all the costs that are involved in acquiring or making a product?
Product costs
What are the 3 cost classifications of inventory for manufacturing costs?
- Raw materials
- Work in process
- Finished goods
Fill in the Blank:
When direct materials are used in production, their costs are transferred from _____________ to _______________
- Raw Materials
2. Work in Process
Fill in the Blank:
Direct labor and manufacturing overhead costs are added to _______________ to convert direct materials into finished goods
Work in Process
Fill in the Blank:
Once units of product are completed, their costs are transferred from _______________ to ______________
- Work in Process
2. Finished Goods
Fill in the Blank:
When a manufacturer sells its finished goods to customers, the costs are transferred from _____________ to ______________
- Finished Goods
2. Costs of Goods Sold
What are the 3 cost categories included in product costs?
Direct materials, direct labor, and manufacturing overhead
What include all selling costs and administrative costs?
Period costs
What does period costs include?
Selling costs and administrative costs
Which of the following costs would be considered a period rather than a product cost in a manufacturing company?
A. Manufacturing equipment depreciation
B. Property taxes on corporate headquarters
C. Direct materials costs
D. Electrical costs to light the production facility
E. Sales commissions
B. Property taxes on corporate headquarters
E. Sales commissions
What refers to how a cost will react to changes in the level of activity?
Cost behavior
What are the 3 most common classifications of cost behavior?
- Variable costs
- Fixed costs
- Mixed costs
What is a cost that varies, in total, in direct proportion to changes in the level of activity?
Variable costs
What is a measure of what causes the incurrence of a variable cost?
A cost driven activity base
What is a cost that remains constant, in total, regardless of changes in the level of the activity?
Fixed costs
What are the 2 types of fixed costs?
- Committed
2. Discretionary
Which fixed cost is long term?
Committed fixed costs
Can committed fixed costs be significantly reduced in the short term?
No
Which type of fixed cost may be altered in the short-term by current managerial decisions?
Discretionary fixed costs
What 2 costs does the relevant range of activity pertain to?
Fixed costs and variable costs
What is the range of activity over which the graph of the cost is flat?
The relevant range of activity for fixed cost
What happens to variable costs per unit as the activity level increases or decreases?
It remains constant
What happens to total variable costs as the activity level increases or decreases?
It increases or decreases depending on the proportion of change to the activity level
What happens to total fixed costs as the activity level increases or decreases?
It isn’t affected
Fill in the Blank: Increase/Decrease
Fixed cost per unit ________ as the activity level rises and _________ as the activity level falls
- Decreases
2. Increases
Which of the following costs would be variable with respect to the number of ice cream cones sold at a Baskin & Robbins? (There may be more than one correct answer.)
A. The cost of lighting the store.
B. The wages of the store manager.
C. The cost of ice cream.
D. The cost of napkins for customers.
C. The cost of ice cream.
D. The cost of napkins for customers.
What contains both variable and fixed elements?
Mixed costs
What is the formula to find total mixed costs?
TMC = TFC + (VC per unit x the level of activity)
If your fixed monthly utility charge is $40, your variable cost is $0.03 per kilowatt hour, and your monthly activity level is 2,000 kilowatt hours, what is the amount of your utility bill?
TMC = TFC + (VCPU x activity level) TMC = $40 + ($0.03 × 2,000) TMC = $100
What is the differences in cost between any two alternatives?
Differential costs
What is the difference in revenue between two alternatives?
Differential revenue
Can differential costs be either fixed or variable costs?
Yes
What are costs that have already been incurred and cannot be changed now or in the future?
Sunk costs
Should sunk costs be taken into consideration when making decisions?
No
What is the potential benefit that is given up when one alternative is selected over another?
Opportunity costs
Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the cost of the train ticket relevant in this decision? In other words, should the cost of the train ticket affect the decision of whether you drive or take the train to Portland?
A. Yes, the cost of the train ticket is relevant.
B. No, the cost of the train ticket is not relevant.
A. Yes, the cost of the train ticket is relevant.
Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the annual cost of licensing your car relevant in this decision?
A. Yes, the licensing cost is relevant.
B. No, the licensing cost is not relevant.
B. No, the licensing cost is not relevant.
Suppose that your car could be sold now for $5,000. Is this a sunk cost?
A. Yes, it is a sunk cost.
B. No, it is not a sunk cost.
B. No, it is not a sunk cost.
What is the formula to find the gross margin?
Sales - Costs of Goods Sold
What is used as an internal planning and decision-making tool?
The contribution income statement format
What is anything for which cost data are desired?
A cost object
What is the sum of direct material costs and direct labor costs?
Prime costs
What are small raw materials whose costs cannot be easily or conveniently traced to finished products?
Indirect Materials
What refers to employees that play an essential role in running a manufacturing facility?
Indirect Labor
What is based on the accrual concept that costs incurred to generate a particular revenue should be recognized as expenses only when the sale takes place?
The matching principle
True or False:
Product Costs stay attached to each unit of product as long as it remains in inventory awaiting sale
True
What are product costs also known as?
Inventoriable costs
What are costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued?
Period Costs
True or False:
Period costs are included as part of the cost of either purchased or manufactured goods
False
Fill in the Blank:
Mixed Costs is represented by a ______ line
Straight
What is variable costs per unit equal to?
The slope of the straight line
Fill in the Blank: Higher or Lower
The steeper the slope, the _____ the variable cost per unit
Higher
What is the formula to find total manufacturing overhead?
(VMO x new # of units) + (FMO x original # of units)
What is the formula to find total selling expense?
Variable selling expense + fixed selling expense
What is the formula to find total administrative expense?
Variable administrative expense + fixed administrative expense
What is the formula to find period costs?
Selling expense + administrative expense
What is the formula to find product costs?
Direct material + direct labor + manufacturing overhead
What is the formula to find conversion costs?
Direct labor + manufacturing overhead
What is the formula to find prime costs
Direct material + direct labor
What is the formula to find variable manufacturing costs?
Direct materials + direct labor + variable manufacturing overhead
What is the formula to find total fixed cost?
Fixed manufacturing overhead + fixed selling expense + fixed administrative expense
What is an example of a relevant cost?
Differential cost
What is an example of a relevant benefit?
Differential revenue
True or False:
The accountant’s differential cost concept can be compared to the economist’s marginal cost concept
True
What is the revenue that can be obtained from selling one more unit of product?
Marginal revenue
What is the cost involved in producing one more unit of product?
Marginal cost
What is the formula to find the costs of goods sold?
Beginning inventory + purchases - ending inventory
What is another name for nonmanufacturing costs?
Period costs
What is another name for manufacturing costs?
Product costs
What is the formula to find the total variable manufacturing cost per unit?
(DM + DL + VMO) x # of units sold
What are the 2 formula to find the total fixed manufacturing cost per unit?
- (FMO x original number of units) - new number of units
2. Average fixed manufacturing cost x original number of units sold
What are the 2 formulas to find the total product cost?
- TVMCPU + TFMCPU
- ((DM + DL + VMO) x # of U sold) + (AFMO x # of Orig U)
Note: 2nd formula breaks down the 1st formula
What is the formula to find the total variable cost?
Direct material + direct labor + variable manufacturing overhead + variable selling expense + variable administration expense
What is the formula to find the total variable cost per unit sold?
Total variable cost x number of units
What is the formula to find the average fixed manufacturing cost per unit?
Total fixed manufacturing cost / new number of units
True or False:
Total fixed marginal cost per unit doesn’t change
True
What is the total amount of manufacturing cost equal to?
The total fixed manufacturing cost
What is the formula to find the manufacturing overhead per unit?
TMOC / # of units produced
What is the formula to find the total direct manufacturing cost per unit?
(DM + DL) x # of units
What is the formula to find the total indirect manufacturing cost per unit?
(VMOH + FMOH) x # of units
What are the 2 formulas to find total period costs?
- TNMVCPUS + TNMFCPUS
- ((Sales Com + Var Admin Exp) x # of U) + ((FSE + FAE) x # of Orig. U)
Note: 2nd formula breaks down the 1st formula
What is the formula to find the total nonmanufacturing cost?
SC + FSE + TAE
What is the formula to find the incremental cost per unit sold?
Total incremental cost / # of units sold
What is the formula to find the total incremental cost?
DM + DL + VMC
True or False:
None of the manufacturing costs should be treated as indirect costs when the cost object is the Manufacturing Department
True
What is the formula to find indirect manufacturing cost?
VMOC + FMOC
What is the formula to find direct manufacturing cost?
DM + DL
True or False:
Sales commission and variable selling expense are the same thing
True
What is the formula to find total nonmanufacturing variable cost per unit sold?
(Sales Com + Var Admin Exp) x # of U
What is the formula to find total nonmanufacturing fixed cost per unit sold?
(FSE + FAE) x # of Orig. U
What is AFMC equal to?
FMO
Which of the following changes or remains constant?
- Variable cost per unit
- Total variable cost
- Fixed cost per unit
- Total fixed cost
- It remains constant
- It increases or decreases depending on the proportion of change to the activity level
- It decreases as the activity level rises and increases as the activity level falls
- It isn’t affected
