Finals Flashcards
________ is defined as the decrease in the value of a property, such as machinery,
equipment, building, or other structure, due to the passage of time.
Depreciation
Types of Depreciation
Physical Depreciation
Functional Depreciation
Changes in the price level of similar properties
What type of depreciation where:
a. Deterioration due to the effects of various chemical and mechanical factors on the
materials composing the property. Included in this are rusting of metal parts, the decay
of wooden parts of a structure, and the discoloration and cracking of plastic parts.
b. Wear and tear due to abrasion, friction between moving parts of equipment, impact,
vibration, or fatigue of the materials in the property. It is determined by the use rather
than the age. Sudden physical damage to a property due to accidents and disasters, such
as fire, flood, earthquake, tidal waves, and other unforeseen acts of nature are excluded
from the determination of a decrease in value.
Physical depreciation
________ which is due to a decrease in the demand for the function of the
equipment which it was designed. Such depreciation is caused by the following:
a. Inadequacy of the equipment.
b. Obsolescence caused by the invention of more efficient equipment and machines to
perform the same task.
c. Changes in methods of production.
d. Changes in style and designs of the goods produced on the equipment.
e. Transfer of population due to various causes.
Functional depreciation
If the price level rise during the life of a
property, even if the original investment has been recovered through proper depreciation
procedure, the recovered capital will be insufficient to provide an identical replacement. Thus, it is the capital that has depreciated and not the property.
Changes in the price levels of similar properties
If the price level rise during the life of a
property, even if the original investment has been recovered through proper depreciation
procedure, the recovered capital will be insufficient to provide an identical replacement. Thus, it is the capital that has depreciated and not the property.
Changes in the price levels of similar properties
_____ depends upon the physical or economic life of the equipment and its first cost.
Depreciation Cost
________ is usually difficult to determine accurately. In many cases, the
determination of life is dependent to a great extent upon the experience of the men managing the
enterprise in the use of similar equipment.
Life of any property
________ includes the original purchase price, freight and transformation charges to the site, installation expenses, and initial taxes and permits to operate,and all other expenses needed to put the equipment into operation. The amount to be recovered,equal to the depreciation cost, is the difference between the first cost and the salvage or scrap value of the equipment.
first cost of any property
________ sometimes called second-hand value is defined to be the amount for which
the equipment or machine can be sold as second hand. It implies that the machine can still perform
its function.
Salvage Value
_______ is the amount the equipment can be sold for when disposed of as junk.
This implies that the equipment cannot be used anymore for the function for which it was designed.
Scrap or junk value
______ present value or current value of the asset.
Book Value
________a method that is simple and most widely used than any other method. Also, a method of calculating depreciation assumes that an asset will lose an equal amount of value each year. In short, it is assumed that the loss in value is directly proportional to the age of the equipment or asset or uniform amount.
The Straight-Line Methods
a method of depreciation that assumes that there is a savings account set up to replace an asset at the end of its life. In this method, it is assumed that a sinking fund is established in which funds will accumulate for replacement purposes. It is relatively simple, though it will require the use of annuity tables in the absence of the electronic calculator.
Sinking Fund Method
A method of depreciation that assumes that annual depreciation is a fixed percentage of the boom value of the property per year.
Declining Balance Method
Declining Balance Method is sometimes known as the __________.
Constant Percentage Method or Matheson Formula
this method is based on the assumption that assets are generally more productive when they are new and their productivity decreases as they become old.
Sum of the Years-Digit (SYD) Method
Certain natural resources such as mines, quarries, oil and gas wells, and timber lands are
called “wasting” or “depleting” assets due to the gradual extraction of the contents of such
properties. To provide for the recovery of capital invested in such assets, a depletion fund is
provided. The annual charge set aside in the fund is called depletion cost rather than depreciation cost.
Depletion
It is usual practice to return annually a part of the investment of each investor instead of
accumulating a depletion fund. The yearly amount paid to an investor consists of TWO PARTS:
part of the capital invested and the dividends or profit of the investor
The depletion charge depends upon the initial cost of the property and the number of units in the property.
The Unit or Factor Method
This allows a fixed percentage of the gross received during a year to be the depletion charge. Consequently, the total depletion charges may exceed the initial cost of the property. However, it is required that for any year the depletion charge should not exceed 50% of the net taxable income for that year obtained by deducting all expenses excluding depletion from the gross income.
The Percentage or Depletion Allowance Method
____ is the sum of its first cost and the present worth of all costs for replacement, operation, and maintenance for a long time or forever.
Capitalized cost of any property
a natural extension and application of perpetuity
Capitalized cost
______is the sum of the annual depreciation cost,
interest of the first cost, and the annual operating and maintenance costs.
Annual cost of any property
It is such a cost that is able to mark directly any particular cost such as raw materials, labor
included operating expenses and some other costs are belongs to the _________. These costs are bound in unit.
For example, we can say a total cost of an advertisement for several products. The
________ has some subcategories.
Direct cost
_________ refers to that material that is related to the entire finished product. This material is a part to complete any product. It can have imposed conveniently on a particular product. The purchased and upcoming requisite products are included in the direct element. As like, all kinds of initial packing material.
Direct element
________ means the paid salary to the employee who is directly engaged in manufacturing, handling, and processing a product. Actually, they are responsible for the observation and maintenance of the product also.
Direct labor
Cost directly related to any particular expense is called _________ . If a company needs to buy some specific product, equipment or tools are an example of_________.
Direct expense
_______ means the opposite side of direct cost. Which cost is related to a unit or department and can’t trace for any specific product is called indirect cost.
Indirect cost
means the opposite side of direct cost. Which cost is related to a unit or
department and can’t trace for any specific product is called indirect cost.
Some example of _________ is cleaning chemicals, small tools, glue, and maintenance work. Fuel etc. These element costs are incurred as a unit.
Indirect elements
_____ is covering the supervisor’s and the inspector’s salaries.The worker of cleaner and storekeeper wages is also included in the ______.
Indirect labor
_______ are house rent, hospital service, lighting,
insurance, and welfare trust.
Indirect expenses
_______ are house rent, hospital service, lighting,
insurance, and welfare trust.
Indirect expenses
Types of Indirect Overheads
Factory Overheads
Selling and distribution overhead
Administration and office overhead
It is related to all kinds of indirect costs like manufacturing products and the timekeeper’s salary.
Factory overheads
It is related to all kinds of indirect costs like manufacturing products and the timekeeper’s salary.
Factory overheads
This overhead is included with advertising expenses and packing materials costs such as free advertising, and marketing on the field.
Selling and distribution overhead
is an expense of office works related expenses such as office lighting, rent welfare trust including here.
Administration and office overhead
What are the Cost Classification According to Function
Prime cost
Product cost
Factory cost
______ is the adjustment of the direct material, direct labor, and direct costs. It is actually the result of these three elements.
Prime cost
It means the factory cost with administrative and office overhead.
Product cost
______ is also known as work cost. It is combined with work costs and work expenses.
Factory cost
By behavior or variability, cost is classified into three:
Variable cost
Fixed cost
Mixed cost
________ is such a cost whose proportion is changing with the amount of production. Such as direct material and changeable costs. This cost varies with output or any change in the activities of an enterprise. For example, the cost of materials used depends on the output. In general, all costs for direct materials, direct labor, and other items which can be directly allocated to each unit produced, are classified as variable costs.
Variable cost
This cost won’t change with the proportion of production. It is the maximum time fixed. But it is notable that this cost may be changed after a long time. For example, office rent, insurance, and hospital cost. This cost is those which remain relatively constant regardless of any change made in operations or policy.
Fixed cost
_____ can change overall but not with the proportion of production. More changeable cost is counted under a mixed cost. An example of a ______ is electricity expenses.
Mixed cost
What are the Classifications of cost according to Relevance?
Relevant cost
Opportunity cost
Standard cost
Controllable cost
Sunk cost
This cost can be by making a new decision is called _______. Occasionally there may have many relevant costs. This cost is not fixed from before.
Relevant cost
________ is the system of getting some extra advantages from the existing things of a factory like land, money and time, etc. Someone can rent his office for another purpose of advantages. Moreover, they can rent their other things also. It is actually an extra benefit for a company.
Opportunity cost
________ is the system of getting some extra advantages from the existing things of a factory like land, money and time, etc. Someone can rent his office for another purpose of advantages. Moreover, they can rent their other things also. It is actually an extra benefit for a company.
Opportunity cost
________ is fixed from previous experience. It was fixed according to the specific budget, and the volume of an industry. The actual cost is also included with this cost.
Standard cost
________ is fixed from previous experience. It was fixed according to the specific budget, and the volume of an industry. The actual cost is also included with this cost.
Standard cost
Which cost can be controlled by management is called ________. The manager can control some costs.
Controllable cost
It is known as a historical cost. _______ effect is the most important for a company. It is such a cost that is already lost and can’t be undone anymore. If a company is paid its monthly rent then we can say this rent cost is _______.
Sunk cost
What are the classifications of Cost According to Management?
Manufacturing cost
Non-manufacturing cost
________ refers to the total cost of a product from
the raw materials to finish the product. It is mainly the combination of direct material cost, labor cost, and manufacturing overheads.
Manufacturing cost
In order, the rules of GAAP _______ are
not actual product cost. It is a part of the company’s income statement.
Non-manufacturing cost
What are the three elements of cost?
1.The cost of materials used in production.
2. The cost of direct labor employment in production, and
3. Other expenses not included in materials and direct labor which are grouped under the
name overhead expenses or burden.
______ are those which are used in the finished product itself.
Direct materials
_______are those materials used in production but which do not go into the finished product.
Indirect materials
______ is the actual work applied directly to the manufacture of the product.
Direct Labor
______ is that work necessary for the operation of the factory, but which cannot be identified with one particular process product manufactured.
Indirect Labor
_______ include indirect materials, indirect labor, depreciation, taxes, insurance, rental, and many other expenses.
Overhead Expenses or Burden
The change in succeeding periods is constant, then the series is known as a _____. These series of disbursements or receipts increase or decrease in each succeeding period by a constant amount.
uniform arithmetic gradient
defined as the process for calculating the future worth of _____ are presented along with example problems and a case study demonstrating-using the future worth gradient factor (F/G).
Arithmetic gradient
______is a sequence consisting of end-of-period payments, where each payment increases or decreases by a fixed percentage. In a ________, payment begins at the end of the first period.
Geometric gradient
The procedure for determining the present worth of arithmetic gradients using the
present worth gradient factor (P/G)
Arithmetic gradients also defined as the process for calculating the future worth of
arithmetic gradients are presented along with example problems and a case study demonstrating using the
future worth gradient factor (F/G)
