Managerial Accounting and Cost Concepts Flashcards
What are the classifications of manufacturing costs?
- Direct Materials
- Direct Labor
- Factory Overhead
Define Direct Materials
Raw materials that become an integral part of the product and that can be conveniently traced directly to it
Define Direct Labor
Those labor costs that can be easily traced to individual units of product
Define Manufacturing Overhead
Manufacturing costs that cannot be easily traced directly to specific units produced (Ex. Indirect Materials or Labor)
What are the Non-Manufacturing Costs
- Selling Costs
- Administrative Costs
Define Selling Costs
Costs necessary to secure the order and deliver the product
Define Administrative Costs
All executive, organizational, and clerical costs
Define Product Costs
Product Costs include direct materials, direct labor, and manufacturing overhead
Define Period Costs
Period Costs include all selling costs and administrative costs
Are product costs inventoriable?
Yes, since they go through Inventory first (Balance Sheet), then goes to the Cost of Goods Sold (Income Statement)
Are period costs inventoriable?
No, they go straight directly to expenses (Income Statement)
What is the formula for prime cost?
Direct Material + Direct Labor
What is the formula for conversion cost?
Direct Labor + Manufacturing Overhead
What are the Cost Classifications for Predicting Cost Behavior?
- Variable Cost
- Fixed Cost
- Mixed Cost
What is a total variable cost?
Total variable cost increase and decrease in proportion to changes in the activity level
What is variable cost per unit?
Variable cost per unit remains constant
What is total fixed cost?
Total fixed cost is not affected by changes in the activity level within the relevant range
What is fixed cost per unit?
Fixed cost per unit decreases as the activity level rises and increases as the activity level falls
What is the format for a traditional income statement?
Sales - COGS = Gross Margin - Selling and Admin Exp = Net Operating Income
What is the format for a contribution format income statement?
Sales - Variable Expense = Contribution Margin - Fixed Expense = Net Operating Income
What is a differential cost and revenue
Costs and revenue that differ among alternatives
What is a opportunity costs?
The potential benefit that is given up when one alternative is selected over another
What is a sunk cost?
Sunk costs have already been incurred and cannot be changed now or in the future. These costs should be ignored when making decisions.
What is a mixed cost?
A mixed cost contains both variable and fixed elements.
What are the kinds of analysis of mixed costs?
- Account Analysis
- Engineering Approach
Define what is account analysis
In account analysis, each account is classified as either variable or fixed based on the analyst’s knowledge of how the account behaves
Define what is engineering approach
The engineering approach classifies costs based upon an industrial engineer’s evaluation of production methods, and material, labor, and overhead requirements
The total mixed cost line can be expressed as an equation
Y = a + bX
Y = the total mixed cost
a = the total fixed cost
b = the total variable cost per unit of activity
X = The level of activity
What is Least-Squares Regression Method
A method used to analyze mixed costs if a scattergraph plot reveals an approximately linear relationship between the X and Y variables
This method uses all of the data points to estimate the fixed and variable cost components of a mixed cost
What is the goal of the least-squares regression method?
The goal of this method is to fit a straight line to the data that minimizes the sum of the squared errors
3 ways to separate mixed costs?
- High-Low Method
- Least Squares Regression Method
- Scatter Graph/ Diagram Method
