Midterm Exam (Chapters: 1, 2, 3, 5, 6) Flashcards
How does managerial accounting differ from financial accounting?
How does managerial accounting differ from financial accounting?
1) Reports to managers inside the organization.
2) Emphasizes decisions affecting the future.
3) Emphasizes timeliness.
4) Not Mandatory.
5) Not required to follow GAAP/IFRS.
Target Profit Analysis
Target Profit Analysis
Used to estimate what sales volume is needed to achieve a specific target profit.
Schedule of cost of goods manufactured
schedule of cost of goods manufactured
- Contains three elements of product costs: direct materials, direct labor, and manufacturing overhead.
- Summarizes the portions of those costs remaining in ending Work in Process inventory and the portions that are transferred out of Work in Process into Finished Goods.
Schedule of cost of goods sold
Schedule of cost of goods sold
- Contains three elements of product costs—direct materials, direct labor, and manufacturing overhead
- Summarizes the portions of those costs that remain in ending Finished Goods inventory and portions that are transferred out of Finished Goods into Cost of Goods Sold.
Product Costs
Product Costs
- Include all costs involved in acquiring or making a product.
- Consist of direct materials, direct labor, and manufacturing overhead (in terms of manufactured products).
Period Costs
Period Costs
- All the costs that are not product costs.
- All selling and administrative expenses are treated as period costs.
- For example: sales commissions, advertising, executive salaries, public relations, and the rental costs of administrative offices are all period costs.
Prime Costs
Prime Cost
- direct materials cost and direct labor cost (sum of DM + DL).
Conversion Costs
Conversion Costs
- sum of direct labor cost and manufacturing overhead cost.
The term conversion cost is used to describe direct labor and manufacturing overhead because these costs are incurred to convert materials into the finished product.
Direct Cost
Direct Cost
- A cost that can be easily and conveniently traced to a specified cost object.
- The concept of direct cost extends beyond just direct materials and direct labor. For example, if Reebok is assigning costs to its various regional and national sales offices, then the salary of the sales manager in its Tokyo office would be a direct cost of that office.
Indirect Cost
Indirect Cost
- A cost that cannot be easily and conveniently traced to a specified cost object.
Eg: a Campbell Soup factory may produce dozens of varieties of canned soups. The factory manager’s salary would be an indirect cost of a particular variety such as chicken noodle soup. The reason is that the factory manager’s salary is incurred as a consequence of running the entire factory—it is not incurred to produce any one soup variety.
Differential Cost
Differential Cost
Choosing between alternatives. In business decisions, each alternative will have costs and benefits that must be compared to the costs and benefits of the other available alternatives. A difference in costs between any two alternatives is known as a differential cost.
Opportunity Cost
Opportunity Cost
- potential benefit that is given up when one alternative is selected over another.
Sunk Cost
Sunk Cost
- a cost that has already been incurred and that cannot be changed by any decision made now or in the future.
Mixed Cost
Mixed Cost
- Has variable and fixed components.
Variable Cost
Variable Cost
- Proportional to activity.
- Cost of goods sold for a merchandising company, direct materials, direct labor
- Variable elements of manufacturing overhead, such as indirect materials, supplies, and power, and variable elements of selling and administrative expenses, such as commissions and shipping costs.
