Module 1 - Managerial Accounting and Cost Concepts Flashcards
Who is financial accounting focused on?
they are focused on reporting financial information to external parties such as stockholders, creditors & regulators.
Who is managerial accounting focused on?
they are focused on providing information to managers for use within the business.
What are the 3 vital activities that managers perform?
- Planning
- Controlling
- Decision making
What are the 5 types of cost classification?
- assigning costs to cost objects
- Manufacturing companies
- Preparing financial statements
- predicting cost behavior
- making decisions
What are direct costs?
Costs that can be easily and conveniently traced to a unit of product or other cost object
What are indirect costs?
costs that cannot be easily traced to a unit of production or other cost object.
What is another name for indirect costs?
common costs
Direct materials, direct labor and manufacturing overhead are elements of that classification of costs?
Manufacturing costs
What costs are included in manufacturing overhead?
all costs related to manufacturing except for direct material and direct labour.
What is prime cost?
the combination of direct material and direct labour costs.
What is conversion costs?
the combination of direct labour and manufacturing overhead costs.
Define Prime cost?
Prime cost is the largest portion of cost in manufacturing, hence the “prime” cost.
Define conversion cost?
The cost of converting the raw materials into a finished product.
What are the 2 types of costs for manufacturing companies?
Manufacturing costs and Non-manufacturing costs.
Assigning costs to cost objects involve what 2 types of costs?
Direct and indirect costs.
What are the 2 elements of non-manufacturing costs?
Selling costs and administrative costs
Define selling costs?
All costs necessary to secure customer orders and get the finished products to the customers.
Define administrative costs?
all costs associated the general management of an organisation
What are the 2 types of costs used in the preparation of financials statements?
Product costs and period costs
Define products costs?
Product costs include all the costs involved in acquiring or making the product
Define period costs?
Period costs include all selling costs and administrative costs expensed out in a certain period.
What are the 3 types of costs used to predict cost behavior?
- Variable costs
- Fixed costs
- Mixed costs
Define variable costs?
A cost that varies in response to the level of activity but remains constant per unit of output.
Define fixed costs?
A cost that remains constant regardless of the level of activity but will vary per unit depending on total output.
What are the 2 types f fixed costs?
Committed and discretionary costs.
Define mixed costs?
The combination of both fixed and variable costs.
What are the 3 types of costs used in decision making>
- Differential costs
- Sunk costs
- Opportunity costs
Define differential costs?
Differential costs are the difference in cost between any two alternatives, it is considered a relative cost and used for decision making.
Define sunk costs?
Sunk costs have already been incurred and cannot be changed now or in the future, these cost are irrelevant and are not used in decision making.
Define opportunity costs?
The potential benefit that is given up when one alternative is selected over another, it is a relevant cost used in decision making.
