X Flashcards
Identify the 3 categories of manufacturing cost
- Direct materials
- Direct labor
- Manufacturer overhead
These are product cost or inventory cost: will record these in inventory and then will expense as cost of goods sold
Direct labor
consist of labor that can be easily traced to individual units of product. i.e. touch labor since workers usually touch the product. (example: assembly line workers at Toyota)
Direct Matierals
materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product. (example electronic components Apple uses for the iPhone)
Manufacturing overhead
-Includes all manufacturing cost except direct materials and direct labor.
It cannot be traced directly to 1 job.
-Cost associated with operating the factory. (i.e. indirect labor, indirect materials, maintenance and repairs, property taxes, etc.)
Product cost
- all costs involved in acquiring or making a product (consists of direct labor, direct materials, and manufacturing overhead).
- Because they are initially assigned to inventory they are also know as inventoriable costs.
- Product cost will be in inventory (on a balance sheet) and then will be expensed as cost of goods sold in the period they are sold. (on an income statement).
Period cost
- All the costs that are not product cost and are not included as part of the cost of either purchased or manufactured goods.
- Period cost are expensed in the period in which they are incurred on the income statement (examples: All selling and administrative cost, marketing, admin expense, sales commissions, executive salaries, etc.)
Variable cost
- Varies in total in direct proportion to changes in the the level of activity.
- Per unit cost is expressed as a constant (ex: COGS, direct labor, supplies)
Fixed cost
- Remains constant in total regardless of changes in the level of activity.
- Fixed cost are not affected by changes in activity.
- Per unit cost goes down when volume goes up (ex: straight-line depreciation, insurance, rent, supervisor salaries, etc)
What should you look at when picking a regression model?
In order:
- High R2
- T statistic: greater than or equal to 2 indicates a significant relationship
- Low P value < 0.5
When is job costing used?
- used in situations where many different products, each with individual and unique features, are produced each period. (ex: Levi)
- used a lot in service industries (hospitals, law firms, movie studios, etc)
- Cost are traced and allocated to jobs and then the costs of the job are divided by the number of units in the job to arrive at an average cost per unit.
Why is it important to separate variable and fixed cost?/ How knowledge of a company’s cost structure is necessary to perform certain management functions properly
- It helps a manager plan if a particular cost will rise, fall, or stay constant
- Separating the cost allows a manager to be able to anticipate how a cost will act and if the cost is excepted to change a manager can then estimate by how much. This would allow for a more accurate budgeting process.
Opportunity costs
the potential benefit that is given up when one alternative is selected over another.
Sunk cost
a cost that has already been incurred and that cannot be changed by any decisions made now or in the future.
Differential cost
- a difference in the cost between 2 alternatives.
- Can be fixed or variable costs. Economist marginal cost (cost of producing 1 more unit) applied to a single unit of output.
- Includes incremental cost, an increase in the cost between the alternatives, and decremental costs, a decrease in cost.
Direct cost
a cost than can be easily and conveniently traced to a specified cost object. (examples: paper for a printing house, salary of sales manager for a regional sales office)
