Upgrade to remove ads
Only $35.99/year

accouting midterm#1

Terms in this set (16)

product cost
any cost related to purchasing or manufacturing inventory. these costs are recorded in inventory accounts when incurred and become part of the cost of good sold when the products are sold
product cost includes
purchased inventory,
manufacturing inventory (direct materials, direct labor, and manufacturing overhead)
manufacturing overhead includes (all other manufacturing costs)
indirect labor-salaries of people who work in the factory but don't make the products (production manager, maintenance staff, security, janitorial crews, etc)
indirect materials-materials used in production that are too small to keep track of individually (glue, cleaning supples, etc)
other overhead (factory rent, property tax, and insurance, machine deprecation, toilet paper in factory bathroom, etc)
period cost
all non product costs. these costs are expenses immediately on the income statement.

selling costs: salaries/wages for marketing department
cost of delivering products to customers
advertising and promotion costs
rent,insurance,property tax on building where marketing department resides
depreciation on office equipment used by marketing department

general and administrative costs:

all costs related to corporate headquarters ( rent, salaries of top executive, etc)
costs associated with corporate support functions such as accounting, legal services, information technology, and research and development
which of the following costs would be considered a period costs (rather than a product cost) in a manufacturing company?
a)manufacturing equipment depreciation
b)property taxes on corporate headquarters
c)direct materials cost
d)electrical costs to light the production facility
e)sales commissions
b and e
superCo pays 100,000 per year for utilities. How will this cost be classified on their financial statements?
a) as a period cost on the income statement
b)as a product cost in inventory
c)as a product cost in cost of goods sold
d) both (b) or (c) could be correct
e) can't tell from the information given
e-can't tell from the information given to answer this question you need to know whether the utilities are a product cost or a period cost
direct costs
can be easily/conveniently traced to the cost object
*box of jelly beans:candy maker wages, ingredient cost
*tesla model S: assembly line wages, steel, windshield, tires, etc
Indirect costs
shared by more than one cost subject--cannot be easily traced to a single cost object--must be allocated using some arbitrary rule
*box of jelly beans : equipment depreciation, production manager's salary, factory rent
*tesla model S: depreciation on manufacturing robots, property tax for factory, salaries of factory maintenance crew
classify the given costs as Direct or Indirect
Individual car---------------------car factory
windshield : (direct)(direct)
factory managers salary: (Indirect)(direct)
CEO's salary--(indirect)(indirect)
Wages of assembly line workers: (direct) (direct)
Factory property tax (indirect) (direct)
Salary of Car division manager: (indirect) (indirect)
sales commissions: (direct) (not applicable)
sales commission is not a direct or indirect cost for the car factory because it does not relate to or benefit the car factory in any way
fixed costs`
total stays the same as activity level changes within relevant range of activity

decreases per unit as activity level goes up (cost is spread over more units)

can be committed or discretionary
committed: not easily changed in the short term (e.g., long-term lease)
discretionary: can be changed by managerial decision (advertising costs)
variable costs
constant per unit within relevant range
total increase as activity level goes up
mixed costs
has both a variable and fixed component

as activity level increases:
total cost increases (because of the variable part)
per unit cost decreases ( because of the fixed part)
XYZ company makes one product and knows that its manufacturing overhead cost is mixed with respect to the number of units produced. What will happen to manufacturing overhead cost per unit if production levels decrease
increases (the fixed portion of the cost is spread over fewer units)
which of the following statements is true (assuming the company is operating within its relevant range)

a)variable costs are constant per unit but vary in total
b)variable costs are constant in total, but vary per unit
c)mixed costs are constant per unit but vary in total
d)mixed costs are constant in total but vary per unit
e)both a and c are true
a
activity level
*a cost might be fixed with respect to one activity but variable with respect to another activity
*we will mostly be concerned with how costs vary with sales levels and/or production levels
total cost=
Fixed cost + variable cost per unit * Activity level
Students also viewed