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Accounting 312 Exam #1
Terms in this set (23)
Costs are categorized by:
1) Timing- when the cost appear on the Income Statement
2) Assignment- how do you assign the manufacturing cost to the cost object?
3) Behavior- how the cost behaves when more or less units are produced.
The sacrifice made, usually measured by the resources given up, to achieve a particular purpose.
The cost incurred when an asset is used up or sold for the purpose of generating revenue.
Cost that is part of inventory, 'capitalized' until inventory is sold. Then they are expensed eventually via COGS. Product costs are the costs of the actual raw materials plus direct labor and manufacturing overhead.
All other costs. These costs go into inventory. They are expensed in the period occurred. (All expenses on the income statement other than COGS.
Product costs for a manufacturing firm are:
1) Raw (Direct) Materials- all materials that eventually become part of the product.
2) Direct labor- The compensation of employees who work directly on the product being manufactured.
3) Manufacturing overhead- All other manufacturing costs that are related to the product but cannot be traced in an economically pheasable way.
a) Indirect materials- Materials used in the production process that do not end up in the product (gasoline)
b) Indirect labor- The compensation of employees who work int he production facility but do not directly work on the product.
c) Other manufacturing overhead-ex: electricity for the plant, rent for the plant, overtime premiums
ALL OTHER COSTS ARE PERIOD COSTS
Raw materials inventory, work in process inventory, finished goods inventory, cost of goods sold (term and account)
Direct labor + Direct Materials
Direct labor + Manufacturing overhead
An entity (a specific product, service, etc.) to which a cost is assigned. Basically, what do you want to know the cost of? (Product, machine, service, process)
A cost that can be easily traced to a cost object
A cost that cannot be easily traced to a cost object. Indirect costs have to be allocated to cost objects.
In order for a cost or benefit/revenue to be relevant it must meet two criteria:
1) Bearing on the future
2) Differs among the alternatives
The extra cost incurred when one additional unit is produced. This is usually equal to the variable cost per unit.
Any event or activity that causes costs to be incurred
Increase or decrease in TOTAL in direct proportion to a change in activity of the cost driver. The cost PER UNIT remains constant
Remain constant in TOTAL as the level of activity changes (within a given relevant range) Cost PER UNIT increases or decreases due to changes in activity.
Step variable costs
Are nearly variable. Step variable costs increase in SMALL steps rather than in direct proportion (continuously) to cost driver changes. EX: Wait staff at a restaurant
Step fixed costs
are fixed within a wide range of activity but will change outside that range.
Mixed cost (semi variable)
Contains both fixed and variable components
Ways to estimate Cost
1. Account-classification method
2. Visual fit method
3. High-low method
4. Regression Analysis
5. Multiple Regression
Total variable costs + Total fixed costs = total costs
Revenues - Variable Costs - Fixed Costs = Profit
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