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58 terms

Accounting Test 1

STUDY
PLAY
Managerial Accounting
directed towards providing info to managers inside the organization
Financial Accounting
Reports are provided outside the organization-external reports
Financial Accounting
Must follow GAAP which has specific required external reports
Managerial Accounting
Does not follow GAAP and has no reporting regulations
Product Costs
Include all costs that are required to make a product. Include Direct Material, Direct Labor, and Manufacturing Overhead
Period Costs
Selling and Administrative costs. These costs are reported on the income statement they are incurred. Not a part of manufacturing overhead, not related to making the product.
Selling Costs
all cost associated with marketing the finished products and getting the product to the customer.
Administrative Costs
costs incurred for the general administration of the organization
Prime Costs
direct materials + Direct Labor
Conversion Costs
Direct Labor + Manufacturing Overhead. What it costs to take the materials and convert them into a finished product.
Direct Cost
a cost that can be easily and conveniently traced to one product. They are direct materials and direct labor
Indirect Cost
a cost that cannot be easily and conveniently traced to one product. Ex: manufacturing overhead and period costs
Product costs
costs that are incurred to manufacture products. They include anything that becomes part of the product, anyone who touches teh product to make it, and all the costs of the facilities and management incurred to make the product.
Direct Materials, Direct Labor, Manufacturing Overhead
The three major categories of product costs
Direct Materials
raw materials that become part of the finished product.
Direct Labor
workers that touch the product to make the product- also includes workers who operate the machine if the product is made by the machine
Manufacturing Overhead
all costs of manufacturing the product except direct materials and direct labor. Ex: utilities support personnel, human resources, computer support
Indirect Labor
involved in making the product at teh plant but do not touch the product to make it. Ex: salaries, supervisors and quality inspectors
Indirect Material
low cost materials that end up in the product or are used to make the product. Ex: glue, tape, screw
Cost Sheet
a detailed listing of what is estimated to be required and what is estimated to cost to make one product or provide one service.
Standard
the amount you expect to pay and the quantity you expect to use to make one product.
Quantity Standard
how much is expected to be used to makle one product
Cost Standard
how much is expected to be paid for one quantity.
Ideal Standards
can be achieved only under ideal perfect circumstances
Practical Standards
are tight but attainable and allow for normal downtime and waste
Variable Cost
Changes in total, in direct proportion to changes in the level of activity. The total cost increase/decreases as units made increases/decreases. It is constant if expressed on a per unit basis. Costs that vary with sales.
Variable cost
if it costs you more if you make or sell one more
Fixed Cost
Total cost does not change with changes in the volume of activity (within a relevant range) The cost per unit will change as teh number of units change. Ex: rent, insurance
Mixed Costs
one that contains both variable and fixed costs elements.
Fixed
minimum cost of having a service ready and available for use
Variable
cost incurred for actual consumption of the service.
Total Mixed Costs
Total fixed cost $ + (Variable cost $ per activity X the number of the activity)
Relevant Range
The range of activity where the assumption about cost behavior is valid.
Opportunity Cost
The potential benefit that is given up when one alternative is selected over another alternative. They are not recorded/reported because they do not occur. The cost is the benefit that you gave up.
Sunk Cost
Cost that is already paid for and can not be changed by a decision made now or in the future.
Committed
Investment in facilities, equipmnt and the basic operations of the company. They are long term in nature and can't be significantly reduced.
Discretionary
annual decisions made by management to spend in certain areas for certain things
Total Variable Cost
Total Cost $-Fixed Cost$
Variable Cost Per unit of activity
Total Variable Cost/ Total Activity
Total Cost
Total Fixed Cost + (variable cost per activity X # activity
Variable Cost
(Cost at high activity level- cost at the low activity level) / (High activity level-low activity level)
Fixed Cost
Total Cost - (variable cost per X # of activity)
Contribution Margin
The amount available to cover fixed costs and give profit
Contribution Margin per unit
Sales price per unit - all variable costs per unit
Contribution Margin ratio
contribution margin (in total per unit) /Sales
Change in Contribution Margin
Change in Sales X Contribution Margin Ratio
Break Even
Occurs when profit = 0 which occurs when contribution margin = fixed cost
Break Even in Units
Fixed Costs/ Contribution Margin Per unit
Break Even in Sales
Fixed Costs / Contribution Margin Ratio (%)
% increase in profits
operation leverage factor X % increase in sales
added profits
% increase in profits X current profits
expected profits
added profits + current profits
Sales Mix
The Percentage of total sales for each product. This is important when a company has more than one product. A change in sales mix can change the total profit.
Total Contribution Margin %
Total Contribution Margin for the Company / total sales for the company
Expected Contribution Margin
Expected Sales X CM Ratio
Current Contribution Margin
Less Current Sales X % CM ratio
Manufacturing Overhead
Costs to operate the manufacturing facility
Inventory
finished goods: product not yet sold