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Cost Accounting Exam 1
Cost Accounting Ch 1, 2, 3, 10
Future orientation, helps managers make decisions, No GAAP, detailed information for Internal Users.
Follows GAAP rules, summarized information for external users.
Cost of Making a Product
DM, DL, FO
the direct and variable costs that can be traced back to the cost object.
the direct and variable costs related to the labor that goes into production.
indirect and fixed costs related to the factory used for production.
Example of FO
property tax, property insurance, and property rent
can be traced to the cost object in a cost-effective way (DM, DL)
can not be traced to the cost object in a cost-effective way (FO)
costs vary as the level of activity change. changes in total proportion to changes in the related level of total activity/volume (DM, DL)
costs that do not change regardless of the level of activity as long as it is with in the relevant range. (FO)
band of normal activity level or volume in which there is a specific relationship between the level of activity/volume and cost in question.
Mixed Cost (Semi-Variable)
a little fixed & a little variable
Example of Mixed Cost
Pay for Print: $100 for first 500 copies, $0.06 for each copy over 500.
Beg Inv of DM (Jan 1) + Purchases of DM - End Inv of DM (Dec 31)
Total Mnf Costs Incurred
DM + DL + FOH
Beg WIP Inv + Total Mnf Costs Incurred-End WIP Inv
Gross Profit - Sales & Admin Exp -or- Rev - VC - FC
Product Cost (per unit)
Product Cost / Units Produced
DL + DM
DL + FOH
Rev - COGS
Goods Available for Sale
COGM + Beg Finished Goods
Goods Available for Sale - End Finished Goods
Beg Inv + Purchased DM - Cost of DM Available for use
the product being made
CM (per unit)
SP-VC (per unit)
FC / CM per unit
BE Units x SP -or- FC / CM%
DM, DL, FOH
Selling and Administrative
Example of Period Costs
Advertising, Depreciation of Office Equipment, Shipping Costs
Types of Inventorial Costs
Product and Period Costs
Drives the cost of production. ex. labor hrs, materials, machine hours
Classifications of Mfg Costs
Direct, Indirect, Mixed, Fixed, Variable, etc.
DL + FOH
Cost Volume Profit (CVP)
examines the behavior of total rev, total costs, Op Inc as changes occur in the output level, selling price, variable cost per unit, or the fixed costs of a product
Op Income - Income Taxes
Contribution Margin (CM)
Total Rev - Total VC
CM % (ratio)
CM per unit / SP
SP x Units Sold
Variable Costs (VC)
VC per unit x Units Sold
Break Even Point
when total revenue = total cost, Op Income = 0
Margin of Safety
amount by which budgeted (actual) revenue exceeds the BE Revenue.
Sales Revenue - BE Revenue
MoS (in units)
Budgeted Sales(units) - BE Sales (units)
MoS in $ / Budgeted (actual) Revenue [Revenue would have to decrease by the MoS % to reach the BE Revenue]
describes the effects that FC have on changes in Op Income as changes occur in units sold (CM)
Degree of Op Leverage
CM / Op Income [Op Leverage is high when the entity has a high proportion of FC in its cost structure)
quantities of various products (services) that constitute total unit sales of a company
High Low Method
# of Units: H1 and L1, Cost: H2 and L2
VC per Unit: (H2 - L2 / (H1-L1)
FC: L2 - VCL -or- H2 - VCH
VCH: H1 x VC per Unit
VCL: L1 x VC per Unit
Write the Equation (slope)
y = FC + (VC Per Unit x Activity Measure or Unit)
Least Squares Regression Method
∑xy = (FC)(∑x) + (VC)(∑x^2)
∑y = (n)(FC) + (VC)(∑x)
solve for a & b, then write the formula/equation: y = FC + (VC x Units)