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Managerial Ch 1&2
Terms in this set (71)
What is managerial accounting?
concerned with providing info to managers within an organization so that they can formulate plans, control operations, and make decisions
How would managerial accountants view excess capacity?
Not good, loss of money
What is an example of excess capacity?
A half full Delta flight (Delta not getting the most bang for their buck)
What are the 5 purposes of cost classification?
1. Assigning costs to cost objects
2. Accounting for costs in manufacturing companies
3. Preparing financial statements
4. Predicting cost behavior in response to changes in activity
5. Making decisions
What does cost behavior mean?
What costs go up or stay the same based on the number of units
What is a cost object?
The thing that we are trying to determine what the cost is, one unit (can be viewed as in one geographic region or another)
What are direct costs?
Costs that are directly traced to the cost object
What is direct labor?
The amount that we are paying employees that are directly being used to make the product
What are indirect costs?
costs that cannot be directly or easily traced to a unit of product or other cost object
What is an example of a common indirect cost?
manufacturing overhead such as utilities
What are common costs?
indirect costs incurred to support a number of cost objects; cannot be traced to any individual cost objects
What is an example of a common cost?
light bulbs in a room
What are the 3 classifications of manufacturing costs?
1. direct materials
2. direct labor
3. manufacturing overhead
What are direct materials?
raw materials that become an integral part of the product and that can be conveniently traced directly to it
What is an example of a direct material?
a radio installed in an automobile
What are direct labor costs?
labor costs that can be easily traced to individual units of product
What is manufacturing overhead?
includes all manufacturing costs except direct material and direct labor. cannot be readily or easily traced to finished products (indirect materials and indirect labor)
What are some examples of manufacturing overhead?
-depreciation of manufacturing equipment
-property taxes related to plant/factory
-insurance premiums incurred to operate a manufacturing facility
What is a prime cost and what two aspects make up a prime cost?
direct material and direct labor
What is a conversion cost?
the cost to convert raw materials into a unit
What two factors make up conversion costs?
direct labor and manufacturing overhead
There is no such thing as a ________ cost on the corporate side in relation to cost object
Plant and factory costs make up what kind of costs?
What does allocate mean?`
to spread over
What are the two types of non manufacturing costs?
selling costs and administrative costs
What are selling costs?
can be either direct or indirect, costs necessary to secure the order and deliver the product
What are administrative costs?
can be either direct or indirect, all executive, organizational, or clerical costs
What are product costs?
(plant/factor) includes all of the costs that are involved in acquiring or making a product (attach a unit of product as it is purchased or manufactured and stay attached to the product as it remains in inventory awaiting sale)
What is involved in manufacturing product costs?
work in process
finished goods costs
When direct materials are used in production, their costs are transferred from ____________________ to ________________.
raw materials; work in process
_______ ________ and _______ ________ costs are added to work in process to convert direct materials into finished goods.
direct labor; manufacturing overhead
Once units of products are completed, their costs are transferred from __________ to ________.
work in process; finished goods
When a manufacturer sells its finished goods to customers, the costs are transferred from finished goods to __________.
cost of goods sold
period costs include all _______ costs and ________ costs.
are period costs corporate or manufacturing
What is cost behavior?
refers to how a cost will react to changes in the level of activity
What is a variable cost?
a cost that varies, in total, in direct proportion to changes in the level of activity
a variable cost per unit is _________
what is an activity base/cost driver
a measure of what causes the incurrence of a variable cost (ex- units produced, miles driven, machine hours, labor hours)
What is a fixed cost?
a cost that remains constant, in total, regardless of changes in the level of the activity (per unit basis)
A sunk cost is a type of ______ cost
A sunk cost has already been incurred in the _______
What are the two types of fixed costs?
committed and discretionary
discretionary fixed cost
doesn't change with level of activity but can get out of it in the short run (ex: salary)
What is the relevant range
range of units that we are capable of producing with fixed costs
Three ways costs can be classified
1. product v period
2. direct v indirect
3. variable v fixed (or mixed)
equation of the total mixed cost line
Y=total mixed cost
a=total fixed cost
b=variable cost per unit of activity
X= level of activity
What are differential/incremental costs?
difference in cost between any two alternatives
What are opportunity costs?
the potential benefit that is given up when one alternative is selected over another
When are job order costing systems used?
1. when many different products are produced each period
2. when products are manufactured to order
3. when then unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job
Examples of companies that would use job-order costing
1. Boeing (aircraft manufacturing)
2. Bechtel International (large scale construction)
3. Walt Disney Studios (movie production)
In job-order costing, how are manufacturing overhead, including indirect materials and indirect labor allocated?
allocated to all jobs rather than directly traced to each job individually
Why are allocation bases used?
Used to assign manufacturing overhead to individual jobs (impossible to trace to individual jobs, manufacturing overhead consists of many different items, many are fixed even though output fluctuates during the period)
What are some examples of allocation bases?
direct labor hours
direct labor dollars
predetermined overhead rate= estimated total MOH cost for coming period/ estimated total units in the allocation base for the coming pd
When is is POHR used?
BEFORE the period begins
The allocation base is a ______ ______ that causes overhead.
Equation used to estimate the total amount of MOH?
bill of materials
a document that lists the quantity of each type of direct material needed to complete a unit of product
materials requisition form
A document that specifies the type and quantity of materials to be drawn from the storeroom and that identifies the job that will be charged for the cost of those materials.
job cost sheet
records the materials, labor, and manufacturing overhead costs charged to that job
A measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects.
How do managers use job cost information?
to establish plans and make decisions and make pricing decisions
managers establish a markup percentage that they believe will generate enough revenue to cover all of a job's manufacturing costs and a portion of the company's non manufacturing costs, while generating some residual profit
another word for indirect manufacturing costs
What is a cost driver?
a factor (such as machine-hours, beds occupied, computer time, or flight-hours) that causes overhead costs
To improve job cost accuracy, the allocation base in the POHR should _______ the ____ _______.
drive; overhead cost
When companies can identify more than one overhead cost driver they can improve job cost accuracy by using
multiple predetermined overhead rates
when a company created overhead rates based on the activities that it performs
Are selling and administrative costs assigned to jobs? Why or why not?
No; they are considered period costs
unit product cost is equal to
total manufacturing costs assigned to a job divided by the number of units in that job
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