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Accounting 202 Exam 1
Terms in this set (48)
Costs that can be easily (conveniently) traced to a unit of product or other cost object. Ex. Direct materials & direct labor
Harder to trace to unit of product or other cost object. Ex. Manufacturing overhead
Raw materials that become integral part of product. Can be conveniently traced directly to product. Ex. Doors of a truck
Labor costs easily traced to individual units of product
Cannot be easily traced directly to specific units produced. Ex. Indirect materials (Used to support production process) and indirect labor (Wages paid to employees who are not directly involved in production work.)
Costs necessary to secure the order and deliver product.
All executive organizational and clerical costs. Can be direct or indirect costs
Indirect costs incurred to support number of cost objects. Cannot be traced to any individual cost object
Include direct materials, direct labor, and MO
All selling costs and administrative costs
Direct Material + Direct Labor
Prime Cost + Conversion
How a cost will react to changes in level of activity
Common Classifications: Variable Costs, Fixed Costs, Mixed Costs
Varies in Direct proportion in level of activity
Ex. Your total texting bill is based on how many texts sent
Variable Cost Per Unit
Is Constant. Ex. Cost per text is constant
Activity base (Cost Driver)
Measure of what causes the incurrence of a variable cost: Units produced, Machine Hours, Miles Driven, Labor Hours
Cost that remains constant regardless of changes in level of activity. Ex. Monthly Phone Contract Bill
Fixed Cost Per Unit
If expressed on per unit basis, it varies
Range of activity within which the assumption that cost behavior is strictly linear is reasonable valid.
Linearity assumption and relevant rage
Straight Line closely approximates a curvilinear variable cost line within relevant range
Contains both variable and fixed elements.
Y: Total mixed Cost
a: Total fixed cost
b: Variable cost per unit of activity (slope of line)
x: level of activity
Variable Cost per hour= Change in Cost/Change in Hours
Least Squares Regression Method
Uses all of the data points to estimate the fixed and variable cost component of a mixed cost. Goal: Fit a straight line to the data the minimized the sum of squared errors. Provides statistic called R^2. Measure of goodness of fit of regression line to data points.
Comparing Results from 2 Methods
Provide different estimates of fixed and variable cost computations of a mixed cost.
Expected, each method uses differing amounts of data points to provide estimates.
Least squares most accurate. Uses all Data Points
Used for external reporting. Sales, COGS, Gross Margin, Selling & Admin. Expense, Net Operating Income
Used by management. Not published. Sales, Variable Expenses, Contribution Margin, Fixed expenses, Net Operating Income
Product costs & Period Costs
Costs involved in acquiring or making a product
Selling and administrative expenses. Everything that is not a product cost
Cost already been incurred and cannot be changed. Should be ignored
Job-Ordering Costing Systems
Unique nature of each order requires tracing or allocating costs to each job and maintaining cost records for each job
Boeing (Aircraft Manufacturing), Walt Disney Studios (Movie Production)
Predetermined Overhead Rate
Allocation base used to assign manufacturing overhead to individual jobs.
Reasons for Predetermined Overhead Rate
1.Impossible or difficult to trace overhead costs to particular jobs
2. MO Consists of many different items ranging from grease used in machines to production managers sarly.
Many MO costs are fixed even though output fluctuates during the period.
Manufacturing Overhead Application
Predetermined overhead rate=Estimated total manufacturing overhead cost for coming period/Estimated total units in the allocation base for coming period.
*Determined before period begins. Allocation base is a cost driver that causes overhead.
Need for Predetermined Overhead Rate
Actual overhead for the period is not known until the end of the period. Thus inhibiting the ability to estimate job costs
Work In Process
=Direct Materials (r aw materials used in production)+ Direct Labor Costs+ (POHR X Quanity of Allocation Base)
Raw Materials Used in Production
Beginning Raw Inventories + Purchase of Raw Materials - Ending Raw Material Inventory
*Items Removed form raw materials inventory and placed into the production process are called direct materials.
Total Manufacturing Cost
Direct Material + Direct Labor + Manufactured Overhead applied to work in process
Cost of Goods Manufactured
Total Manufacturing Costs + Beginning Work in Process Inventory - Ending Work in Process inventory
Unadjusted Cost of Goods Sold
Beginning finished goods inventory + Cost of Good Manufactured - Ending Finished Goods Inventory
Dollar Sales to break even
Fixed Expenses/CM Ratio
Contribution Margin Ratio
Unit Sales to Break Even
Fixed Expenses/Unit Contribution Margin
Unit Sales to attain Target Profit
(Target Profit + Fixed Expenses)/Unit CM
Dollar Sales to attain a target profit
(Target profit + Fixed expenses)/CM Ratio
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