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65 Cards in this Set
- Front
- Back
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Manufacturing costs consist of these three things
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1) Direct Materials
2) Direct Labor 3) Manufacturing Overhead |
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Direct Materials consist of these two things
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1) Raw Materials
2) Indirect Materials |
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Raw Materials are
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Materials that are used in the final product
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Indirect Materials are
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Relatively insignificant materials that aren't worth the effort of tracing back
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Direct Materials can be defined as
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Materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product
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Direct Labor can be defined as
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Labor costs that can be easily traced to individual units of product...
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Indirect labor can be defined as
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Labor costs that cannot be physically traced to the creation of products
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Workers who have touched the product are considered
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Direct labor
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Manufacturing overhead can be defined as
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All costs of manufacturing except for direct materials and direct labor
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Selling costs and administrative costs are
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Non-manufacturing costs
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When are costs recognized as expenses on the income statement?
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In the period that the benefits from the cost
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The matching principle says
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Costs incurred to generate a revenue should be recognized as expenses in the same period that the revenue is recognized
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Product costs are
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All costs involved in acquiring of making a product... also includes costs related to the factory
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Period costs are
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All costs that are not product costs... mostly selling and administrative expenses
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Prime cost is
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Direct materials + direct Labor cost
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The conversion cost is
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Direct labor costs + Manufacturing overhead costs
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The three classes of inventory on a manufacturing company's balance sheet are
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Raw Materials, Work in Process, Finished goods
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The manufacturing costs associated with goods that were finished during the period is known as the
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Cost of goods manufactured
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The equation for COGM is
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Beginning WIP
+ Direct Materials + Direct Labor + Manufacturing Overhead = Total Manufacturing costs - Ending WIP |
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The equation for COGS is
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Beginning inventory of final goods
+COGM = Cost of goods available for sale - Ending inventory of final goods |
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The equation for Direct materials is
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Beginning raw materials inventory
+ Purchases of raw materials = Raw materials available for use - Ending raw materials inventory = Raw Materials used in production |
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Selling and administrative costs are what type of costs?
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Period costs
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A cost that varies in direct proportion to changes in the level of activity is a
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Variable cost
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Variable costs are _______ when expressed on a per-unit basis
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Constant
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A cost that remains constant, in total, regardless of changes in the level of activity is a
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Fixed cost
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The difference in costs between any two alternatives is a
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Differential cost
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The cost involved in producing one more unit of product is the
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Marginal cost
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An opportunity cost is
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The potential benefit that is given up when one alternative is selected over another
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A cost that has already been incurred and cannot be changed by any decision made in the future is a
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Sunk cost
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If actual M.O. costs > applied M.O. costs, then overhead is
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Underapplied
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If actual M.O. costs < applied M.O. costs, then overhead is
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Overapplied
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If M.O. costs are overapplied, we must
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Reduce WIP, Finished goods, and COGS
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If M.O. costs are underapplied, we must
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Increase WIP, finished goods, and COGS
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In situations where a company produces many units of a single product for long periods of time, __________ costing is used
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Process
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Job order costing is used when
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Many different products are produced each period
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The predetermined overhead rate is used to
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Apply M.O. costs
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The equation for POHR is
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Estimated Total Manufacturing Overhead Cost/Estimated Total Amount of the Allocation Base
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Overhead applied =
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POHR x Amount actually used by the job
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Materials in the WIP account are classified as
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Direct Materials
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True variable costs are those that
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Vary in direct proportion to the level of activity
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Step variable costs are those that
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Are obtainable only in large chunks, and increase/decrease in response to wide changes in activity
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The break-even point is when Net income equals
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Zero
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Contribution costs are what type of costs?
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Fixed Costs
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The basic equation for the break-even point is
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Fixed costs/Contribution margin per unit
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To find the break even point in sales dollars, what denominator should be used?
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Contribution margin ratio
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Fixed costs _______ on a per-unit basis as the activity level ________
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Decreases/Increases
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Commited fixed costs are
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Costs that cannot be significantly reduced/eliminated, even for short periods of time
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Discretionary fixed costs are
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Costs that are typically short-term and can be cut for short periods of time
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Labor is what type of cost?
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Variable
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A mixed cost is represented by what equation?
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Y = a +bx
total mixed cost = (total fixed cost) + (variable cost x level of activity) |
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The minimum cost of providing a service is the
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Fixed portion of a mixed cost
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The high-low method of finding the variable cost portion of a mixed cost uses this equation:
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(Cost at a high level - Cost at a low level)/(High activity level - Low activity level)
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To find the fixed cost portion of a mixed cost, use this equation:
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Total cost - Variable costs
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Once the break-even point has been reached, the net operating income will increase by
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The amount of the unit contribution margin for each additional unit sold
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The contribution margin, as a percentage of sales, is the
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Contribution margin ratio
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The equation for the Contribution Margin Ratio is
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Contribution Margin/Sales
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The contribution margin can be found with this equation
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Sales - Variable Expenses
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Contribution Margin - Fixed Expenses =
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Net income
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To find the amount of products needed to meet a target profit, this equation can be used
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Selling price (Q) = Variable Costs (Q) + Fixed costs + Target profit
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The contribution margin method for finding the break-even # of units is
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Fixed Expenses/Unit CM
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The excess of sales dollars over the break even volume of sales dollars is the
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Margin of Safety
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To find the margin of safety, this equation can be used
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Total sales - Break-even point
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The operating leverage is
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A measure of how sensitive net operating income is to a given percentage change in dollar sales
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Contribution Margin/Net Operating Income =
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Degree of operating leverage
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The sales mix is
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The relative proportions in which a company's products are sold
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