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47 Cards in this Set

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Product Cost Equation
product cost = direct materials + direct labor + MO
period cost equation
Period cost = selling exp + admin exp
Conversion cost equation
conversion cost = direct labor + MO
Prime Cost Equation
Prime cost = direct materials + direct labor
what does each stand for
Y = a + bx
Y = total mixed cost
a = (intercept) total fixed cost
b = (slope) variable cost per unit of activity
x = activity level
High Low Method equations used
variable cost = change in cost / change in activity

y2 = a(fixed cost) + b(variable cost)x2
fixed cost equation
Fixed cost = Total cost - (variable cost x activity level)
cost of goods sold equation
Cost of goods sold = beg. inventory + purchases - ending inventory
CM equation
CM = total sales - variable exp
unit CM euqation
Unit CM = selling price per unit - variable exp per unit
CM Ratio equation
CM ratio = CM / sales
How to find change in CM
Change in CM = CM ratio x change in sales
How to get M pursuing the variable exp ratio
CM = 1 - variable exp ratio
How do you find sales?
sales = selling price per unit x quantity sold
How do you figure out variable exp?
variable exp = variable exp per unit x Quantity sold
How to find the break even point in sales?
Profit = Unit CM x Q - Fixed exp
How do you find break even point in dollar sales?
Profit = CM ratio x sales - Fixed exp
Margin of safety in dollars
margin of safety in $ =Total sales - Breakeven sales
Margin of safety in percentage
Margin of safety in % = margin of safety $ / total sales
How do you get the Degree of Operating Leverage?
Degree of operating leverage = CM / net operating income
How do you figure out the percentage change in net operating income?
% change in NOI = Degree of operating leverage x % change in sales
How do you get the variable exp ratio
variable exp ratio = variable exp / sales
How do you get the variable exp
variable exp = sales x variable %
how do you find the operating net income or profit?
profit = CM - fixed exp
Cost Object
Anything for which cost data are derived (ex- products, customers, jobs, etc.)
Direct Cost
A cost that can only be easily and conveniently traced to a specific cost object.
Indirect Cost
A cost that cannot be easily and conveniently traced to a specified cost object.
A cost that is incurred to support a number of cost objects but cannot be traced to them individually.
Common cost
Raw Materials
Any materials that go into the final product
Materials that become an integral part of a finished product and whose costs can be conveniently traced to it.
Direct Materials
Small items of material such as glue and nails
Indirect materials
Factory labor costs that can be easily traced to individual units of product.
Direct Labor
labor costs of janitors, supervisors, material handlers, and other factory workers.
indirect cost
cannot be easily traced to particular products
Manufacturering Overhead
All manufacturing coats except direct materials and direct labor.
(ex- used to operate the factory! heat and lights, property tax, depreciation, maintenance, etc)
All cost that are incurred to secure customer orders and get the finished product to the customer.
selling costs
(ex- advertising, shipping, sales travel, sales commission, sales salaries, and cost of finished goods warehouse)
all costs associated with the general management of an organization rather than with manufacturing or selling
Administerive costs
product costs
all costs involved in acquiring or making a product
(direct materials, direct labor, and MO
All costs that are not product costs
period costs
(selling and admin costs)
Cost Behavior
the way in which a cost reacts to changes in the level of activity
Cost structure
The relative proportion of each type of cost in an organization
A cost that varies, in total, in direct proportion to changes in the level of activity.
Variable Cost

Stays constant per unit!
Cost drivers (activity base)
A measurement of whatever cause the incurrence of a variable cost
A cost that remains constant, in total, regardless of changes in the level of activity within the relevant range. (insurance, property tax, rent, supervisory salary, admin salary, and advertising)
Fixed Cost

If a fixed cost is expressed on a per unit bases, it varies inversely with the level of activity
Mixed Cost
a cost that contains both variable and fixed elements

Find by taking exp/ sales in units... if it stays the same = mixed
opportunity cost
the potential benefit that is given up when one alternative is selected over another
cost that has already been incurred and that cannot be changed by any decision made now or in the future
Sunk Cost
break-even point
the level of sales at which profit is zero