Cma 1.3 Cost Behavior And Relevant Range

Front 1

relevant range

Back 1

Defines the limits within which per-unit variable cost remain constant and fixed costs are not changeable.

Front 2

Relevant range is synonymous

Back 2

with the short run

Front 3

How is relevant range established

Back 3

Relevant range is established by the efficiency of a company's current manufacturing plant, its agreements with labor unions and suppliers, etc.

Front 4

How does Per Unit Variable cost behave based on level of production

Back 4

it stays the same

Front 5

How does Total Variable cost behave based on level of production

Back 5

It Varies Directly and Proportionally with changes in volume.

When activity goes up, total variable cost goes up

Front 6

How does Total Fixed cost behave based on level of production

Back 6

remain unchanged

Front 7

How does Per Unit Fixed Cost behave based on level of production

Back 7

it varies directly and proportionally with activity.

Per unit fixed costs go down as activity goes up.

Front 8

Step Cost

Back 8

one that is constant over small ranges of output but increases by steps (discrete amounts) as levels of activity increase.

Front 9

Marginal cost

Back 9

The cost incurred by a one0unit increase in the activity level of a particular cost driver.

Front 10

Controllable costs

Back 10

Costs that are under th discretion of a particular manager.

Front 11

Noncontrollable costs

Back 11

costs to which another level of the organization has committed, removing the manager's discretion.

Think of Authorization levels, Don Washkewics has control if it is over a certain amount.

Front 12

Avoidable costs

Back 12

Coss that may be eliminated by not engaging in an activity or by performing it more efficiently. An example is direct material cost, which can be saved by ceasing production.

Front 13

Committed Costs

Back 13

arise from holding property, plant, equipment.

insurance, real estate taxes, lease payments, depreciation.

long term by nature, cannot be reduced by lowering the Short term level of production.

Front 14

Incremental Costs

Back 14

the additional cost inherent in a given decision.

Dont compare it to the 2nd option.

Front 15

Differential cost

Back 15

the difference in TOTAL costs between 2 decisions

Front 16

Engineered Costs

Back 16

having a direct, observable, quantifiable cause-and-effect relationship between the level of output and the quantity of resources consumed.

Front 17

discretionary costs

Back 17

costs characterized by an uncertainty in the degree of causation between the level of output and the quantity of resources consumed.

Outlay decision. Advertizing/R&D costs

Front 18

Outlay costs

Back 18

require actual cash disbursements. They are also called explicit, accounting or out of pocket costs.

Front 19

Opportunity/Implicit costs

Back 19

Maximum benefit forgone by using a scarce resource for a given purpose and not for the next best alternative. Also called implicit cost.

Front 20

Economic cost

Back 20

sum of the explicit and implicit cost

Front 21

Imputed cost

Back 21

costs that should be counted even tho they would not be recognized into the accounts.

Intangible costs like profit lost because the level of inventory is low.

Front 22

relevent costs

Back 22

future costs that will vary depending on the action taken. All other costs are assumed to be constant and thus have no effect on (are irrelevant to) the decision.

Tuition if you want to attend another year of school.

Front 23

Sunk costs

Back 23

costs already paid or irrevocably committed to incur. Because they are unavoidable and will therefore not vary with the option chosen, they are not relevant to future decisions.

Front 24

Historical costs

Back 24

actual price paid for an asset.

Financial accountants rely heavily on it for balance sheet reporting.

Front 25

Split off point

Back 25

The point in a production process where jointly manufactured products are henceforth manufactured separately; thus, their costs can be identified individually after the split-off point.

Front 26

Joint costs

Back 26

are incurred before the split off point.

Cannot be traced to the final product

Front 27

Seperable costs

Back 27

Incurred beyond the split-off point,

Tracable to the final product.

Front 28

By-Products

Back 28

products of relatively small total value that are produced simultaneously from a common manufacturing process with products of greater value and quantity.

sawdust at a lumber yard.
donut holes.

Front 29

Normal spoilage

Back 29

spoilage that occurs under normal operating conditions

uncontrollable in the short run.

Front 30

abnormal spoilage

Back 30

spoilage that is not expected to occur under normal, efficient operating conditions.

The cost of abnormal spoilage should be separately identified and reported to management.

Front 31

Rework

Back 31

end products that do not meet standards but can be brought up though rework.

the decision is based on if the marginal revenue of selling the reworked units.

Front 32

Scrap

Back 32

Raw material left over from the production cycle but still usable for purposes other than those which it was originally intended.

can be sold for a nominal amount

Front 33

Waste

Back 33

raw material left over from production cycle for which there is no further use.

Front 34

Carrying Costs

Back 34

Costs of holding or storing inventory.
Cost of capital, insurance, warehousing, breakage, obsolescence.

Front 35

Transferred-in costs

Back 35

incurred in a preceding department and received in a subsequent department in a mulTidepartment production setting.

Front 36

Value-Adding costs

Back 36

costs of activities that cannot be eliminated without reducing the quality, responsiveness, or quantity of output required by a customer or the organization.

Front 37

Normal Capacity

Back 37

long-term average level of activity that will approximate demand over a period that includes seasonal, cyclical, and trend variations. Deviations In a given year will be offset in subsequent years.

Front 38

Practical Capacity

Back 38

maximum level at which output is produced efficiently. It allows for unavoidable delays in production for maintenance, holidays, etc.

Front 39

Use of practical capacity as a denominator value usually results in _______ applied overhead because

Back 39

under applied

it always exceeds the actual level of use.

Front 40

Absotption costin

Back 40

treats all manufacturing costs as product costs

Front 41

Which costing Technique is required for external financial reporting and income taxes?

Back 41

Absorption Costing

Front 42

Gross Margin in Absorption costing

Back 42

Sales revenue
-
Absorption Cost of Goods Sold.

It Represents the amount available to cover fixed costs.

Front 43

Variable costing

Back 43

considers only variable manufacturing costs to be product costs, I.e. inventoriable.

Front 44

Contribution margin

Back 44

Net of sales revenue
-
variable costs

It represents the amount to cover Fixed.

Front 45

Actual Costing

Back 45

most accurate yet most time consuming

1. All costs are totaled at the end of a period, Indirect costs are allocated

Front 46

Normal costing

Back 46

Charges actual direct materials and riect labor to a cost object.

Applies overhead as a percentage.

Front 47

Extended Normal Costing

Back 47

uses normalized rates to direct material and direct labor, so all three inputs use rates

Front 48

Activity-Based costing

Back 48

Attaches costs to activities rather than to physical goods.

Front 49

Life Cycle costing

Back 49

emphasizes the need to price products to cover all the costs incurred over the lifespan of the product, not just the immediate costs of production.

Front 50

Upstream costs

Back 50

(Life Cycle Costing) costs incurred before production, such as R&D and product design, are referred to as upstream costs.

Front 51

Downstream costs

Back 51

costs incurred after production, such as marketing and customer service.

Front 52

Standard Costs

Back 52

Pre determined attainable unit costs. A standard cost is not just an average of past costs, but an objecively determined estimate of what a cost should be.

Front 53

FLexible budgeting

Back 53

calculation of the quantitiy and the costs of inputs that should have been consumed given the achieved level of production.

Front 54

Static budget

Back 54

the best projection of the resource consumption and levels of output that will be achieved for an upcoming period.

Front 55

What are 2 ways of allocating Joint costs?

Back 55

1. PHysical unit method
2. salses value at split off method.
3. estimated Net realizeable Value method
4. constant gross margin percentage NRV method

Front 56

Physical unit method

Back 56

joint cost allocated to separable products in propportion to some physical measure.

units of each product/Total units

Front 57

Sales value at splittoff method

Back 57

estimated selling price at split off/total selling price at split off

Front 58

estimated net realizable value method

Back 58

variation of the relative sales value method. All separable costs necessary to make the product salable are subtracted before the allocation is made.

Estimated final price- separable costs)/ total estimated final price

Front 59

constant gross-margin percentage NRV method

Back 59

1. Determine the overall gross-margin percentage
2. Subtract the appropriate gross margin form the final sales value of each product to calculate total costs for that product.
#3. subtract separable costs to arrive at the joint cost amount.

Front 60

Target Costing

Back 60

Calculating the price of a product by adding the desired unit profit margin to the total unit cost.

Sofa sells for 600. profit margin is 200. Cant cost more than 400.