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65 Cards in this Set

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