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26 Cards in this Set
- Front
- Back
Raw materials
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materials that go into a final product
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Manufacturing costs
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Direct Materials, Direct Labor, Manufacturing Overhead
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Direct Materials
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materials that become an integral part of the finished product and whose costs can be conveniently traced to the final product
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Direct Labors
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labor costs that can be easily traced to individual units of product (touch labor), workers touch product while it is being made
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Manufacturing Overhead
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includes indirect materials, indirect labor, maintenance and repairs on product equpiment, heat/light/property taxes, depreciation, and insurance on manufacturing facilities. Only costs associated with operating the factory are included here.
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Nonmanufacturing costs
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selling and administrative costs. Selling, general, and adminstrative costs (SG&A)
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Selling costs
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all costs that are incurred to secure customer orders and get the finished product to the customer. Ex: advertising, shipping, sales travel, sales commissions...
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Administrative costs
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costs associated with the general management of an organization. Ex: exexutive compensation, general accounting, secretarial, public relations
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Product Costs
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all costs involved in acquiring or making a product. Direct materials, Direct labor, and manufacturing overhead. Costs are released from inventory as expenses when goods are sold. Stay on balance sheet until sold and then transfer to income statement
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Period Costs
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All selling and administrative expenses. Expensed on the income statement in the period in which they are incurred (accural accounting)
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Variable Cost
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varies, IN TOTAL, in direct proportion to changes in the level of activity
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Activity base
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a measure of wahtever causes the incurrence of a variable cost: cost driver. Ex: Direct labor hours, machine hours, units produced, units sold
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Fixed Cost
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cost that remains constant, in total, regardless of changes in the level of activity. not affected by changes in activity
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Mixed Cost
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contains both variable and fixed cost elements. Y= a + bX
Y= Total mixed cost a= total fixed cost b=variable cost per unit of activity X=level of activity |
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Perform the high-low or least-squares regression calculation when..
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the scattergraph plot reveals linear cost behavior
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High low method
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(Cost at high activity level-cost at low activity level)/(High activity level-Low activity level)
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Fixed cost element EQUALS...
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Total cost (at either high or low)- (variable cost X activity level at either high or low) But both have to be high or both have to be low
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Traditional format income statement
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Organize costs into cost of goods sold and selling and administrative expenses. COGS=product costs and S&A=period costs
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Contribution approach
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distinguishes between fixed and variable costs
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Contribution margin
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amoung remaining from sales revenues after variable expenses have been deducted
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Direct Costs
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costs that can be easily and conveniently traced to a unit of product or other cost object: Direct material and direct labor
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Indirect costs
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Costs that cannot be easily and conveniently traced to a unit of product or other cost object: manufacturing overhead
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Differential cost
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difference in costs between any two alternatives. Also known as incremental cost (but this refers only to an increase in cost from one alternative to another)
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Differential revenue
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difference in revenues between any two alternatives
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Opportunity cost
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potential benefit that is given up when on alternative is slsected over another
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Sunk cost
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cost that has already been incurred and that cannot be changed by any decision made now or in the future
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