accounting modules 11-14
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22 Terms
cost of leather used in a cleat
product
rent on a corporate vehicle
period
depreciation on manufacturing equipment
product
freight to ship raw materials to the factory
product
factory supervisor’s salary
product
utility bill on the factory
product
advertising
period
thread used in the cleat
product
utility bill on the corporate office
period
corporate office IT manager’s salary
period
freight to ship the inventory to the customer
period
what does gross profit tell us
how much profit remains after subtracting product costs
gross profit shows us how much is available to cover
period costs
what does contribution margin tell us
how much profit remains after subtracting all variable costs
contribution margin tells us how much is available to cover
fixed costs and contribute to profits
relevant costs
costs that differ between alternatives and impact the decision
costs that can be eliminated by choosing one alternative
avoidable costs
costs already incurred and cannot be recovered
sunk costs
potential benefits lost by not choosing the next-best option
opportunity costs
costs shared across alternatives and irrelevant to the decision
common costs
non-financial considerations like reputation or morale
qualitative factors
additional costs or revenues from choosing one option over another
incremental costs