principles of managerial accounting test 1

Financial accounting

The phase of accounting that is concerned with reporting historical financial information to external parties, such as stockholders, creditors, and regulators.

Managerial accounting

The phase of accounting that is concerned with providing information to managers for use within the organization.

Cost object

Anything for which cost data are desired. Examples of these are products, customers, geographic regions, and parts of the organization such as departments or divisions.

any item, product, service, project, or department for which a business measures and tracks costs separately

Direct cost

A cost that can be easily and conveniently traced to a specified cost object.

Indirect cost

A cost that cannot be easily and conveniently traced to a specified cost object.

Common cost

A cost that is incurred to support a number of cost objects but cannot be traced to them individually.

Raw materials

Any materials that go into the final product.

Direct materials

Materials that become an integral part of a finished product and whose costs can be conveniently traced to it.

Direct labor

Factory labor costs that can be easily traced to individual units of product; also known as touch labor.

Prime cost

Direct materials cost plus direct labor cost.

These are the costs that can be directly traced to making a product.

Manufacturing overhead

All manufacturing costs except direct materials and direct labor.

Indirect materials

Small items of material such as glue and nails that may be an integral part of a finished product, but whose costs cannot be easily or conveniently traced to it.

Indirect labor

The labor costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced to particular products.

Conversion cost

Direct labor cost plus manufacturing overhead cost.

total expenses a manufacturer incurs to turn raw materials into finished products

Selling costs

All costs that are incurred to secure customer orders and get the finished product or service into the hands of the customer.

Administrative cost

All executive, organizational, and clerical costs associated with the general management of an organization rather than with manufacturing or selling.

Product costs

All costs that are involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead.

Inventoriable costs

A synonym for product costs.

Work in process

Units of product that are only partially complete and will require further work before they are ready for sale to the customer.

Finished goods

Units of product that have been completed but not yet sold to customers.

Period costs

Costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued.

Cost behavior

The way in which a cost reacts to changes in the level of activity.

Cost structure

The relative proportion of fixed, variable, and mixed costs in an organization.

Variable cost

A cost that varies, in total, in direct proportion to changes in the level of activity. This is constant per unit.

Activity base

A measure of whatever causes the incurrence of a variable cost.

Fixed cost

A cost that remains constant, in total, regardless of changes in the level of activity within the relevant range. If expressed on a per unit basis, it varies inversely with the level of activity.

Committed fixed costs

Investments in facilities, equipment, and basic organizational structure that cannot be significantly reduced even for short periods of time without making fundamental changes.

Discretionary fixed costs

Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research.

Relevant range

The range of activity within which assumptions about variable and fixed cost behavior are valid.

Mixed cost

A cost that contains both variable and fixed cost elements.

Relevant cost

A cost that should be considered when making decisions.

Relevant benefit

A benefit that should be considered when making decisions.

Differential cost

A future cost that differs between any two alternatives.

Differential revenue

Future revenue that differs between any two alternatives.

Incremental cost

An increase in cost between two alternatives.

Opportunity cost

The potential benefit that is given up when one alternative is selected over another.

Sunk cost

A cost that has already been incurred and that cannot be changed by any decision made now or in the future.

Contribution approach

An income statement format that organizes costs by their behavior. Costs are separated into variable and fixed categories rather than being separated into product and period costs for external reporting purposes.

Contribution margin

The amount remaining from sales revenues after all variable expenses have been deducted.

Absorption costing

A costing method that includes all manufacturing costs--direct materials, direct labor, and both variable and fixed manufacturing overhead--in unit product costs.

all manufacturing costs are included in the cost of the product.

Allocation base

A measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects.

Bill of materials

A document that shows the quantity of each type of direct material required to make a product.

Cost driver

A factor, such as machine-hours, beds occupied, computer time, or flight-hours that causes overhead costs.

Cost-plus pricing

A pricing method in which predetermined markup is applied to a cost base to determine the target selling price.

Job cost sheet

A form that records the direct materials, direct labor, and manufacturing overhead cost charged to a job.

Job-order costing

A costing system used in situations where many different products, jobs, or services are produced each period.

Materials requisition form

A document that specifies the type and quantity of materials to be drawn from the storeroom and that identifies the job that will be charged for the cost of those materials.

Multiple predetermined overhead rates

A costing system in which multiple overhead cost pools and a different predetermined overhead rate for each cost pool are used, rather than a single predetermined overhead rate for the entire company.

Normal cost system

A costing system in which overhead costs are applied to a job by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job.

Overhead application

The process of assigning overhead cost to specific jobs.

Plantwide overhead rate

A single predetermined overhead rate that is used throughout a plant.

Predetermined overhead rate

A rate used to charge manufacturing overhead costs to jobs that is established in advance for each period. It is computed by dividing the estimated total manufacturing overhead cost for the period by the estimated total amount of the allocation base for the period.

Time ticket

A document that is used to record the amount of time an employee spends on various activities.

Cost of goods manufactured

The manufacturing costs associated with units of product that were finished during the period.

Overapplied overhead

A credit balance in the Manufacturing Overhead account that occurs when the amount of overhead cost applied to Work in Process is greater than the amount of overhead cost actually incurred during a period.

Schedule of cost of goods manufactured

A schedule that contains three elements of product costs--direct materials, direct labor, and manufacturing overhead--and that summarizes the portions of the costs that remain in ending Work in Process inventory and that are transferred out of Work in Process to Finished Goods.

Schedule of cost of goods sold

A schedule that contains three elements of product costs--direct materials, direct labor, and manufacturing overhead--and that summarizes the portions of those costs that remain in ending Finished Goods inventory and that are transferred out of Finished Goods into Cost of Goods Sold.

Underapplied overhead

A debit balance in the manufacturing overhead account that occurs when the amount of overhead cost applied to work in process is less than the amount of overhead cost actually incurred during a period.