Managerial Accounting Exam 1

Manufacturing overhead

all manufacturing costs except direct materials and direct labor; i.e. indirect manufacturing costs, maintenance and reparis on production equipment, property taxes, depreciation, insurance on manufacturing facilities

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 called touch labor.

Nonmanufacturing Costs

Selling costs and Administrative costs.

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 Costs

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. Also see Inventoriable costs.

Period Costs

The costs that are not product costs. All selling and administrative expenses are treated as period costs. i.e sales commissions, advertising, executive salaries, public relations, and the rental costs of administrative offices.

Prime Cost

Direct materials cost plus direct labor cost.

Conversion Cost

Direct labor cost plus manufacturing overhead cost.

Cost behavior

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

Variable Cost

Production cost that varies as output changes; labor, energy, raw materials

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.

Relevant range

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

Cost Formula Y = a + bX

Y=dependent variable (total mixed cost), a=vertical intercept (the total fixed cost), b=slope of the line (the variable cost),X=independent variable (the activity level)

Sunk Cost

A cost that has already been committed and cannot be recovered

Opportunity Cost

cost in terms of foregone alternatives

Differential cost

the increase or decrease in costs as a result of one more or one less unit of output

Predetermined overhead rate

A rate used to charge manufacturing overhead cost 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.

Work in process

That portion of manufactured inventory that has begun the production process but is not yet complete.

Raw materials

Unprocessed natural products used in production

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.

Process costing system

A costing system that accumulates production costs by process or by department for a given period of time.

Job costing

Uses a single WIP account for the entire company

High low method

Change in costs divided by change in activity = b = VC/Unit

Total equivalent units

# of completed units + (Ending WIP units * %complete)

Cost per equivalent units

Cost per equivalent unit = total production costs / total in equivalent units

Contribution margin

amount remaining from sales revenue after variable expenses have been deducted

Allocation base

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