Managerial Accounting - Test 1 Study Guide

Variable Cost

Variable cost per unit stays the same
Total variable cost changes with the quantity

Fixed Cost

cost per unit changes
total fixed cost stays the same

Direct Cost

cost that can be traced to a cost object

Indirect Cost

cost that isn’t traceable to cost object

Period Cost

they are always indirect costs

Product Cost

entire cost of the product that’s being sold

Cost Object

i.e. bread.
can be a service or an actual product

3 basic manufacturing costs

direct material, direct labor, manufacturing overhead

Direct Material

material that is consumed and can be traced in product, i.e. flour in bread

Direct Labor

salaries, wages, and fringe benefits for personnel, i.e. baker making the bread

Manufacturing overhead

includes indirect labor, indirect material, and other costs

Indirect Labor

they don’t directly work on product but their services are necessary. i.e. Janitor at bakery, quality control inspectors

Indirect Materials

cost of materials required for production, but aren’t in final product. i.e. oven that bakes bread

Other costs

building depreciation, insurance, taxes

Conversion Cost

All the direct materials (of the bread). This would include the baker.

Differential Cost

difference between two possible costs. i.e. a baker job at 20k vs an hr job at 50k. the difference would be 30k.

Opportunity Cost

the best option (i.e. the hr job at 50k)

Sunk Cost

money spent that you can’t get back. This can be good or bad.

Which of the following statements regarding fixed costs is incorrect?

Expressing fixed costs on a per unit basis usually is the best approach for decision making.

Which of the following statements regarding variable costs is correct?

Remains constant on a per unit basis as the number of units increases