ACC 220 Exam 1

Managerial Accounting

Focused on internal users, present and future, more timely but may be less accurate

Direct Costs

Costs that can be conveniently traced to a unit of product or other cost object

Indirect Costs

Costs that cannot be directly traced to a specific product or service, often allocated across multiple cost objects

Common Costs

Indirect costs incurred to support a number of costs objeccts, these costs cannot be traced to any individual cost object

Manufacturing Overhead

All manufacturing costs expcept direct material and direct labor, includes indirect materials and indirect labor costs.

Non-manufacturing costs

Costs that are not associated with the production of goods, including selling and administrative expenses.

Selling costs

Costs incurred to promote and sell products, including advertising and sales staff expenses.

Administrative Costs

All executive, organizational and clerical costs associated with managing and supporting the business operations.

Product Costs

Costs involved in acquiring or making products, costs that are expensed in the period they are incurred,

Cost Behavior

the way costs change in response to changes in business activity levels, typically categorized as fixed, variable, or mixed costs.

Variable Costs

Costs that vary in total directly and proportionally with changes in activity level, while remaining constant per unit.

Fixed Costs

Costs that remain constant in total regardless of changes in activity level, but can vary per unit as production volume changes.

Mixed Cost

Costs that contain both fixed and variable components, changing in total with activity level but not in a linear manner.

Y = a + bX

is the equation of a straight line representing the relationship between total costs (Y), fixed costs (a), variable costs per unit (b), and the level of activity (X).

Y stands for

The total cost

a stands for

The total fixed cost

b stands for

The variable cost per unit

X stands for

The level of activity

Differential Cost

A future cost that differs between any two alternatives (can be fixed or variable) and is relevant for decision-making.

Opportunity Cost

The potential benefit that is given up when one alternative is selected over another. It represents the value of the next best alternative that is not chosen.

Sunk Costs

Costs that have already been incurred and cannot be recovered, thus irrelevant for future decision-making.

Traditional Format

A method of presenting financial statements that separates operating revenues and expenses from non-operating items, often used for external reporting.

Contribution Format

A method of presenting income statements that separates variable costs from fixed costs, providing better insight into profitability and cost behavior, often used for internal decision-making and management analysis.

Cost Object

Any item for which costs are measured and assigned, such as products, departments, or projects.

Manufacturing Costs

Costs incurred to produce goods, including direct materials, direct labor, and manufacturing overhead.

Prime Costs

The total of direct materials and direct labor costs incurred in the production of goods.

Conversion Cost

Direct labor costs plus manufacturing overhead costs

Period Cost

Costs that are not tied to the production process, such as selling and administrative expenses.

Transfer of Product Costs

Raw Materials → Work In Process → Finished Goods

Cost Structure

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

Activity Base

A measure of whatever causes the incurrence of a variable cost, sometimes referred to as a cost driver

Common Activity Bases

Direct labor hours, machine hours, units produced, units sold

Committed Fixed Costs

Organizational investments with a multiyear planning horizon that cant be significantly reduced even for short periods of time without making fundamental changes

Discretionary Fixed Costs

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

Relevant Range

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

Step-Variable Costs

Can often be adjusted quickly as conditions change

Contribution Margin

Amount Remaining from sales revenue after all variable expenses have been deducted

COGS

Beginning merchandise inventory + purchases - ending merchandise inventory

Net Operating Income

Contribution Margin - Fixed Expenses

Variable Cost Per Unit

Total Variable Cost / Number of Units

High Low Method

Find the highest and lowest price in each column, right column on top left column on the bottom

Job Order Costing

Used by companies that make many different products, each with unique functions, track and assign costs to individual jobs

Bill of Materials

A document showing the quantity of each type of direct material required to make a unit of a product

Materials Requisition Form

A document specifying the type and quantity of materials to be drawn from the storeroom and the job charged for the cost of those materials

Job Cost Sheet

Records the direct materials, direct labor, and manufacturing overhead cost charged to a job

Time-Ticket

Records the amount of time an employee spends on various activities

Allocation Base

A measure of activity such as direct labor hours or machine hours used to assign costs to objects

Predetermined Overhead Rate (POHR)

Estimated total manufacturing overhead cost / Estimated total amount of allocation base

Overhead Application

The process of assigning overhead costs to specific jobs

Normal-Cost System

A costing system that applies overhead costs to jobs by multiplying a POHR by the actual amount of the allocation base incurred by the job

Plantwide Overhead Rate

A single predetermined overhead rate used throughout aa plant

Unit Product Cost

Fixed Costs + Variable Costs (Associated with producing the product)/ Total units produced

Selling price Per Unit

Unit Product Cost x (1 + Markup Percentage)

Depreciation of office equipment is recorded using

Depreciation Expense and Accumulated Depreciation account

Depreciation of factory equipment is recorded using

Manufacturing Overhead account and Accumulated Depreciation account

Selling and Administrative costs are recorded directly to

The Income Statement

COGM

Beginning WIP inventory + Total manufacturing costs added to production - Ending WIP inventory

Debit manufacturing overhead to decrease

When over applied cost has occurred

Credit manufacturing overhead to increase

When under applied cost has occurred

Overhead Application

Assignment of factory overhead costs to the units produced in a reporting period