Managerial Accounting Exam 1 Uiowa

direct materials

raw materials that become an integral part of the finished product and whose cost can be conveniently traced to the finished product.

direct labor

labor that can be easily traced to individual units of product; touch labor; "touch labor"

prime costs

Direct Materials + Direct Labor

manufacturing overhead

all manufacturing costs except direct materials and direct labor.

conversion cost

Direct Labor + Manufacturing Overhead

product cost

DM + DL + MOH

include all costs involved in acquiring or making a product.

period cost

costs that are not product costs; all selling and administrative expenses

variable cost

varies, in total, in direct proportion to changes in the level of activity.

fixed cost

a cost that remains constant regardless of changes in the level of activity

mixed cost

contains both variable and fixed cost elements; semivariable costs; y =mx+b

total fixed cost

fixed MOH + fixed selling expense + fixed admin expense

total variable cost

DM + DL + VMOH

sunk cost

cost that has already been incurred and that cannot be changed by any decision made now or in the future-- not differential

differential cost

always relevant costs; incremental cost

traditional income statement

Sales Revenue

- Cost of Goods Sold

= Gross Margin

- Selling & General and Administrative Expenses

= Net Income from Operations

Contribution income statement

sales - variable expenses = contribution margin - fixed expenses = net operating income

prevention costs

support activities whose purpose is to reduce the number of defects (system development, quality circles)

appraisal costs

inspection costs; incurred to identify defective products before they're shipped (testing and inspection, maintenance)

internal failure costs

result from identifying defects before they are shipped to customers (ex: cost of scrap, re inspection, retesting)

external failure costs

result from when a defective product is delivered to a customer (ex: warranty, repairs, replacements, returns and allowances)

CM ratio

CM/Sales

VE ratio

VE/Sales

BEP in units

FC / CM per unit

BEP ($)

FC/CM ratio

MOS ($)

Sales - BEP ($)

MOS %

MOS ($) / Sales

DOL

CM/NOI

OL

FC/Total Costs

Change in NOI

(new sales - old sales) x CM ratio - FC

Change in profit

CM ratio x change in sales - change in fixed expenses

To Achieve Target Profit

(Target profit + FC)/CM

Predetermined Overhead Rate

estimated total manufacturing overhead cost/estimated total amount of the allocation base

OH applied to a particular job

POHR * amt of allocation base incurred by job

total job cost

DM + DL + MOH

unit product cost

total product cost / # of units

allocation base

a measure such as direct labor-hours (DLH) or machine-hours (MH) that is used to assign overhead costs to products and services.