most manufacturing companies separate costs into three categories:
direct materials, direct labor, and manufacturing overhead
this is the materials that go into the final product
raw materials
the plastics produced by Du Pont are a ___ material used by hewlett-packard in its personal computers
raw
why are raw materials misleading?
they refer to any materials that are used in the final product and the finished product of one company can become the raw materials of another, but it seems to imply unprocessed natural resources like wood
these are materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product
direct materials
these are included as part of manufacturing overhead like solder and glue
indirect materials
this consists of costs that can be easily (both physically and conveniently) traced to individual units of product
direct labor
labor costs that can't physically be traced to products or that can be traced only at great costs and inconvenience are what
indirect labor
what are some examples of indirect labor
janitors, supervisors, materials handlers, and night security guards
this is the third element of manufacturing cost and it includes all manufacturing costs except direct materials and direct labor
manufacturing overhead
this includes items such as indirect materials, indirect labor, maintenance and repairs on production equipment and heat and light, property taxes, depreciation, and insurance on manufacturing facilities
manufacturing overhead
only the costs associated with _______ the factors are included in manufacturing overhead
operating
these are some other names used for manufacturing overhead:
indirect manufacturing costs, factory overhead, and factory burden
what are the two categories non-manufacturing costs are divided into?
selling costs and administrative costs
these include all costs that are incurred to secure customer orders and get the finished product to the customer
selling costs
what are selling costs sometimes often called?
order-getting and order-filling costs
these are examples of ___ costs: advertising costs, shipping, sales travel, sales salaries
selling costs
these include all costs associated with the general management of an organization rather than with the manufacturing or selling
administrative costs
these are executive compensation, general accounting, secretarial, public relations, and similar costs involved in the overall, general administration of the organization as a whole
administrative costs
what are non-manufacturing costs often called
selling, general, and administrative costs
these include all costs involved in acquiring or making a product. "attach" to units of product as the goods are purchased or manufactured and they remain attached as the goods go into inventory awaiting sale
product costs
where are product costs initially assigned to ?
an inventory account on the balance sheet- also known as inventoriable costs
product costs are treated as expenses in the the period in which what?
the related products are sold
these are all the costs that are not product costs. all selling and administrative expenses are treated as this
period costs
these are not included as part of the cost of either purchased or manufactured goods, instead they are expenses on the income statement in the period in which they are incurred using the usual rules of accrual accounting
period costs
this is the sum of direct material costs and direct labor costs
prime cost
this is the sum of direct labor cost and manufacturing overhead cost
conversion cost
this term is used to describe direct labor and manufacturing overhead because they are incurred to convert materials into the finished product
conversion cost
this refers to how a cost reacts to changes in the level of activity
cost behavior
this cost varies in total in direct proportion to changes in the level of activity
variable cost
these are common examples of variable costs
cost of goods sold for a merchandising company, direct materials, supplies, and power
this is a measure of whatever caused the incurrence of a variable and is sometime referred to as a cost driver
activity base
what are some of the most common activity bases?
direct labor hours, machine-hours, units produced, and units sold
assume that the activity base is what?
the total volume of goods and services provided by the organization
this is a cost that remains constant regardless of changes in the level of activity
fixed costs
what are some example of fixed costs?
straight-line depreciation, insurance, property taxes, rent, supervisory salaries, admin. sales, and advertising
these are not affected by changes in activity
fixed costs
this is also what fixed costs can be viewed as and they represent organizational investments with multiyear planning horizon that can't be reduced even for short period of time without making big changes
committed fixed costs
these are also referred to as managed fixed costs and usually arise from annual decisions by management to spend on certain fixed cost items. examples are advertising, public relations, management development programs
discretionary fixed costs
are discretionary fixed costs be cut for short periods of time with minimal damage to the long-run goals of the organization?
yes
this is the range of activity within which the assumption that cost behavior is strictly linear is valid
relevant range
outside of the relevant range, what happens with a fixed cost?
it may no longer be strictly fixed or a variable cost may not be variable
the variable cost per unit remains what
constant
the per unit fixed cost what
decreases as the activity level rise and increases as the activity level falls
cot behavior patterns such as salaried employees are often called what
step-variable costs
this contains both variable and fixed cost elements
mixed cost
Y=a + bX expresses the relationship between what
a mixed cost and the level of activity
Y= what?
the total mixed cost
a=?
the total fixed cost
b=?
the variable cost per unit of activity
X=?
the level of activity
the traditional income statement does not distinguish between
fixed and variable costs
the crucial distinction between fixed and variable costs is at the heard of what
contribution approach
what does the contribution approach provide manages with
an income statement that clearly distinguished between fixed and variable costs and therefore aids planning, controlling, and decision making
this also separates costs into fixed and variable categories
contribution approach
this is the amount remaining from sales revenues after variable expenses have been deducted
contribution margin
this is anything for which cost data are desired- including products, customers, job, and organizational subunits
cost object
this is a cost tha can be easily traced to a specific cost object
direct cost
this is a cost that cant be easily and conveniently traced to a specified cost object
indirect
this is a cost that is incurred to support a number of cost objects but cant be traced to them individually
common cost
the difference in costs between any two alternatives is known as what
a differential cost
a difference in revenues between any two alternatives is known as what?
differential revenue
what is a differential cost known as?
an incremental cost
the cost involved in producing one more unit of product is called what?
marginal cost
potential benefit that is given up when one alternative is selected over another
opportunity cost
what is a sunk cost?
a cost that has already been incurred and cant be changed by any decision made now or in the future
sunk costs are or are not differential costs?
are not because they cant be changed by any decision and because only differential costs are relevant in a decision, sunk costs should always be ignored
at southwest airlines, maintenance costs are a ____ cost
mixed
the fixed portion of a mixed cost represents what?
the minimum cost of having a service ready and available for use
the variable portion of a mixed cost is what
the cost incurred for the actual consumption of the service thus it caries in proportion to the amount of service actually consumed
this is an account the account is classified as either as variable or fixed based on the analyst's prior knowledge of how the cost in the account behaves
account analysis
this approach involves a detailed analysis of what cost behavior should be, based on an industrial engineer's evaluation of the production methods to be used, the materials specifications, labor requirements, equipment usage, production efficiency, power
engineering approach
these two methods estimate the fixed and variable elements of a mixed cost by analyzing past records of cost and activity data
the high-low and least-squares regression
if the scatterplot reveals linear cost behavior, then it makes sense to perform the what?
high-low or least squares regression calculations to separate the mixed cost into its variable and fixed components
this method id based off rise over run for the slope of a straight line
high low method
variable cost is the same as the what
slope of the line Y2-Y1/X2-X1
period with the lowest level of activity is selected as what point
the first