The cost to ship the product to the customer is a
Shipping is a period cost and a selling cost
What is a plastic part in the product, that is easy to track?
Direct Material Cost
Example of a direct labor cost?
the worker on the production line
Example of manufacturing overhead cost?
Supervisors on the production line
Conversion costs are
Direct labor + Manufacturing overhead
What is an example of an administrative period cost?
travel expense related to executive management
Direct costs are
part of making the product, easy to determine how much is required
The cost of utilities and telephone would be classified as
depends on which part of the company the costs are related to.
If corporate office and administrative operations, then period and administrative costs.
If in manufacturing plant, then product cost and manufacturing overhead.
Example of a direct labor cost?
the worker operating the machine that makes the product
Selling and administrative costs
are reported on the income statement as they are incurred
Why are supervisors on the production line considered indirect labor?
the supervisor is a necessary cost of manufacturing the product and it is difficult to determine how much of the salary is incurred to make one product.
As volume decreases, total fixed costs
are constant and cost per unit increases
Fixed costs that management can decide not to incur at any time
discretionary costs
Is utilities more likely to be fixed or variable?
The cost of utilities is usually determined by the amount used, and is usually mixed or variable
When a cost changes in total in direct proportion to changes in volume it is
a variable cost
Cost behavior analysis is related to
how costs change as output changes
A mixed cost consists of
both fixed and variable
A committed fixed cost
can be eliminated in the long term but not in the short term
How does a variable cost behave as volume changes?
changes in total and remains constant per unit
Within the relevant range
total fixed costs remain the same when production increases or decreases
As volume changes, which of these costs could be considered a mixed cost?
Utilities at the manufacturing plant
The material quantity on the cost sheet is related to the material
expected to be used
A term that is used interchangeably with standard is
budget and estimated
The pre-determined manufacturing overhead rate is used to determine
the estimated cost of manufacturing overhead for one product
The quantity listed on the cost sheet for material is the quantity
required to make one product
The production manager determines the standard for
direct labor quantity
The human resource manager determines the standard for
direct labor cost
the activity used to allocate manufacturing overhead should be the activity that
causes the company to incur the majority of manufacturing overhead costs
Which manager in the company should be the most knowledgeable relative to the total cost to make each product?
production manager
A unit is defined as
that product that is sold to a costumer
What would not be included in the costs stated on a cost sheet?
rent at the corporate headquarters
Management uses a flexible budget when they need to determine
the amount expected profit from an estimated volume of sales
A static budget
does not change, and is prepared for one volume of sales
A flexible budget
shows different volumes of units produced and different variable costs
In preparing a flexible budget, total variable costs are determined by:
multiplying the cost per unit by the number of estimated units
A flexible budget cannot be used by management to
predict the change in fixed costs as sales change
A flexible budget
reflects expected costs at various levels of activity
When using a flexible budget, if the volume increases
total costs will increase
Cost volume profit analysis requires that costs are categorized as
fixed or variable
Cost volume profit analysis assumes that fixed costs
do not change in total as volume changes
At break even point, the fixed costs are always
equal to contribution margin
the margin of safety is
the difference between budgeted sales and break even sales
When preparing a contribution margin income statement
-Net income + fixed costs= CM
-variable costs are grouped together and fixed costs are grouped together
-you can determine how profit will change as sales volume changes
Contribution margin per unit is equal to
sales price per unit- all variable costs per unit
total Contribution margin is equal to
total sales- total variable costs
A company will be at break even when
When fixed costs equals contribution margin or when revenues less variable costs equals fixed costs
when fixed costs increase
the number of units required to break even will increase
contribution margin ratio
gives the amount (in cents) of every sales dollar that is added to operating income when sales dollars increase
Management uses flexible budget to
determine total estimated sales, costs, and profits at various sales levels.