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Cost object anything for which a cost is computer Direct cost can be traced to a cost object Indirect costs must be allocated cannot be easily traced Variable cost increase proportion to increases in activity Fixed cost remains constant as activity increases Mixed cost fixed and variable parts Step variable cost increases in steps with exact changes in activity approx variable Total variable costs increase positive sloped graph Unit variable costs constant as activity increases straight line graph Total fixed straight line Unit fixed cost negative slope avegerage fixed cost decrease as activity increases Mixed costs positive slope but maybe starts at a fixed cost Step variable costs Increases at a certain point but is fixed for a while after that point Inventoriable costs Manufacturing costs Costs to purchase for resale merchandise Expensed on income statement when sold Unsold cost showed on bal sheet All costs inside plant associated with transforming raw materials to finished goods Non distribution selling marketing R D administrative salaries of exec etc Direct Manufacturing DM cost object is the product direct materials and labor DM DL indirect manufacturing costs MOH Manufacturing overhead factory support indirect materials thread glue indirect labor janitor factory equipment supervisor salary heat what it takes to run the plant NON Manufacturing costs period costs noninventoriable marketing selling costs etc expenses R D during the period incurred Cost Volume Profit Analysis CVP Conventional CVP PROFIT REVENUE VARIABLE COSTS FIXED COSTS Contribution Margin CM Reveue VC Proftit CM fixed costs Unit CM or CM per unit Sales price unit variable cost CM Units sold x CM per unit CM Fixed costs Net income BTOperating Profit Unit CM increase in CM if one more unit is sold if fixed costs are the same increase in CM increase in Operating profit CM Ratio CM Sales Units needed to be sold Target profit fixed cost CM per unit Break even point profit 0 Bundle approach using multiple products step 1 What is the sales mix in of units Bears 500 000 625 000 8 Badgers 125 000 625 000 2 So of bears 4x of badgers 8 4 x 2 1 badger to every 4 bears x of badgers sold so step 2 CMofBadgersxX CMofbears x4X 2 545 600 0 to break 18X 14 x 4X 2 545 600 0 74X 2545600 X 34400 badgers Incremental cost cost of next unit of production Sunk cost cannot be recovered irrelevant for decision making Opportunity cost maximum value forgone Avoidable cost can be avoided by takig a course of action To choose whether or not to do something 1 Add and subtract all relevant costs and revenues of decision A 2 same with B not to do decision A 3 A B positive do or negative don t To choose what products to make 1 calculate CM per unit 2 rank products in order highest to lowest 3 fill demand for products based on rank RELEVANT COSTS

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# UW-Madison ACCTIS 211 - Notes

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