ACCT 2123: EXAM 1
80 Cards in this Set
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Cost Object
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Anything for which cost data are desired - including products, customers, jobs, and organizational subunits
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Direct Cost
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Cost that can be easily and conveniently traced to a specified cost object
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Indirect Cost
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Cost that cannot be easily and conveniently traced to a specified cost object
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Common Cost
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Cost that is incurred to support a number of cost objects but cannot be traced to them individually
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Raw Materials
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Materials that go into the final product
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Direct Materials
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Materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product
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Indirect Materials
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Materials that are included as part of manufacturing overhead
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Direct Labor
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Consists of labor costs that can be easily traced to individual units of product
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Indirect Labor
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Labor costs that cannot be physically traced to particular products, or that can be traced only at great cost and inconvenience
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Manufacturing Overhead
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Includes all manufacturing costs except direct materials and direct labor
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Selling Costs
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All costs that are incurred to secure customer orders and get the finished product to the customer
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Administrative Costs
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All costs associated with the general management of an organization rather than with manufacturing or selling
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Sunk Cost
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Cost that has already been incurred and that cannot be changed by any decision made now or in the future
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Product Cost
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All costs involved in acquiring or making a product
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Period Cost
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All the costs that are not product costs (Sales commissions, advertising, executive salaries, public relations, and rental costs of administrative offices)
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Prime Cost
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The sum of direct materials cost and direct labor cost
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Conversion Cost
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The sum of direct labor cost and manufacturing overhead cost
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Variable Cost
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Varies, in total, in direct proportion to changes in the level of activity
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Activity Base
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Measure of whatever causes the incurrence of a variable cost
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Fixed Cost
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Cost that remains constant, in total, regardless of changes in the level of activity
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Committed Fixed Cost
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Represent organizational investments with a multiyear planning horizon that can't be significantly reduced even for short periods of time without making fundamental changes
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Discretionary Fixed Cost
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Arise from annual decisions by management to spend on certain fixed cost items
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Mixed Cost
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Contains both variable and fixed cost elements
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Account Analysis
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Account is classified as either variable or fixed based on the analyst's prior knowledge of how the cost in the account behaves
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Engineering Approach
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Cost analysis involves a detailed analysis of what cost behavior should be, based on an industrial engineer's evaluation of the production methods
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Dependent Variable
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The amount of cost incurred during a period depends on the level of activity for the period
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Independent Variable
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Causes variations in the cost
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High-Low Method
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Identifies the period with the lowest level of activity and the period with the highest level of activity
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Least-Squares Regression Method
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Uses all of the data to separate a mixed cost into its fixed and variable components
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Cost of Goods Sold
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Reports the product costs attached to the merchandise sold during the period
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Contribution Approach
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Provides managers with an income statement that clearly distinguishes between fixed and variable costs and therefore aids planning, controlling, and decision making
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Contribution Margin
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Amount remaining from sales revenues after variable expenses have been deducted
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Differential Cost
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Difference in costs between any two alternatives
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Differential Revenue
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Difference in revenues between any two alternatives
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Opportunity Cost
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Potential benefit that is given up when one alternative is selected over another
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Quality of Conformance
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Product that meets or exceeds its design specifications and is free of defects that make its appearance or degrade its performance
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Quality Cost
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Refers to all of the costs that are incurred to prevent defects or that result from defects in products
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Prevention Cost
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Support activités whose purpose is to reduce the number of defects
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Quality Circles
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Consist of small groups of employees that meet on a regular basis to discuss ways to improve quality
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Statistical Process Control
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Technique that is used to detect whether a process is in or out of control
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Appraisal Cost
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Incurred to identify defective products before the products are shipped to customers
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Internal Failure Cost
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Result from identifying defects before they are shipped to customers
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External Failure Cost
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Result when a defective product is delivered to a customer
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Quality Cost Report
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Details the prevention costs, appraisal costs, and costs of internal and external failures that arise from the company's current quality control efforts
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Absorption Costing
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All manufacturing costs, both fixed and variable, are assigned to units of products
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Job-Order Costing
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Used in situations where many different products, each with individual and unique features, are produced each period
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Bill of Materials
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Document that lists the type and quantity of each type of direct material needed to complete a unit of product
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Materials Requisition Form
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Document that specifies the type and quantity of materials to be drawn from the storeroom and identifies the job that will be charged for the cost of the materials
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Job Cost Sheet
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Records the materials, labor, and manufacturing overhead costs charged to that job
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Time Ticket
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Hour-by-hour summary of the employee's activities throughout the day
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Allocation Base
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Measure such as direct labor hours or machine-hours that is used to assign overhead costs to products and services
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Predetermined Overhead Rate
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Computed by dividing the total estimated manufacturing overhead cost for the period by the estimated total amount of the allocation base
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Overhead Application
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The process of assigning overhead cost to jobs
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Normal Cost System
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Applies overhead to jobs by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the jobs
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Cost Driver
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Factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes overhead cost
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Work in Process
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Consists of units of product that are only partially complete and will require further work before they are ready for sale to the customer
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Finished Goods
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Consist of completed units of product that have not yet been sold to customers
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Cost of Goods Manufactured
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Includes the manufacturing costs associated with the goods that were finished during the period
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Underapplied
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Accounting record where the overhead costs assigned for work in process does not reach the amount of actual overhead costs
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Overapplied
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Excess of overhead applied to work in process inventory over the amount of overhead actually incurred
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Plantwide Overhead Rate
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There is a single predetermined overhead rate for an entire factory
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Multiple Predetermined Overhead Rate
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System each production department may have its own predetermined overhead rate
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Activity-Based Absorption Costing
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Assigns all manufacturing overhead costs to products based on the activities performed to make those products
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Activity
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Event that causes the consumption of manufacturing overhead resources
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Activity Cost Pool
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Costs are accumulated that relate to a single activity
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Activity Measure
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Allocation base that is used as the denominator for an activity cost pool
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Batch-Level Activity
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Performed each time a batch is handled or processed, regardless of how many units are in the batch
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Product-Level Activity
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Relates to specific products and typically must be carried out regardless of how many batches are run or units of product are produced and sold
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Cost-Volume-Profit (CVP) Analysis
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Helps managers make many important decisions such as what products and services to offer, what prices to charge, what marketing strategy to use, and what cost structure to maintain
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CVP Five Factors
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1. Selling Prices
2. Sales Volume
3. Unit Variable Costs
4. Total Fixed Costs
5. Mix of products sold
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Break-Even Point
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The level of sales at which the profit is zero
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CVP Graph
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Where the relationships among revenue, cost, profit, and volume are illustrated
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Contribution Margin Ratio
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Contribution margin as a percentage of sales
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Variable Expense Ratio
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Ratio of variable expenses to sales
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Incremental Analysis
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Consider only the costs and revenues that will change if the new program is implemented
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Target Profit Analysis
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Estimates what sales volume is needed to achieve a specific target profit
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Margin of Safety
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The excess of budgeted or actual sales dollars over the break-even volume of sales dollars
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Operating Leverage
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Measure of how sensitive net operating income is to a given percentage change in dollar sales
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Degree of Operating Leverage
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Measure, at a given level of sales, of how a percentage change in sales volume will affect profits
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Sales Mix
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Refers to the relative proportions in which a company's products are sold
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ACCT 2123: FINAL EXAM