Term
| What distinguishes a cost and an expense? |
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Definition
Cost: Sacrifice of a resource
Expense: Expiration of an asset |
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Term
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Definition
| Anything you want to measure the cost of. Examples: Products, Services, Projects |
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Term
| What are differential costs? |
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Definition
The additional total cost incurred for an activity.
Surfboard Example: Everything |
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Term
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Definition
| Costs from previous expenditures. No future action can change it. |
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Term
| What are direct costs? Example? |
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Definition
Costs that are related to a particular cost object and can be traced directly to the object.
Example: Lightbulb in a projector |
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Term
| What are indirect costs? Example? |
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Definition
Costs that are related to a particular cost but cannot be traced directly to the object.
Example: Plant administrator Salary |
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Term
| What are opportunity costs? |
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Definition
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Term
| What are variable costs? Example? |
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Definition
Costs that vary per unit. Changes with level of activity.
Example: Soap and water used to run an automatic carwash. |
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Term
| What are fixed costs? Example? |
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Definition
Costs that remain the same per unit produced. Level of activity has no affect on the cost.
Example: Monthly payment on the note we used to buy the automatic carwash machine.
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Term
| What's a period cost? Example? |
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Definition
Costs that are expensed on the income statement and not included in CGS.
Example: SG&A, Design, Advertising |
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Term
| What are the two types of period costs? |
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Definition
| Marketing/selling costs and administrative costs. |
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Term
| What's a product cost? Example? |
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Definition
Costs that are included in Cost of Goods Sold on the income statement.
Example: Buying wood, Tool and Warehouse Rental, Student Salary |
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Term
| What are the 3 types of product costs? |
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Definition
1) Direct Labor
2) Direct Materials
3) Overhead |
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Term
| What are considered direct materials? |
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Definition
| Materials that are directly traceable to goods. Example: The wood in furniture. |
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Term
| What is considered direct labor? Example? |
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Definition
Labor that is directly traceable to the product.
Example: Assembly line worker's salary. |
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Term
| What is considered overhead? Examples? |
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Definition
All other manufacturing costs that arent direct materials or direct labor.
Ex: Utilities, Property Taxes, Depreciation |
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Term
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Definition
| Cost of direct materials and direct labor. |
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Term
| What are conversion costs? |
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Definition
| The cost of overhead and direct labor. |
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Term
| What are marketing/selling costs? |
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Definition
The costs to market, distribute, and service a product.
Examples: Advertising, freight out |
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Term
| What are administrative costs? Examples? |
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Definition
Costs associated with R&D and general admin. of an organization
Ex: Legal Fees, CEO Salary |
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Term
| What is a relevant range? |
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Definition
| Span linked between a certain cost and different levels of production. |
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Term
| What is operating leverage? |
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Definition
| A measurement of the combination between variable and fixed costs. |
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Term
| What does a high operating leverage infer? |
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Definition
| The company has a high proportion of fixed costs in its cost structure. |
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Term
| What does a low operating leverage infer? |
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Definition
| The company has a low amount of fixed costs in its costs structure. |
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Term
| What does operating leverage directly dictate in the profit-volume graph? |
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Definition
| The slope of the cost line. |
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Term
| How do you calculate the degree of operating leverage? |
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Definition
Contribution Margin
Operating Income |
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Term
| What is the main structure of the income statement? |
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Definition
Sales
-Cost of Goods Sold
Gross Margin
-Operating Expenses
Operating Income |
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Term
| How are the costs of goods manufactured calculated? |
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Definition
Direct Materials
Direct Labor
+Overhead
Total Manufacturing Costs
+Beginning Work In Progess
-Ending Work in Progress
CGS Manufactured |
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Term
| How are costs of goods sold calculated? |
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Definition
CGS Manufactured
+Beginning Finished Inventory
CGS Available for Sale
-Ending Finished Inventory
Cost of Goods Sold
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Term
| What factors affect how we classify direct and indirect costs? |
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Definition
1) Materiality of the cost in question
2)Available info-gathering technology
3) Design of operations |
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