Test 3 notes

Test 3 notes - Unit 3: Managerial Accounting I. 1. 2. 3. 4....

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Unit 3: Managerial Accounting I. Differences between managerial accounting and financial accounting: Financial Accounting Managerial Accounting 1. Focus External Reporting Internal Reporting 2. Time Horizon Past Present and Future 3. Constraints GAAP NONE 4. Concerned with Organization as a whole Units/divisions of company II. Cost Terminology -need to know how costs behave to prevent surprises. 1. Fixed Costs: A cost that doesn’t change in total even though volume changes. Ex: No matter how many people go to the party, the band costs $1,200. Doesn’t change in total but does on per unit basis. 2. Variable Cost: A cost that does change in total as volume changes. Ex: Money spent on drinks will be more if more people come. Always $10/person…cost changes in total per unit 3. Mixed Cost: Contain both a fixed and a variable component. Ex: Cell phone bills and utility bills have a flat fee (minimum charge). Even if you use no electricity, you’re still billed a flat fee. (flat fee + rate/variable) 4. Direct Cost: A cost that will not continue to be incurred if a particular product is discontinued. The cost is directly tied to that product. Ex: Raw materials, product materials (won’t keep buying products if you’re not making what requires that piece). 5. Indirect Cost: A cost that will continue to be incurred despite discontinuing a particular product. Ex: Factory rent, utilities (won’t go away if we stop making a product) 6. Committed Cost: A cost that will be incurred because of a long-term policy/strategy decision that has been made. Ex: Advertising costs…committed to an ad campaign. 7. Discretionary Cost: A cost that can be changed in the short-term. Ex: Charitable donations to phone solicitors. 8. Product Cost: An inventorial cost. Part of the cost of the product being sold. Ex: Raw material, direct labors, indirect costs (factory rent and utilities are product costs) 9. Period Cost: An expense in the period incurred. Unrelated to the production process.
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Ex: Office rent 10. Opportunity Cost: The income foregone by not selecting the other alternative. Ex: Coming to college instead of going straight to work out of HS. 11. Differential Cost: The difference in cost between the 2 alternatives. Costs that are the same at both places are not relevant. Ex: Tuition at 2 diff. schools LSU Tuition $4,000/year $12,000/year Entertainment $1,000/year $1,000/year Transportation $1,000/year $5,000/year Books $1,000/year $1,000/year = $5,000 = $17,000 12. Sunk Cost: A cost that has been incurred in the past and cannot be reversed. Have spent money and can’t get it back. Never relevant in the decision making process. III.
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This note was uploaded on 01/11/2009 for the course ACCT 2000 taught by Professor Holmes during the Fall '08 term at LSU.

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Test 3 notes - Unit 3: Managerial Accounting I. 1. 2. 3. 4....

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