Chapter 2 accounting - Chapter 2 accounTng 1 Direct labor...

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Chapter 2 accounting 1. Direct labor costs—can be easily traced to specific products 2. Indirect labor costs—(salaries) cost that cannot be easily traced to cost object Assembly line supervisor salary, factory security guard wages 3. Variable costs--remain constant per unit and vary in total (within relevant range of activity—approximate by a straight line) Changes in direct proportion to changes in activity level 4. Fixed costs: insurance, rent, salaries. Remain constant in total 5. Committed fixed costs—organizational investments with multiyear planning horizon that cant be reduced even for short periods of time without making changes (investments in facilities and equipment, insurance expenses, real estate taxes, top management salaries) 6. Mixed costs (semi-variable costs) 7. Contribution margin = sales revenue – variable costs 8. Common cost—cost shared by multiple cost objects in company 9. Conversion cost—sum of direct labor cost and manufacturing overhead cost (incurred to change raw materials into finished product 10. Prime cost—sum of direct materials cost and direct labor cost 11. Direct materials—are important component of finished product, cost can be traced to finished product 12. Indirect materials—(nails and glue, minor items) 13. Manufacturing overhead = indirect + direct labor 14. Cost assumptions are valid with relevant range of activity 15. Selling costs—cost from obtain customers’ orders 16. Marginal cost—cost of producing one more unit 17. Period costs All selling and administrative expenses Expensed on income statement in period which they are incurred (advertising and sales commissions, public relation, rental costs) >> nonmanufacturing 18. Product costs (aka inventoriable costs)
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