Final Exam Review

Final Exam Review - Identify the various costs discussed in...

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Identify the various costs discussed in the course. Fixed: cost that is in total remains constant when activity volume changes; varies per unit inversely with changes in the volume activity. Variable: cost that in total changes in direct proportion to changes in volume of activity; remains constant per unit when volume of activity changes. Mixed: costs composed of a mixture of fixed and variable components. Product: all costs related to obtaining or manufacturing a product intended for sale to customers; are accumulated in inventory accounts and expensed as costs of goods sold at the point of sale. For a manufacturing company, product costs include direct materials, direct labor, and manufacturing overhead. Period: general, selling, and administrative costs that are expensed in the period in which the economic sacrifice is made. Sunk: costs that have been incurred in past transactions and therefore are not relevant for decision making. In an equipment replacement decision, the cost of the old machine presently in use is a sunk cost and is not avoidable because it has already been incurred. Opportunity: cost of lost opportunities such as failure to make sales due to an insufficient supply of inventory. Relevant: future-oriented costs that differ between business alternatives; also known as avoidable costs. Differential: costs that differ among business opportunities and are usually relevant information for decision making. Note, however, that not all are relevant. For example, although depreciation may differ between the alternatives, it is not avoidable because it is a sunk cost and therefore not relevant for decision making. Incremental Revenue: additional cash inflows from operations generated by using an additional cash asset. Manufacturing Overhead: production costs that cannot be traced directly to products. General, Selling, and Administrative: all costs not associated with obtaining or manufacturing a product; in practice are sometimes referred to as period costs because they are normally expensed in the period in which the economic sacrifice is incurred. Direct: cost that is easily traceable to a cost object and for which the sacrifice to trace is small in relation to the information benefits attained. Indirect: cost that cannot be easily traced to a cost object and for which the economic sacrifice to trace is not worth the informational benefits. Materials: cost of materials that can be easily and conveniently traced to products. Labor: s alaries paid to selling and administrative employees are expensed immediately, but the cost of production wages is added to inventory. Production wages are expensed as part of cost of goods sold at the time the inventory is sold. Overhead:
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Final Exam Review - Identify the various costs discussed in...

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