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CHAPTER 2 AN INTRODUCTION TO COST TERMS AND PURPOSES 2.4 Factors affecting the classification of a cost as direct or indirect include the materiality...

2.21 Can someone please explain how she came up with all the numbers on the table? how did she compute all the minutes and how she came up with 23.80 or 27.80 and so on on with the table? I need to understand the table so I can understand the graph. Thank you

2.23 Can you please elaborate more on dotball candies annual fixed manufacturing cost with relevant range please? Thank you

CHAPTER 2 AN INTRODUCTION TO COST TERMS AND PURPOSES 2.4 Factors affecting the classification of a cost as direct or indirect include the materiality of the cost in question available information-gathering technology design of operations 2.5 A variable cost changes in total in proportion to changes in the related level of total activity or volume. An example is a sales commission that is a percentage of each sales revenue dollar. A fixed cost remains unchanged in total for a given time period, despite wide changes in the related level of total activity or volume. An example is the leasing cost of a machine that is unchanged for a given time period (such as a year) regardless of the number of units of product produced on the machine. 2-6 A cost driver is a variable, such as the level of activity or volume, that causally affects total costs over a given time span. A change in the cost driver results in a change in the level of total costs. For example, the number of vehicles assembled is a driver of the costs of steering wheels on a motor-vehicle assembly line. 2-7 The relevant range is the band of normal activity level or volume in which there is a specific relationship between the level of activity or volume and the cost in question. Costs are described as variable or fixed with respect to a particular relevant range. 2-8 A unit cost is computed by dividing some amount of total costs (the numerator) by the related number of units (the denominator). In many cases, the numerator will include a fixed cost that will not change despite changes in the denominator. It is erroneous in those cases to multiply the unit cost by activity or volume change to predict changes in total costs at different activity or volume levels. 2-9 Manufacturing-sector companies purchase materials and components and convert them into various finished goods, for example automotive and textile companies. Merchandising-sector companies purchase and then sell tangible products without changing their basic form, for example retailing or distribution. Service-sector companies provide services or intangible products to their customers, for example, legal advice or audits. 2.10 Manufacturing companies have one or more of the following three types of inventory: 1. Direct materials inventory . Direct materials in stock and awaiting use in the manufacturing process. 2. Work-in-process inventory . Goods partially worked on but not yet completed. Also called work in progress . 3. Finished goods inventory . Goods completed but not yet sold. 2.11 Inventoriable costs are all costs of a product that are considered as assets in the balance sheet when they are incurred and that become cost of goods sold when the product is sold. These 2-1
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costs are included in work-in-process and finished goods inventory (they are “inventoried”) to accumulate the costs of creating these assets. Period costs are all costs in the income statement other than cost of goods sold. These costs are treated as expenses of the accounting period in which they are incurred because they are expected not to benefit future periods (because there is not sufficient evidence to conclude that such benefit exists). Expensing these costs immediately best matches expenses to revenues. 2-12 Direct material costs are the acquisition costs of all materials that eventually become part of the cost object (work in process and then finished goods) and can be traced to the cost object in an economically feasible way. Direct manufacturing labor costs include the compensation of all manufacturing labor that can be traced to the cost object (work in process and then finished goods) in an economically feasible way. Manufacturing overhead costs are all manufacturing costs that are related to the cost object (work in process and then finished goods) but cannot be traced to that cost object in an economically feasible way. Prime costs are all direct manufacturing costs (direct material and direct manufacturing labor). Conversion costs are all manufacturing costs other than direct material costs. 2-13 Overtime premium is the wage rate paid to workers (for both direct labor and indirect labor) in excess of their straight-time wage rates. Idle time is a subclassification of indirect labor that represents wages paid for unproductive time caused by lack of orders, machine breakdowns, material shortages, poor scheduling, and the like. 2-14 A product cost is the sum of the costs assigned to a product for a specific purpose. Purposes for computing a product cost include pricing and product mix decisions, contracting with government agencies, and preparing financial statements for external reporting under GAAP. 2-15 Three common features of cost accounting and cost management are calculating the costs of products, services, and other cost objects obtaining information for planning and control and performance evaluation analyzing the relevant information for making decisions 2-17 (15 min.) Direct, indirect, fixed, and variable costs. Wonder Bakery manufactures two types of bread, which it sells as wholesale products to various specialty retail bakeries. Each loaf of bread requires a three-step process. The first step is mixing. The mixing department combines all of the necessary ingredients to create the dough and processes it through high-speed mixers. The dough is then left to rise before baking. The second step is baking, which is an entirely automated process. The baking department molds the dough into its final shape and bakes each loaf of bread in a high-temperature oven. The final step is finishing, which is an entirely manual process. The finishing department coats each loaf of bread with a special glaze, allows the bread to cool, and then carefully packages each loaf in a specialty carton for sale in retail bakeries. 2-2
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