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Virginia Tech - ACCT 2116 - Study Guide - Midterm

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Virginia Tech - ACCT 2116 - Study Guide - Midterm

School: Virginia Polytechnic Institute and State University
Department: Accounting
Course: Principles of Accounting
Professor: Chris Sherman
Term: Fall 2016
Tags: Chapter, 1, 2, 3, exam, study, and guide
Name: ACIS 2116, Exam #1 Study Guide--Chapters 1 through 3
Description: These notes cover everything chapters 1 through 3. This includes all definitions from the book as well as formulas that you should know for the Wednesday's test.
Uploaded: 09/19/2016
This preview shows pages 1 - 3 of a 16 page document. to view the rest of the content
background image Chapter 1: Managerial Accounting and Cost Concepts Cost Classification Purpose Cost Classifications Assigning costs to cost objects Direct cost Indirect cost Account for costs in manufacturing 
companies
Manufacturing costs o Direct materials
o Direct labor
o Manufacturing overhead
Nonmanufacturing costs o Selling costs
o Administrative costs
Preparing financial statements  Product costs (inventoriable) Period costs (expensed) Predicting cost behavior in response to 
changes in activity
Variable cost (proportional to 
activity)
Fixed cost (constant in total) Mixed cost (has variable and 
fixed elements)
Making decisions Differential cost (differs between 
alternatives)
Sunk cost (should be ignored) Opportunity cost (foregone 
benefit)
Assigning Costs to Cost Objects: Direct cost  – a cost that can be easily and conveniently traced to a specified cost  object. Ex.: Cost of paper for a printing company to make brochures. Indirect cost  – a cost that cannot be easily and conveniently traced to a specified  cost object. Ex.: Manager’s salary divided and tacked onto each can of soup at a soup 
factory.
Account for costs in manufacturing companies Raw materials  – materials that go into the final product. Direct materials  – materials that become an integral part of a finished product  and whose costs can be conveniently traced to it. Manufacturing 
costs
background image Ex.: Seats that Airbus purchases from subcontractors to install into its 
commercial aircraft.
Indirect materials  – small items of material that may be an integral part of a  finished product, but whose costs cannot be easily or conveniently traced to it. Ex.: Glue, nails, etc. Direct labor  – factory labor costs that can be easily traced to individual units of a  product; also called “touch labor.” Indirect labor  – the labor costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced to particular
products.
Manufacturing overhead  – all manufacturing costs except direct labor and direct  materials. Ex.: Indirect materials, indirect labor, maintenance and repairs on equipment,
heat and light, property taxes, depreciation, insurance, security, etc.
Selling costs  – all costs that are incurred to secure customer orders and get the  finished product or service into the hands of the customer. Ex.: Advertising, shipping, sales travel, sales commissions, sales salaries, and
costs of finished goods warehouses.
  Administrative costs  – all executive, organizational, and clerical costs associated with the general management of an organization rather than with 
manufacturing or selling.
Ex.: General accounting, executive compensation, secretarial, public 
relations, etc. 
Preparing Financial Statements Product costs  – all costs that are involved in acquiring or making a product.  In the  case of manufactured goods, these costs consist of direct materials, direct labor, 
and manufacturing overhead.  Also called inventoriable costs.
Period costs  – costs that are taken directly to the income statement as expenses in  the period in which they are incurred or accrued. Ex.: All selling and administrative expenses Prime cost  – direct materials cost plus direct labor cost. Conversion cost  – direct labor cost plus manufacturing overhead cost. Manufacturing 
costs
Nonmanufacturing 
costs
background image Predicting cost behavior in response to changes in activity Variable cost  – a cost that varies, in total, in direct proportion to changes in the level of activity. Activity base  – a measure of whatever causes the incurrence of a variable  cost. o Ex.: Total cost of x-ray film in a hospital will increase as the number of  x-rays taken increases.  Therefore, the number of x-rays is the activity 
base that explains the total cost of x-ray film.
Fixed cost  – a cost that remains constant, in total, regardless of changes in the level  of activity within the relevant range. Committed fixed costs  – investments in facilities, equipment, and basic  organizational structure that can’t be significantly reduced even for short 
periods of time without making fundamental changes.
Discretionary fixed costs  – those fixed costs that arise from annual decisions  by management to spend on certain fixed cost items, such as advertising and
research.
Mixed cost  – a cost that contains both variable and fixed cost elements. Y = a + bX, where: Y = the total mixed cost a = the total fixed cost  b = the variable cost per unit of activity X = the level of activity The “high-low” method is used to determine which portions of mixed costs are 
fixed and which are variable.  
1. Determine the highest and lowest activity levels and their corresponding  costs. 2. Plus these numbers into the following formula to determine the variable  cost per unit: (Cost at high level – cost at low level) / (high level – low 
level)
3. Plug either the low- or high-level numbers into this equation: Cost = fixed  rate + (variable cost * level) 4. Solve for the fixed rate. Making Decisions Differential cost/incremental cost/decremental cost  – a difference in cost between  two alternatives. Sunk costs  – a cost that has already been incurred and that cannot be changed by  any decision made now or in the future.

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School: Virginia Polytechnic Institute and State University
Department: Accounting
Course: Principles of Accounting
Professor: Chris Sherman
Term: Fall 2016
Tags: Chapter, 1, 2, 3, exam, study, and guide
Name: ACIS 2116, Exam #1 Study Guide--Chapters 1 through 3
Description: These notes cover everything chapters 1 through 3. This includes all definitions from the book as well as formulas that you should know for the Wednesday's test.
Uploaded: 09/19/2016
16 Pages 24 Views 19 Unlocks
  • Better Grades Guarantee
  • 24/7 Homework help
  • Notes, Study Guides, Flashcards + More!
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