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ACC 216 Notes -- Week 2

by: Elijah Duduit

ACC 216 Notes -- Week 2 ACC216

Marketplace > Marshall University > Accounting > ACC216 > ACC 216 Notes Week 2
Elijah Duduit
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Covers cost classifications and various formulas that determine costs to go on income statements and determine profit.
Principles of Accounting
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This 3 page Class Notes was uploaded by Elijah Duduit on Saturday January 23, 2016. The Class Notes belongs to ACC216 at Marshall University taught by STAFF in Fall 2015. Since its upload, it has received 32 views. For similar materials see Principles of Accounting in Accounting at Marshall University.

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Date Created: 01/23/16
ACC216  Notes  –  Week  2     Cost  classifications:   -­‐   Cost  objects  (direct,  indirect  costs)   -­‐   Manufacturing  (direct  material,  direct  labor,  selling,  administrative,  manufacturing  overhead)   -­‐   Financial  statements  (period,  product)   -­‐   Predictions  (behavior,  trends)  (fixed  costs,  variable  costs,  mixed  costs)   -­‐   Decision  making  (differential,  opportunity,  sunk)   **Think  about  salary     Direct  and  indirect  costs:   -­‐   Direct  (can  be  tracked  easier)   -­‐   Indirect  (aka  common)  (cannot  be  directly  tracked,  must  factor  in  when  necessary)     Manufacturing:   -­‐   Direct  material   -­‐   Direct  labor   -­‐   Manufacturing  overhead  (electric,  indirect  labor,  depreciation,  etc)   -­‐   Selling  &  administrative  expenses  (accounting,  sales,   commission)   -­‐   Must  understand  cost  classification     Prime  &  Conversion  Cost:   -­‐   Prime  (direct  material  +  direct  labor)   -­‐   Conversion  (direct  labor  +  manufacturing  overhead)     Example:  DM  =  69;  DL  =  35;  MOH  =  14;  Selling  =  29;  Administration  =  50   Product  cost  (DM  +  DL  +  MOH)  =  118   Period  cost  (certain  time  frame)  (selling  +  administration)  =  79   Prime  cost  (DM  +  DL)  =  104   Conversion  cost  (DL  +  MOH)  =  49     Fixed  &  Variable  Cost:   -­‐   Cost  behavior  (amount  of  cost  under  varying  activities)   -­‐   Does  cost  rise  or  fall  with  activity?   Cost  structure:     Total  Cost   Unit  Cost   Variable  Cost   Varies   Constant   Fixed  Cost   Constant   Varies     **On  charts,  variable  cost  line  has  linear  increase  with  higher  amount  of  units  purchased,  whereas   fixed   cost  line  stays  the  same  regardless  of  amount  of  units  purchased.               Mixed  cost:   -­‐   Mix  of  fixed  and  variable  costs   -­‐   Fixed  cost  component  (lowest  amount  to  keep  services  running)   -­‐   Variable  cost  component  (services  given)     Relative  range:   -­‐   Range  where  Total  Fixed  Cost  is  the  same   -­‐   Stepped  fixed  cost   Example:  You  can  set  up  one  machine  that  produces  three  units  for  $30,  two  machines  that  produce  six   units  for  $50,  or  three  machines   that  produce  nine  units  for  $65   -­‐   If  producing  two  units  cost  $34,  how  much  does  producing   three  units  cost?   -­‐   Setting  up  cost  for  one  machine  is  $30  which  produce  three  units;  if  total  cost  for  two  units  is   $34,  then  that  means  it  was  $2/unit   -­‐   Cost  of  producing  three   units  =  $36     Mixed  cost  equation:   -­‐   Think  of  formulas  when  figuring  out  slop e   -­‐   Y  =  a  +  bx   -­‐   B  =  slope   -­‐   (y2  –  y1/x2  –  x1)   **See  book  for  charts/examples     Hi-­‐Lo  Method:   -­‐   Taking  slope  of  highest  and  lowest  points   **See  book  for  charts/examples     Least  Squares  Method:   -­‐   Lowest  sum  of  distance  between  estimated  line  and  dots   -­‐   Differences  must  be  squared  to  cancel  plus -­‐minus  effect   Examples:   b  =  [n(Σxy)  –  (Σx)(Σy)]/[n(Σx )  –  (Σx) ]   2 2 a  =  [(Σy)  –  b(Σx)]/n   **Σ  =  sum                                 Contribution  Income  Statement:   -­‐   Separates  variable  expenses  from  fixed  expenses   Example:   **Sold  1,000  units  for  $12/unit     Sales         12,000   Variable  Expenses      Cost  of  goods  sold    6,000      Variable  selling                600      Variable  admin                400   7,000           5,000   Fixed  Expenses      Fixed  selling              2,500      Fixed  admin              1,500   4,000     Profit         1,000       Costs  of  Quality:   -­‐   Incurred  to  prevent  defects   -­‐   Prevention  &  appraisal   -­‐   Internal  &  external  failure  costs   -­‐   Quality  Cost  Report  (for  management  to  decide  what  to  do)    


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