Finals Flashcards
(12 cards)
What are Mixed Costs?
Costs that possess both fixed and variable costs behavior
Total Cost = TFC + TVC. When production increases, unit mixed costs reduce due to lower fixed costs per unit.
What happens to average costs as volume decreases?
Average costs will increase
This is because average costs include both fixed and variable costs per unit.
What is a Sunk Cost? Give an example.
A cost that has already been incurred and cannot be recovered
Examples include a purchased textbook or parking garage fees.
Define Opportunity Cost.
The potential benefit that is given up when one alternative is selected over another
These costs are not recorded in accounting but must be considered in decisions.
What constitutes Product Cost?
Costs associated with manufacturing a product
Examples include factory workers’ wages, property taxes on factory facilities, and insurance on the factory building.
What are the components of Prime Cost?
Direct Materials (DM) + Direct Labor (DL)
Prime costs are the direct costs attributable to the production of goods.
What is Conversion Cost?
Direct Labor (DL) + Manufacturing Overhead (MOH)
Conversion costs are the costs incurred to convert raw materials into finished products.
What are Inventoriable Costs?
Costs recognized as an asset when finished and as an expense when sold
They follow the matching principle and are recognized as ‘Cost of Goods Sold’ on the income statement.
Define Period Cost.
Costs that are non-manufacturing and include Selling, Marketing, and Administration
Examples include salaries of clerical staff and sales commissions.
When is Job Order Costing used?
In situations where many different products are produced each period and products are manufactured to order
Examples include movie studios, shipbuilders, and hospitals.
What is an Allocation Base in costing?
A measure used to assign overhead costs to products
Examples include machine hours and direct labor.
What is the relationship between Manufacturing Costs and Product Costs?
Manufacturing costs are a component of product costs
This includes direct materials, direct labor, and manufacturing overhead.
