Podcast
Questions and Answers
What happens to the cost of inventory once the units are sold?
What happens to the cost of inventory once the units are sold?
- Transferred from cost of goods sold to assets
- Becomes irrelevant to the company
- Remains as an asset
- Transferred from assets to cost of goods sold (correct)
Which costs are considered product costs?
Which costs are considered product costs?
- Period costs
- Indirect product costs
- Direct materials, direct labor, and factory overhead (correct)
- Variable production costs
What do direct materials and direct labor collectively refer to?
What do direct materials and direct labor collectively refer to?
- Variable production costs
- Indirect product costs
- Prime costs (correct)
- Conversion costs
What are period costs?
What are period costs?
Which costs are referred to as conversion costs?
Which costs are referred to as conversion costs?
What type of costs are instantly expensed once incurred?
What type of costs are instantly expensed once incurred?
What is an example of a variable overhead cost?
What is an example of a variable overhead cost?
How are fixed costs typically expressed?
How are fixed costs typically expressed?
What will happen to total variable costs if production levels increase?
What will happen to total variable costs if production levels increase?
At what production level do the total costs for Ndesign Company's Bigwigs reach P400,000?
At what production level do the total costs for Ndesign Company's Bigwigs reach P400,000?
How do unit fixed costs change as production levels increase?
How do unit fixed costs change as production levels increase?
What effect does an increase in production levels have on unit variable costs?
What effect does an increase in production levels have on unit variable costs?
Which type of cost is considered an inflow in the economic sense and referred to as imputed costs?
Which type of cost is considered an inflow in the economic sense and referred to as imputed costs?
Which of the following costs do not change and remain constant, regardless of the manager's decision?
Which of the following costs do not change and remain constant, regardless of the manager's decision?
What type of costs depend on the scope, nature, and extent of authority granted to a manager within an organization?
What type of costs depend on the scope, nature, and extent of authority granted to a manager within an organization?
Which of the following is an example of an unavoidable cost?
Which of the following is an example of an unavoidable cost?
What term is used for the salaries of executives in the central office and other central administrative costs?
What term is used for the salaries of executives in the central office and other central administrative costs?
Which type of cost is irrelevant in short-term decisions and includes property taxes and committed fixed costs?
Which type of cost is irrelevant in short-term decisions and includes property taxes and committed fixed costs?
What type of cost is the 15% benefit from investing in project X considered as in this context?
What type of cost is the 15% benefit from investing in project X considered as in this context?
Why are opportunity costs and imputed costs not recorded in the financial accounting system?
Why are opportunity costs and imputed costs not recorded in the financial accounting system?
What does it mean when costs are classified as fixed?
What does it mean when costs are classified as fixed?
What distinguishes marginal cost from incremental cost?
What distinguishes marginal cost from incremental cost?
How is the imputed rate of using its own money instead of borrowing calculated?
How is the imputed rate of using its own money instead of borrowing calculated?
Which term describes a cost that decreases regardless of the level of production and sales but changes on a per-unit basis?
Which term describes a cost that decreases regardless of the level of production and sales but changes on a per-unit basis?
What is the basis of the Learning Curve Theory?
What is the basis of the Learning Curve Theory?
Why do total costs increase dramatically in the initial years of business operations?
Why do total costs increase dramatically in the initial years of business operations?
What happens to total costs as production continues according to the text?
What happens to total costs as production continues according to the text?
How does the Learning Curve Theory impact cost per unit of output?
How does the Learning Curve Theory impact cost per unit of output?
What effect does gaining experience have on productivity according to the text?
What effect does gaining experience have on productivity according to the text?
Why do total costs start to move up again as production continues according to the text?
Why do total costs start to move up again as production continues according to the text?
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Study Notes
Classifying Costs
- Indirect departmental costs include:
- Salaries of executives in the central office
- Central administrative costs (e.g. advertising, systems review, development, interest expenses, training)
- Allocated depreciation of noncurrent assets
- Avoidable costs are those that can be eliminated by not performing an activity
- Unavoidable costs remain constant, regardless of a manager's decision
- Examples: rent, depreciation, interest, property taxes, and other committed fixed costs
Controllable and Uncontrollable Costs
- Controllable costs are those that can be influenced or decided upon by a manager
- Uncontrollable costs are outside a manager's authority
- The concept of controllability is related to the organizational structure of an organization
Direct and Indirect Product Costs
- Direct product costs are directly identified with the finished goods or services
- Direct materials and direct labor are direct product costs
- Indirect product costs are not directly identified with the finished goods or services
- Factory overhead is an indirect product cost
Relevant and Irrelevant Costs
- Relevant costs are useful in making decisions
- Irrelevant costs are not useful in making decisions
Fixed and Variable Costs
- Fixed costs remain constant, regardless of the level of production and sales
- Variable costs change in proportion to the level of production and sales
- Examples of variable overhead: factory supplies, indirect materials, indirect labor, and repairs
Cost Sensitivity Sample Problem
- Total fixed costs: P 200,000.00
- Unit variable costs: P 20.00
- Changes in fixed and variable costs under varying production levels
Opportunity Cost and Imputed Costs
- Opportunity cost is the benefit that could have been obtained by choosing an alternative option
- Imputed costs are not incurred but are implied in a given decision
- Both opportunity costs and imputed costs are not recorded in the financial accounting system
Incremental and Marginal Costs
- Incremental costs represent a total increase in costs
- Marginal cost is an increase in cost per unit
Learning Curve Theory
- Based on the idea that the time required to perform a task decreases as the same person repeats the task
- People gain knowledge and experience, leading to lower average time required in every doubling of the same task
- Total costs increase dramatically in the initial years of business or product operations, then decrease as experience and efficiency increase
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