Managerial Accounting Chapters 2 & 3 Flashcards

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Questions and Answers

What are raw materials?

Materials that can be conveniently traced to the finished product

Manufacturing overhead costs

Materials that include both direct and indirect materials

All of the above (correct)

What is direct labor?

Labor that can be easily traced to individual units of the product.

What does manufacturing overhead include?

Indirect materials, indirect labor, maintenance and repairs, heat, light, property taxes, depreciation, and insurance.

What are selling costs?

All costs incurred to secure customer orders and deliver products. Signup and view all the answers

What are administrative costs?

Costs associated with the general management of an organization. Signup and view all the answers

What are product costs?

Costs involved in acquiring or making a product. Signup and view all the answers

What are period costs?

Costs that are not product costs. Signup and view all the answers

Prime cost is calculated as direct materials plus __________.

direct labor Signup and view all the answers

Conversion costs are the sum of __________ and manufacturing overhead.

direct labor Signup and view all the answers

What is cost behavior?

How a cost reacts to changes in the level of activity. Signup and view all the answers

Describe variable costs.

Costs that change in direct proportion to changes in the level of activity. Signup and view all the answers

What is an activity base?

A measure of whatever causes the incurrence of a variable cost. Signup and view all the answers

What are fixed costs?

Costs that do not change with the level of production. Signup and view all the answers

What are mixed costs?

Costs that contain both variable and fixed cost elements. Signup and view all the answers

What does the contribution format income statement separate?

Costs into fixed and variable costs. Signup and view all the answers

What are direct costs?

Costs that can be conveniently traced to a specific cost object. Signup and view all the answers

What are indirect costs?

Costs that cannot be traced to a specific cost object. Signup and view all the answers

What is a sunk cost?

A cost that has already been incurred and cannot be changed. Signup and view all the answers

How is the predetermined overhead rate calculated?

Predetermined overhead rate = (estimated total manufacturing overhead) ÷ (estimated total amount of allocation base) Signup and view all the answers

The 4 Step Process begins by estimating the total amount of the __________ base.

allocation Signup and view all the answers

Study Notes

Raw Materials

Includes materials used in the final product, categorized as direct or indirect.
Direct materials are integral to the finished product and easily traced to it, while indirect materials, like glue, fall under manufacturing overhead.

Direct Labor

Labor costs that can be directly traced to individual product units.
Costs that cannot be attributed to specific products are categorized as indirect labor within manufacturing overhead.

Manufacturing Overhead

Comprises indirect materials, indirect labor, and costs related to factory operation such as maintenance, utilities, property taxes, and insurance.
Excludes direct costs associated with product manufacturing.

Selling Costs

Encompass all expenses incurred to secure customer orders and deliver finished products.
Typical examples include advertising, shipping, sales commissions, and travel expenses.

Administrative Costs

Cover costs associated with general management functions within an organization.
Includes executive compensation, accounting, public relations, and secretarial expenses.

Product Costs

Incurred in the process of acquiring or manufacturing a product, comprising direct materials, direct labor, and manufacturing overhead.
Initially recorded as inventory; transferred to the income statement as Cost of Goods Sold (COGS) upon sale.

Period Costs

Represent all costs that are not classified as product costs, typically selling and administrative expenses.
Expensed on the income statement in the period incurred under accrual accounting principles.

Prime Cost

The sum of direct materials and direct labor costs associated with production.

Conversion Costs

Total of direct labor costs and manufacturing overhead, essential in converting raw materials into finished products.

Cost Behavior

Describes how costs respond to changes in activity levels, categorized into variable, fixed, or mixed.
Understanding cost behavior helps managers anticipate financial impacts based on activity fluctuations.

Variable Costs

Costs that change in direct relation to activity levels, such as costs of goods sold, direct materials, and variable selling expenses like commissions.

Activity Base (Cost Driver)

A variable cost measure determining the factors that trigger its incurrence, including direct labor hours, machine hours, units produced, or sold.

Fixed Costs

Costs that remain constant regardless of changes in production output, such as property taxes, insurance, and salaries.

Mixed Costs

Contain both variable and fixed cost elements; analyzed via methods like high-low and least squares regression to estimate their components.

Contribution Format Income Statement

A financial statement format that differentiates between fixed and variable costs, providing clarity on cost structure.

Direct Costs

Costs easily traceable to specific cost objects, providing clarity on product or project expenses.

Indirect Costs

Costs not easily traced to specific cost objects; often included in overhead calculations.

Sunk Cost

A past cost that has already been incurred and remains unaffected by future decisions.

Computing Predetermined Overhead Rate

Involves determining indirect manufacturing overhead costs relative to an allocation base, calculated as:
- Predetermined Overhead Rate = (Estimated Total Manufacturing Overhead) ÷ (Estimated Total Amount of Allocation Base).

4 Step Process in Estimating Costs

Estimate total allocation base for the next production period.
Estimate total fixed manufacturing overhead and variable manufacturing overhead costs.

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Description

Explore essential terms and definitions from Managerial Accounting Chapters 2 and 3 with these flashcards. This quiz focuses on critical concepts such as raw materials and direct labor, providing a solid foundation for understanding managerial accounting practices.