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(WIP) ACC 350 Exam 1 Study Material

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4. Direct material (DM)

4. Direct material (DM) Pg. 4 Sarah Allison Takash ACC 350, Spring 2018 Exam 1 Study Material a. Acquisition costs of all materials that eventually become part of the cost object as WIP or FG b. Assignment methods: Tracing/Traced 5. Overhead (OH) a. Can refer to: i. Nonmanufacturing OH 1. Also known as: a. SG&A b. Period costs ii. Manufacturing OH 1. Is manufacturing costs related to the cost object that CANNOT be traced in an economically feasible way 2. Also known as: a. Indirect manufacturing costs b. factory OH b. Assignment method: Allocation 6. Relevant range a. is the band or range of normal activity level or volume in which there is a specific relationship between the level of activity or volume and the cost in question. b. Example i. a fixed cost is fixed only in relation to a given wide range of total activity or volume (at which the company is expected to operate) and only for a given time span (usually a particular budget period). 7. Opportunity Costs a. the loss of potential gain from other alternatives when one alternative is chosen. 8. Cost Driver a. a variable that causally affects costs over a given time span b. The cause in a cause-and-effect relationship with costs being the effect c. Examples:

Pg. 5 Sarah Allison Takash ACC 350, Spring 2018 Exam 1 Study Material i. Level of activity ii. Volume of production d. Note that: i. Fixed costs​ have ​no​ cost driver in the short run​ but may have a cost driver in the long run. 9. Fixed costs ​(within a relevant range) a. Total​ fixed costs: i. Are​ constant 1. Unchanged, despite significant changes in levels of total activity or volume. when considering fixed costs, always focus on total costs. b. Per unit​ fixed costs i. Are​ inversely proportional 1. Decrease as the activity level or volume increases c. Cannot be easily changed in the short run, rather are changed in the long run by managerial decision making d. Examples: i. Salaries to plant supervisors ii. Labor union agreements to set workers hours/compensation 10. Variable costs a. Total​ variable costs​: i. Are ​proportional​ within a relevant range 1. Total variable cost changes in proportion to changes in the related level of total activity or volume of output produced. ii. graphed as a diagonal, upward sloping line b. Per unit​ of activity: i. Is ​constant ​within a relevant range ii. Is graphed as a horizontal line c. Examples: i. Hourly wages