of activity changes. Example of Fixed Costs per Unit Assume that a company has two fixed costs: rent is $2,500 per month and salaries are $3,500 per month. The total fixed costs of $6,000 per month will not change when...
of activity changes. Example of Fixed Costs per Unit Assume that a company has two fixed costs: rent is $2,500 per month and salaries are $3,500 per month. The total fixed costs of $6,000 per month will not change when...
useful tool when measuring a manager’s efficiency. Example of a Flexible Budget Let’s assume a company determines that its cost of electricity and supplies will vary by approximately $10 for each machine hour (MH)...
What is a dependent variable? In accounting, a dependent variable is likely to be the total of a mixed cost that will change as the result of several factors. A factor that causes the change in the total cost is referred...
What do overabsorbed and underabsorbed mean? Definition of Overabsorbed and Underabsorbed In cost accounting, overabsorbed and underabsorbed pertain to a manufacturer’s manufacturing overhead costs. The manufacturing...
as a current asset. Example of Insurance Expense Let’s assume that a retailer has insurance policies for its property, general liability, vehicles, and employees’ worker compensation, medical, dental, life, and...
there will be 100,000 machine hours (MHs) involved in the production of goods. Therefore, the company will be assigning to the goods produced (and the goods will be absorbing) the fixed manufacturing overhead costs at...
order costing is a system used to collect and assign manufacturing costs to units that vary from one another.) Example of Process Costing Let’s assume that a company manufactures large quantities of an identical...
What is a budget variance? A budget variance results when an actual amount is different from a planned or budgeted amount. A budget variance can occur for revenues and for expenses. Join PRO to Track Progress Mark the...
What is elastic demand? Definition of Elastic Demand Elastic demand is the situation in which demand for a product or service is sensitive to price changes. Elastic demand is a major concern for a manufacturer that...
What is the difference between correlation and cause and effect? Definition of Correlation Correlation refers to the association between two or more variables. The association is measured by a statistic known as the...
Is depreciation an operating expense? Depreciation Could Be Either an Operating Expense or a Non-operating Expense Depreciation is an operating expense if the asset being depreciated is used in an organization’s main...
What happens when the high-low method ends up with a negative amount? The high-low method of determining the fixed and variable portions of a mixed cost relies on only two sets of data: 1) the costs at the highest level...
What is cash flow net of tax? I view cash flow net of tax as the amount of cash spent minus the income tax savings when the amount is deductible on the corporation’s income tax return. To illustrate this, let’s...
How do I calculate the after-tax cost of debt? Definition of After-Tax Cost of Debt The after-tax cost of debt is the interest paid on the debt minus the income tax savings as the result of deducting the interest expense...
What is a cost driver? Ideally, a cost driver is an activity that is the root cause of why a cost occurs. In the past century, the root cause of indirect manufacturing costs has changed from a single cost driver (such as...
Is a favorable variance always an indicator of efficiency in operation? In a standard costing system, some favorable variances are not indicators of efficiency in operations. For example, the materials price variance,...
Can a cost be both a direct cost and an indirect cost? A cost can be both a direct cost and an indirect cost. One of many examples is the cost of a supervisor in a department within a factory. Let’s assume that Sam...
What is cost accounting? Definition of Cost Accounting Cost accounting is involved with the following: Determining the costs of products, processes, projects, etc. in order to report the correct amounts on a company’s...
Are insurance premiums a fixed cost? The cost of the insurance premiums for a company’s property insurance is likely to be a fixed cost. The cost of worker compensation insurance is likely to be a variable cost....
What is trading on equity? Definition of Trading on Equity Trading on equity, which is also referred to as financial leverage, occurs when a corporation uses bonds, other debt, and preferred stock to increase its...
What is the dividend payout ratio? The dividend payout ratio, or simply the payout ratio, is the percentage of a corporation’s earnings that is paid out in the form of cash dividends. The calculation of the dividend...
of the plotted points are simply out of line. These outliers must be reviewed and possibly adjusted or eliminated since you don’t want incorrect data to distort the calculations under any method. To understand the...
What is an independent variable? In accounting, an independent variable is ideally a factor that causes a change in the total amount of the dependent variable. In other words, an independent variable should be something...
What are mixed costs? Definition of Mixed Costs In accounting, the term mixed costs refers to costs and expenses that consist of two components: A fixed component, the total of which does not change as the volume of...
Our Explanation of Accounting Equation (or bookkeeping equation) illustrates how the double-entry system keeps the accounting equation in balance. You will see how the revenues and expenses on the income statement are...
Our Explanation of Accounting Equation (or bookkeeping equation) illustrates how the double-entry system keeps the accounting equation in balance. You will see how the revenues and expenses on the income statement are...
of accounting, the receipt of cash and the payment of cash are not the focus of reporting revenues and expenses. Rather the focus is: 1) what revenues were earned, and 2) what expenses were incurred. Therefore, the...
referred to as __________. Vendors Right! Debtors Wrong. 8. A form or record sometimes used to assemble the documentation and approvals necessary for paying a vendor's invoice is a __________ voucher. The three-way...
Our Explanation of Standard Costing uses an easy-to-relate to example for illustrating a manufacturer's standard costs and variances. Also provided is a chart which indicates each variance, what it tells you, and where...
. $500 Wrong. Try another answer. $550 Right! [40 hours X $10] plus [10 hours X $15] = $550 OR [50 hours X $10] plus [10 hours X $5] = $550 Use the following information for Questions 15 – 17: An employee worked the...
Bookkeeping Video Training Part 4 Tips for remembering which accounts to debit and credit Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping Career Perform better at your current job Refresh your...
Bookkeeping Video Training Part 7 Adjusting entries: deferred revenues, accrued revenues, reversing accruals to avoid double-counting Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping Career Perform...
Bookkeeping Video Training Part 5 Why does my bank credit my account when they increase my cash account? Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping Career Perform better at your current job...
ending inventory and COGS will differ depending on a company’s cost flow assumption. Three examples of cost flow assumptions are: FIFO which assigns the recent unit costs of the purchases to inventory and the oldest...
should be identical. Accounting software will generate a post-closing trial balance (or any other trial balance) with a click of the mouse. Example of Post-closing Trial Balance The post-closing trial balance will have...
What are payroll taxes? Definition of Payroll Taxes The payroll taxes are the federal, state, and local taxes that pertain to the wages, salaries, commissions, bonuses, etc. of a company’s employees. Some of the...
What is net income? Definition of Net Income Net income is the positive result of a company’s revenues and gains minus its expenses and losses. A negative result is referred to as net loss. (There are a few gains and...
or goods have been received. However, the vendors’ invoices have not yet been received and the exact amount is not yet known. The company is required to estimate the amount since the estimated amount is far better...
expense over the years of the asset’s useful life.) Example of Revenue Expenditure Let’s assume that a company made a capital expenditure of $100,000 to install a high efficiency machine. The new machine requires...
discount as a sales discount. The buyer may refer to the early payment discount as a purchases discount.) Not all companies offer early payment discounts. If the discount is allowed it will appear on the sales invoice....
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