of 10 years for its financial statements, while using a useful life of 7 years for its income tax return. Even the depreciation for a company’s financial statements could consist of some assets being depreciated...
of 10 years for its financial statements, while using a useful life of 7 years for its income tax return. Even the depreciation for a company’s financial statements could consist of some assets being depreciated...
Point A company’s break-even point will be reduced by the following: Decreasing the amount of fixed costs/expenses Reducing the variable costs/expenses per unit Improving the sales mix Increasing selling...
, if the manufacturer’s production and sales have declined and it fails to cut fixed costs, the manufacturer could be worse off by increasing selling prices. It could even lead to a death spiral. Examples of Elastic...
at $__________. 23. The product’s contribution margin per unit is $__________. 24. The product’s gross profit per unit is $__________. 25. Assuming the company manufactured and sold 100,000 units, its net income...
a vendor’s invoice within the vendor’s early payment discount period. Purchase Discounts Lost is considered to be an interest expense or a financing charge resulting from the buyer not being able to pay the cash...
value of money or future interest which is contained (is implicit) within the future cash amounts. Accountants record the present value of a future amount when the cash amount, cash equivalent amount, or fair market...
What is the cost principle? Definition of Cost Principle The cost principle is one of the basic underlying guidelines in accounting. It is also known as the historical cost principle. The cost principle requires that...
What is the difference between cost and price? Definition of Cost and Price In accounting, the term cost can mean the cash or cash equivalent amount a company paid to acquire an asset or the amount of an expense it...
If cash and a note are exchanged for a plant asset, is the amount of the note used in the depreciation calculation? A plant asset’s cost is depreciated, unless the asset is land. Cost is defined as the cash or cash...
of depreciation expense is not a source of cash, it does reduce a corporation’s taxable income. That in turn reduces a profitable corporation’s cash payments for income taxes (by the amount of the corporation’s...
Our Explanation of Break-even Point illustrates how to determine the number of units or sales dollars that will result in zero net income. The techniques rely on a product's contribution margin or contribution margin...
taxable income, it likely means lower income tax expense. Example Comparing LIFO and FIFO ABC Store purchases a product and then sells them to its retail customers. ABC began on January 2 and purchased 1 unit of product...
Vs. the actual hours it took and multiplies the difference in hours by the standard cost per direct labor hour. Here’s an example with amounts. Let’s assume the standard for direct labor is 3 hours per unit of...
profitability (as opposed to matching older lower costs with recent sales revenues). It is important to understand that LIFO is a cost flow assumption and the flow of costs can be different from the flow of the physical...
costing system specifies that the standard quantity of direct materials to manufacturer one unit of output is 5 pounds. The system also specifies that the standard cost per pound of the material is $3 per pound. If the...
the inventory at its net realizable value instead of at its cost.) Examples of Inventory Cost Assume that a retailer purchases 100 units of a product for $30 per unit. In addition, the retailer must pay a freight bill...
The cost associated with setting up a piece of production equipment. This would include the cost of the setup mechanic, the cost of scheduling, record keeping, moving the starting material, and testing the first few...
The amount by which total costs will change when an activity is increased by one unit. In the equation of the line, y = a + bx, the variable cost rate is represented by ‘b’ and the units of activity are...
Multiplying the individual items contained in each bill of material times the number of units expected to be produced during a specified time period. The result is the total quantity of each input that will be needed for...
An allocation of indirect costs based on the units of production, the number of machine hours, the number of labor hours, etc.
The additional cost of an additional quantity. It is similar to marginal cost, except that marginal cost refers to the cost of the next unit. Incremental cost might be the additional cost from the next 200 units.
Manufacturing overhead assigned to units of output. Often this is applied via a standard overhead rate. See the Explanation of Standard Costing.
In accounting this refers to the multiplication of quantity times price, or number of units times price or cost per unit.
The symbol for the number of units of product, number of machine hours, or other indicator of activity or volume as shown in the equation of the cost line y = a + bx.
The additional revenues from an additional quantity. It is similar to marginal revenue, except that marginal revenue refers to the revenue from the next unit. Incremental revenue might be the additional revenues from the...
A method used by retailers for estimating the cost of ending inventory without tracking the individual units of product.
A graph’s vertical scale that usually indicates the total dollars for the volume or units indicated by the x-axis.
The quantity on hand that will trigger an order to buy more items. A company’s reorder point for Product X might be 80 units. When the quantity on hand gets down to 80, a purchase order is prepared to obtain more...
Manufactured products that are often expressed in units, machine hours, etc.
sales revenues (quantity and prices) to cover both the product costs of the units sold and the other expenses of the accounting period. Example of Product Cost per Unit The product cost per unit is used for valuing a...
A variance arising in a standard costing system that indicates the difference between the standard amount of fixed manufacturing overhead for the good units produced (standard hours times standard rate) and the budgeted...
A variance arising in a standard costing system that indicates the difference between the standard amount of variable manufacturing overhead for the good units produced (standard hours times standard rate) and the...
What is lead time in purchasing? In purchasing, lead time is the estimated time between ordering goods and receiving the goods. For instance, if 100 units of Product X are ordered on April 11 and are expected to be...
The assigning or dividing up of amounts. For example, depreciation is an allocation process because it assigns an asset’s cost to expense in each of the years the asset is expected to be used. There is also an...
A government index that tracks the changes in prices in order to measure general inflation. This index can be used by small companies to obtain the benefits of LIFO without tracking individual units in inventory. See the...
A formula that calculates the optimum quantity to be purchased (or produced) so as to minimize the combined total cost of carrying inventory and processing additional purchase orders (or production setups). The formula...
Our Explanation of Present Value of an Ordinary Annuity uses the appropriate present value factors for discounting a stream of equal cash amounts occurring at equal time intervals. An important feature is the use of loan...
Our Explanation of Depreciation emphasizes what the depreciation amounts on the income statement and balance sheet represent. Learn why depreciation is an estimated expense that does not assist in determining the current...
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