the production equipment is variable, but the portion of the electricity cost used to light and air condition the manufacturing facility is fixed. These simple examples show it can be difficult to understand how costs...
the production equipment is variable, but the portion of the electricity cost used to light and air condition the manufacturing facility is fixed. These simple examples show it can be difficult to understand how costs...
to be recorded as Manufacturing Overhead. Manufacturing Overhead is allocated to the products manufactured and will be part of the products’ cost. If the products are in Inventory, those products’ costs are assets....
consist of the costs of direct materials, direct labor, and manufacturing overhead Examples of Inventoriable Costs Assume that a retailer purchases an item for resale by paying $20 to the supplier. The item is purchased...
that the common costs or indirect costs that require allocation are not caused by volume. In other words, traditional cost allocations are often based on something other than the root causes of the costs. It is possible...
will be allocated $20. Indirect manufacturing costs are also referred to as manufacturing overhead, factory overhead, or burden. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance...
for its selling and general administration will be an expense for the period indicated by the meter reading dates. However, the utility bill for the direct and indirect manufacturing operations is part of its...
ledger account that reports the cost of the goods that are on the factory floor. In this current asset account are the cost of the direct materials, direct labor and the allocation of manufacturing overhead for the...
Is a manufacturer's product warranty part of its manufacturing overhead or is it part of its SG&A expense? The costs associated with a manufacturer’s product warranty are part of its selling expenses and...
How can a manufacturer determine the precise cost of its products? A manufacturer may never be able to determine the precise cost of its individual products. The reason is that most of the manufacturing costs (other than...
A cost object is often a product or department for which costs are accumulated or measured. For example, a product is the cost object for direct materials, direct labor and manufacturing overhead. The factory maintenance...
year). For the next nine accounting years the depreciation expense will be $30,000 and then $15,000 in the final accounting year. If the machine is used by a manufacturer, the depreciation, electricity, and maintenance...
in a manufacturing facility. A part of each monthly electricity bill is a variable cost since more electricity is used when more machines are working to manufacture more products. However, part of each monthly...
for answering Questions 13 - 17: A manufacturer sells only one product for $30 per unit. Its variable costs are $8 for manufacturing and $2 for selling expenses. The fixed costs per year are $100,000 for manufacturing...
, the process costing system is more appropriate.) Process Costing Process costing is a cost accounting system for calculating the manufacturing costs (direct materials, direct labor and manufacturing overhead) of...
. A manufacturer’s inventory consists of the cost to produce the items (the costs of direct materials, direct labor, and manufacturing overhead). Sometimes a company’s inventory cost has to be reduced to a lower...
causes of the overhead costs. Examples of Cost Allocations The following are only a few of the many cost allocations that occur in some companies or organizations: The cost of a manufacturing building is allocated to...
costs; what the costs should be) the company is on track to reach the cost part of its profit plan. If the actual costs deviate from the standard costs, management is alerted by the variances that are reported for...
What is the high-low method? Definition of High-Low Method The high-low method is a simple technique for determining the variable cost rate and the amount of fixed costs that are part of what’s referred to as a mixed...
, and manufacturing overhead used to manufacture a product. Definition of Period Costs Period costs are expenses that will be reported on the income statement without ever attaching to products. Since they are not...
income statement. This is achieved with techniques such as the allocation of manufacturing overhead costs and through the use of process costing, operations costing, and job-order costing systems. Cost accounting...
for each item (or each job or special order). The job cost record will report each item’s direct materials and direct labor that were actually used and an assigned amount of manufacturing overhead. The job cost...
Our Explanation of Improving Profits will assist you in focusing on the costs and revenues that are relevant (and ignoring those which are not relevant) for improving profits and eliminating losses. Examples of the...
as the subsidiary ledger containing the details for the general ledger account Work in Process. The Work in Process account will now be a control account containing summary amounts for direct materials, direct labor,...
What is accumulated depreciation? Definition of Accumulated Depreciation Accumulated depreciation is the total amount of a plant asset’s cost that has been allocated to depreciation expense (or to manufacturing...
as part of the asset’s cost Example of Capitalized Interest Assume that a company is constructing an addition to its present manufacturing building. Its bank is lending the company $320,000 at an annual interest rate...
, a manufacturer using equipment that is fully depreciated will have lower manufacturing overhead and lower cost of goods sold because the current year’s depreciation for the equipment is $0. Generally, the cost...
What is the rationale for not reporting plant assets at their liquidation value? I will assume that the plant assets‘ liquidation values are higher than the present carrying values when answering your question. Plant...
of the typical observations is referred to as an __________. 3. __________ regression analysis involves only one independent variable. 4. A cost that is partly fixed and partly variable is referred to as a mixed or...
direct materials, direct labor, and manufacturing overhead. Manufacturers are also required to consistently follow their selected cost flow assumption. Examples of Inventory Valuation Assume that a new company purchased...
are at various stages of completion at the end of a month, __________ units of production are used for assigning a department’s manufacturing costs to products. 3. Conversion costs consist of direct __________ and...
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...
/office factory selling 3. Service department costs are likely to be part of __________. Select... direct materials direct labor manufacturing overhead 4. The allocated costs of service departments will be...
Our Explanation of Income Statement helps you learn the most important features of a corporation's income statement (also known as the statement of operations or profit and loss statement). We provide more understanding...
Our Explanation of Evaluating Business Investments compares four of the techniques for reviewing potential capital expenditures. You will be introduced to accounting rate of return, payback, net present value, and...
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...
How do I calculate IRR and NPV? Definition of IRR The internal rate of return (IRR) method or model determines the interest rate that discounts all cash inflows and cash outflows to a net present value of $0. In other...
In standard costing, how is the purchase price variance reclassified to arrive at actual cost? Definition of Purchase Price Variance In standard costing, the purchase price variance is the difference between the actual...
, 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...
What is the payback reciprocal? The payback reciprocal is a crude estimate of the rate of return for a project or investment. The payback reciprocal is computed by dividing the digit “1” by a project’s payback...
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