in the most recent higher costs being reported in the cost of goods sold resulting in less gross profit, less net income, less taxable income, and less income taxes than FIFO. LIFO also means that the older lower costs...
in the most recent higher costs being reported in the cost of goods sold resulting in less gross profit, less net income, less taxable income, and less income taxes than FIFO. LIFO also means that the older lower costs...
income statement. A few examples include advertising, office salaries, interest on most loans, and research and development costs. When a cost has a future economic benefit which can be measured, the accountant should...
to as a contra-liability account. Examples of Contra-Liability Accounts Some contra-liability accounts include: Discount on Bonds Payable Bond Issue Costs Discount on Notes Payable The debit balances in the above...
of fixed manufacturing overhead costs The amount of the fixed manufacturing overhead costs that were assigned to (or absorbed by) the company’s good output Example of Production Volume Variance Assume that a...
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)...
for costs. Examples of cost centers include a production department, maintenance department, accounting department, human resource department, etc. Profit centers. In a profit center the manager is responsible for its...
What is a deferred asset? Definition of Deferred Asset A deferred asset represents costs that have occurred, but because of certain circumstances the costs will be reported as expenses at a later time. You might consider...
What does an unfavorable volume variance indicate? An unfavorable volume variance indicates that the amount of fixed manufacturing overhead costs applied (or assigned) to the manufacturer’s output was less than the...
are not acceptable, management can make the needed changes before the year actually begins. Budgets can also assist in controlling the actual costs, because managers realize that the costs of their activities will be...
a company’s costs, assisting in financial decisions, profit planning, calculating break-even points, capital budgeting, and calculating the costs of existing products in order to value the company’s inventory and to...
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 increases a break-even point? Definition of Break-even Point The break-even point is the volume of sales in units or in dollars that is equal to a company’s total expenses (including the cost of goods sold). In...
Under the accrual method of accounting, this account reports the amount of worker compensation insurance expense that pertains to the period indicated in the heading of the income statement, whether or not the company...
. If that amount is significant, the company will prorate the $400,000 to its inventory and to its cost of goods sold. Let’s also assume that the proration will be based on the company’s $1 million of standard...
in Manufacturing At a manufacturing company, the salaries and wages of employees in the manufacturing operations are assigned to the products manufactured. When the products are sold, the costs assigned to those...
Our Explanation of Inventory and Cost of Goods Sold will take your understanding to a new level. You will see how the income statement and balance sheet amounts are affected by the various inventory systems and cost flow...
the largest expense on the income statement of a retailer or manufacturer. Since the amount is very significant it is important that the proper costs are matched with the sales revenues. On the internal financial...
overhead rates is that manufacturers are likely to produce many diverse products which use different processes in different departments and each has different costs. Example of Departmental Overhead Rates Assume that a...
A plotting of points that represent both the volume and the associated cost. The y-axis indicates the amount of costs while the x-axis indicates the corresponding volumes.
Assigning manufacturing overhead costs to products being manufactured by using a manufacturing overhead rate.
In cost accounting this term means to allocate, apply, apportion, or spread manufacturing overhead costs to the production output. In terms of accounts receivable, assign means to pledge accounts receivable to a lender...
The amount of temporary staffing costs that were used during the time interval indicated in the heading of the income statement.
Manufacturing costs other than direct materials and direct labor. To learn more about manufacturing overhead, see our Manufacturing Overhead Outline.
The actual cost incurred for manufacturing costs other than direct materials and direct labor which increase as production volume increases. Examples include manufacturing supplies and electricity to operate the...
This ratio relates the costs in inventory to the cost of the goods sold. To learn more about this ratio, see Explanation of Financial Ratios.
Long term assets that are not classified as investments, property, plant, equipment, or intangible assets. An example is bond issue costs that are amortized to expense over the life of the bonds.
A phrase used in standard costing. The production that is acceptable (not rejected products) and which is assigned manufacturing costs of direct materials, direct labor, and manufacturing overhead.
To assign costs to a product, department, customer, etc. on an arbitrary basis. For example, the heating cost might be allocated to the five departments located in the area that is heated. The allocation is often based...
The benefit foregone by choosing another course of action. Also known as the opportunity cost. The lost opportunity is sometimes measured by the lost contribution margin (sales minus the related variable costs).
The variable manufacturing costs other than direct materials and direct labor that have been assigned to the products manufactured via a predetermined rate. Ideally, by the end of the accounting year the amount applied...
Activities that are not specifically associated with a specific product or customer. For example, the costs of an audit and filing information with government agencies are examples of organization-sustaining activities.
A statistical tool that uses the least-squares method to estimate the fixed and variable components of mixed costs.
A decentralized division of a corporation which is responsible for and has control over its costs, revenues, and investments.
A technique using simultaneous equations to allocate a manufacturer’s service departments’ costs to both other service departments and to production departments.
An amount that is expensed immediately. For example, routine repair costs on equipment are revenue expenditures because they are charged directly to an income statement account such as Repairs and Maintenance Expense.
Selling price per unit minus variable costs per unit, or revenues per unit minus expenses per unit.
A single overhead rate for assigning all of the manufacturing production and service department costs to products. This rate is less accurate than departmental rates if a company manufactures a diverse group of...
. Knowing how costs behave when sales or other activities change will allow you to better understand how a company’s gross profit and net income will change. It also allows you to quickly calculate a product’s...
than the current cost of the productive capacity being used up each year. Similarly, if a retailer’s cost of items in inventory is increasing at an annual rate of 10%, the cost of goods sold reported on the income...
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