to replace the asset. True Right! The original cost is a sunk, past cost. False Wrong. The original cost is a sunk, past cost. Such costs are not relevant to any decision, since decisions involve the present and the...
to replace the asset. True Right! The original cost is a sunk, past cost. False Wrong. The original cost is a sunk, past cost. Such costs are not relevant to any decision, since decisions involve the present and the...
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...
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...
Are there two ABC methods in accounting? Some accountants use ABC to mean Activity Based Costing. Under this ABC a manufacturer will use many cost drivers to assign overhead costs to products. The objective of Activity...
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...
principle, the cost flow assumption, consistency, and other accounting concepts and principles. When a company elects the LIFO cost flow assumption, it chooses to put its most recent costs in the cost of goods sold, and...
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...
cost is more likely to be used. Knowing how costs behave is important for decision making. For example, a manufacturer will want to know how its costs will increase if a new product line is added (or how costs could...
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 book value? Definition of Book Value In accounting, book value refers to the amounts contained in the company’s general ledger accounts (or books). It is important to realize that the book value is not the same...
sales. The cost of goods sold will consist of both fixed and variable product costs. However, selling, general and administrative expenses (SG&A) are not part of the cost of goods sold. Definition of Contribution...
What is Construction Work-in-Progress? Definition of Construction Work-in-Progress Construction Work-in-Progress is a noncurrent asset account in which the costs of constructing long-term, fixed assets are recorded. The...
, and/or Planned amounts that will be spent for future additions to property, plant and equipment When the depreciable assets that are included in capex are put into service, their costs will be depreciated over the...
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...
. 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...
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 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...
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 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...
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...
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...
Our Explanation of the Balance Sheet provides you with a basic understanding of a corporation's balance sheet (or statement of financial position). You will gain insights regarding the assets, liabilities, and...
Our Explanation of Nonprofit Accounting includes a chart that contrasts the financial statements of a nonprofit (or not-for-profit) organization with those of a for-profit business corporation. There are many examples to...
Our Explanation of Bookkeeping provides you with a rich understanding of the recording of transactions. It then discusses the additional steps necessary for preparing accurate financial statements. This is great for...
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.
Selling price per unit minus variable costs per unit, or revenues per unit minus expenses per unit.
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 statistical tool that uses the least-squares method to estimate the fixed and variable components of mixed costs.
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.
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.
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...
An allocation of indirect costs based on the units of production, the number of machine hours, the number of labor hours, etc.
A decentralized division of a corporation which is responsible for and has control over its costs, revenues, and investments.
The amount of temporary staffing costs that were used during the time interval indicated in the heading of the income statement.
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.
A technique using simultaneous equations to allocate a manufacturer’s service departments’ costs to both other service departments and to production departments.
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).
. 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...
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