.) necessary costs These costs are included in the cost of a plant asset. An example is the installation cost of a new plant asset. (On the other hand, a cost that is the result of negligent handling during installation...
.) necessary costs These costs are included in the cost of a plant asset. An example is the installation cost of a new plant asset. (On the other hand, a cost that is the result of negligent handling during installation...
that can easily be audited. In contrast, the market value is subjective: one person thinks the land is worth $1 million while another thinks it’s worth $1.5 million. Further support for the cost principle is the...
See variable manufacturing overhead spending variance and fixed manufacturing overhead budget variance. To learn more, see Explanation of Standard Costing.
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...
A term used in cost accounting to arrive at the cost per unit. The term is associated with the units that are not completed at the end of an accounting period. For example, if 500 units are completed as far as materials,...
How do you account for bond issue costs? Definition of Bond Issue Costs The costs associated with issuing bonds are debited to a contra liability account such as Bond Issue Costs. Over the life of the bonds, the issue...
of goods sold (which consists of its manufacturing costs) is $28. Therefore, the product’s gross margin is $12 ($40 minus $28), or 30% of the selling price ($12/$40). Difference Between Gross Margin and Profit...
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...
. The range of the estimated total cost for the manufacturing of 12,000 units when a 95% confidence interval is required will be $__________ to $__________. Any questions left unanswered will be marked incorrect.
and finished goods. The notes to the financial statements will also described how the manufacturer’s inventory is valued. For example, the notes will disclose whether FIFO lower of cost or net realizable value, LIFO,...
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...
of a product’s indirect costs. In the period in which a product is sold, its cost (including its share of depreciation) will be reported as part of the cost of goods sold, which is likely to be the largest operating...
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...
What is disinvestment? In business, disinvestment means to sell off certain assets such as a manufacturing plant, a division or subsidiary, or product line. Disinvestment is sometimes described as the opposite of capital...
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...
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,...
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...
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...
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...
The direct method could refer to the method of preparing the statement of cash flows. The direct method could also refer to the method of allocating a manufacturing facility’s service departments to its production...
Part of stockholders’ equity representing the fair market value of an asset at the time it was received as a gift. For example, a corporation may be given a large tract of land from a community if the corporation...
A department that is directly involved in manufacturing products. Examples are the machining, finishing, and assembling departments.
See fixed manufacturing overhead volume variance.
See variable manufacturing overhead efficiency variance.
See direct labor efficiency variance and variable manufacturing overhead efficiency variance.
For a manufacturer these would include factory supplies and other materials considered to be manufacturing overhead.
The term used by manufacturers to indicate that its manufacturing overhead applied or assigned to its output is less than the amount actually incurred.
Usually an annual manufacturing overhead rate established just prior to an accounting year and based on budgeted amounts.
The term used by manufacturers to indicate that the manufacturing overhead applied or assigned to its production is greater than the amount actually incurred.
Usually this refers to manufacturing employees who are not classified as direct labor. Material handlers, mechanics, setup workers, clean up workers are a few examples of indirect labor.
The situation where manufacturing service departments provide service to each other. For example, the factory maintenance department provides services to the factory administrative department and the factory...
The actual cost of direct materials, the actual cost of direct labor, and manufacturing overhead applied by using a predetermined annual overhead rate.
A budget that flexes with volume. Under a flexible budget the budgeted amount of manufacturing overhead will increase if the company produces more units than planned. The flexible budget will decrease if the company...
Manufacturing overhead assigned to units of output. Often this is applied via a standard overhead rate. See the Explanation of Standard Costing.
See fixed manufacturing overhead volume variance.
See variable manufacturing overhead spending variance.
The change in total costs in response to the change in some activity. For example, some of the costs of owning and operating a vehicle will increase in total with an increase in miles driven. These are referred to as...
In accounting, cost is defined as the cash amount (or the cash equivalent) given up for an asset. Cost includes all costs necessary to get an asset in place and ready for use. For example, the cost of an item in...
with significant amounts of inventory and plant assets. For example, when inventory is measured by using the first-in, first-out cost flow assumption under US GAAP, the actual historical cost of inventory that is...
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