this with the following example. Example of LIFO Layers Jay Corp. began operations in 2021 using the LIFO cost flow assumption. It ended the year 2021 with 10 units in inventory at a cost of $20 each. Therefore, its...
this with the following example. Example of LIFO Layers Jay Corp. began operations in 2021 using the LIFO cost flow assumption. It ended the year 2021 with 10 units in inventory at a cost of $20 each. Therefore, its...
unit of x. It determines the slope of the total cost line. If b is $5, this means that the variable cost portion of electricity is estimated to be $5 for every unit of x. x is the independent variable. For example, x...
per unit of product, per unit of input (such as direct materials, factory overhead), or per unit of output. Examples of a Budget and a Standard Typically, a manufacturer will have a budget for each of its manufacturing...
See next-in, first-out cost flow assumption (NIFO).
See weighted-average cost flow assumption and moving-average cost of inventory.
A cost flow assumption where the last (recent) costs are assumed to flow out of the asset account first. This means the first (oldest) costs remain on hand. To learn more, see Explanation of Inventory and Cost of Goods...
A cost flow assumption where the first (oldest) costs are assumed to flow out first. This means the latest (recent) costs remain on hand. To learn more, see Explanation of Inventory and Cost of Goods Sold.
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...
The revenue from the next unit.
The cost of the next unit.
the physical flow of the goods being removed from the warehouse). Cost Flow Assumptions When the costs of the items in inventory are changing, a cost flow assumption must be made. If a company elects to first flow the...
. The break-even point could be determined by using an electronic spreadsheet or by using a formula. The key is to determine how each of the company’s costs and expenses behave in order to compute the total amount of...
income of exactly zero. Examples Causing a Break-even Point to Increase The break-even point will increase by any of the following: An increase in the amount of the company’s fixed costs/expenses An increase in...
Is a security deposit a current asset? Definition of Security Deposit A security deposit is often an amount paid by a tenant to a landlord to hold until the tenant moves. The amount of the security deposit is refundable...
with the same sales mix, it will experience larger losses. Example of Eliminating a Negative Contribution Margin By definition, the ways to eliminate the negative contribution margin include: Increasing selling prices...
for its internal financial statements and it had one unit in inventory, its internal balance sheet would report the unit at $__________. 22. If the company uses absorption costing for its external financial statements...
A quality of accounting information that facilitates comparing a company’s reporting of one accounting period to another. For example, the reader of a company’s financial statements can assume that the...
A simple form of business where there is one owner. Legally the owner and the sole proprietorship are the same. However, for accounting purposes the economic entity assumption results in the sole proprietorship’s...
The last-in, first-out cost flow assumption under the perpetual inventory system. The last (most recent) costs as of the time that goods are sold are the first costs removed from inventory. The oldest costs as of the...
of volume is more than a reasonable change. If volume did triple, it is likely that the company would have to add more space and more salaried employees. This would mean more fixed expenses. In Total Within A Reasonable...
The moving average cost of inventory items under the perpetual inventory system. A new average cost per unit is developed after each purchase of an inventory item. To learn more, see Explanation of Inventory and Cost of...
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...
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.
A symbol that indicates the variable cost rate and also the slope of a straight line. For example, in the equation of the straight line, y = a + bx, ‘b’ represents the variable cost rate per unit of...
In accounting this refers to the multiplication of quantity times price, or number of units times price or cost per unit.
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...
the standard cost per pound (or some other unit of measure such as gallons, liters, etc.) Variances direct management’s attention to areas where the company’s operations are deviating from the company’s budgets...
What is a LIFO Reserve? Definition of LIFO Reserve The LIFO reserve is a contra inventory account that indicates the difference between the following: Inventory cost reported on the balance sheet under the LIFO cost flow...
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...
assumption (FIFO, LIFO, average) The periodic inventory system requires a calculation to determine the cost of goods sold. Perpetual Inventory System In a perpetual system the account Inventory: Is debited whenever...
its inventory items, and at the same time use the last-in, first-out (LIFO) cost flow assumption. (In periods of inflation LIFO means the higher/recent costs will be moved to the cost of goods sold while the...
What is the effect on financial ratios when using LIFO instead of FIFO? Definition of Effect of LIFO Instead of FIFO During periods of significantly increasing costs, the LIFO cost flow assumption instead of the FIFO...
Our Explanation of Manufacturing Overhead gives you examples of what is included in manufacturing overhead. You will learn that these are indirect product costs and therefore are allocated to the products in order to...
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...
for further processing are referred to as __________–__________ units by Department A. 5. Department A’s costs for the units it sent to Department B are referred to as __________–__________ costs by Department B....
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...
Also referred to as illusory profits. Occurs because accountants use past costs rather than replacement costs. For example, in computing the cost of goods sold accountants often use the FIFO cost flow assumption. This...
What is NIFO? NIFO is the acronym for next-in, first-out. NIFO is a cost flow assumption, just as FIFO and LIFO are cost flow assumptions. However, NIFO is not acceptable for financial reporting since it calls for a...
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