Why is the distinction between product costs and period costs important? The distinction between product costs and period costs is important to: Properly measure a company’s net income during the time specified on its...
Why is the distinction between product costs and period costs important? The distinction between product costs and period costs is important to: Properly measure a company’s net income during the time specified on its...
to the products or to the cost of inventory. The period costs are usually associated with the selling function of the business or its general administration. The period costs are reported as expenses in the accounting...
What are out-of-pocket costs? Out-of-pocket costs are those costs or expenses that require a cash payment in the current period or during a project. For example, the wages of the person setting up a machine for a new...
will be due five years later. In addition to the one-time loan costs of $120,000 the company will also have the cost of the borrowed money which is $360,000 ($4 million X 9%) of interest each year for five years. It...
burden, or burden. US GAAP requires that indirect manufacturing costs be allocated to, assigned to, or absorbed by the manufacturer’s output (in addition to the cost of direct materials and direct labor) for its...
What are nonmanufacturing overhead costs? Definition of Nonmanufacturing Overhead Costs Nonmanufacturing overhead costs are the business expenses that are outside of a company’s manufacturing operations. In other...
The systematic allocation of the costs incurred to issue bonds (reported in a contra liability account) to Interest Expense over the life of the bonds.
predict and estimate the future costs, but the past costs are otherwise irrelevant to the decision. That is why accountants will refer to a past cost as a sunk cost. Examples of Relevant Costs Assume that a company has...
Are transportation-in costs part of the cost of goods sold? Definition of Transportation-in Costs Transportation-in costs, which are also known as freight-in costs, are part of the cost of goods purchased. The reason is...
of manufacturing overhead costs also allows for the computation and application of several departmental overhead cost rates instead of having a single, plant-wide overhead rate. This is important when there are a...
Should a manufacturer's selling prices be based on costs? A manufacturer’s selling prices should not be based on costs alone. One reason is that the actual cost of each product is not known with precision. At...
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...
costs because they are not assigned to products, and therefore cannot be included in the cost of items held in inventory. If a selling, general and administrative (SG&A) expense is prepaid, the prepaid portion will...
How do you calculate opportunity costs? Definition of Opportunity Costs Opportunity costs are the profits a company (or person) missed, or the contribution margin that was missed. Opportunity cost might be thought of as...
What are the methods for separating mixed costs into fixed and variable? Definition of Mixed Costs Mixed costs are partially a fixed cost and partially a variable cost. Mixed costs are also known as semivariable costs....
Are repairs to office equipment and factory equipment period costs? Repairs to office equipment are period costs. That is, the cost of the repairs to office equipment will be reported as a selling, general and...
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...
as wrong Mark as right allocated (or) assigned (or) applied This term indicates how indirect manufacturing costs are added to the cost of products. allocated (or) assigned (or) applied This term indicates how indirect...
Can a cost be both a direct cost and an indirect cost? A cost can be both a direct cost and an indirect cost. One of many examples is the cost of a supervisor in a department within a factory. Let’s assume that Sam...
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...
What is a product cost? Definition of a Retailer’s Product Cost In accounting, a retailer’s product cost is the cost paid to a supplier plus any other costs that are necessary to get the product in place and ready...
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...
insurance for the employees in the manufacturing operations should be included in the costs of the products manufactured. The products that have been sold will have their costs (including their share of worker...
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...
costs, burden, indirect manufacturing costs, and indirect product costs. Since manufacturing overhead is an indirect product cost, it needs to be allocated or assigned to the products manufactured and will cling to the...
What do overabsorbed and underabsorbed mean? Definition of Overabsorbed and Underabsorbed In cost accounting, overabsorbed and underabsorbed pertain to a manufacturer’s manufacturing overhead costs. The manufacturing...
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....
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...
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...
What is the difference between actual overhead and applied overhead? Definition of Actual Overhead In the context of actual and applied overhead, actual overhead refers to a manufacturer’s indirect manufacturing costs....
run smoothly with the same amount of monthly fixed costs, which on average are approximately $200,000 per month for the cost of supervisors, rent, depreciation, and other fixed costs. However, if the manufacturer’s...
. With standard costing, the general ledger accounts for inventories and the cost of goods sold contain the standard costs of the inputs that should have been used to make the actual good output. Differences between the...
The reduction in inventory quantities resulting in the removal of older layers of costs. With continuously higher costs, the older layers are likely to be low costs under LIFO. Removing these old, low costs will cause an...
What is the death spiral? Definition of Death Spiral In cost accounting and managerial accounting, the term death spiral refers to the repeated elimination of a manufacturer’s products which will result in spreading...
, the allocated manufacturing cost will be included as part of the following costs: Cost of goods that are in inventory (a current asset on the balance sheet) Cost of goods that were sold (as the expense cost of goods...
cost or fixed expense. Fixed expenses such as depreciation expense and property insurance expense are reported on a company’s income statement. Understanding which costs are fixed and which are variable is important...
rate The three product costs are used for calculating the cost of goods sold and the cost of the various inventories. If there is a difference between the total amount of overhead costs applied to the products and the...
FIFO and LIFO is best with which type of products? Definition of FIFO and LIFO FIFO and LIFO pertain to the flow of products’ costs out of inventory to the cost of goods sold that is reported on the income statement....
the inventory Cost of deterioration and obsolescence of the inventory items Some of the costs listed are a function of the cost or value of the inventory, while some are based on the physical size of the items being...
What is process costing? Definition of Process Costing Process costing is a term used in cost accounting to describe one method for collecting and assigning manufacturing costs to the units produced. A processing cost...
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