What is the weakness of traditional cost allocations? Traditional cost allocations are often based on volume such as number of products manufactured, number of direct labor hours, number of production machine hours,...
What is the weakness of traditional cost allocations? Traditional cost allocations are often based on volume such as number of products manufactured, number of direct labor hours, number of production machine hours,...
of the quantity of artisan breads produced in a month, the total amount of depreciation and insurance cost for the month will remain the same. An example of a mixed cost or semivariable cost is the bakery’s cost of...
Where can I find financial ratios for my industry? One source for financial ratios by industry is the RMA Annual Statement Studies Financial Ratio Benchmarks. RMA is the acronym for Risk Management Association and...
What is a comparative balance sheet? Definition of Comparative Balance Sheet A comparative balance sheet typically has two columns of amounts that appear to the right of the account titles or other descriptions such as...
Can absorption costing cause an increase in net income? Definition of Absorption Costing Absorption costing is a cost accounting method (required by US GAAP) in which a manufacturer must assign fixed manufacturing...
What is solvency? Definition of Solvency I use the term solvency to mean a company is able to 1) pay its obligations when they come due, and 2) continue in business. Some people look to a company’s working capital to...
Is the cost of land, buildings, and machinery a fixed cost? Land, Buildings and Machinery are Fixed Assets It is common for people to refer to land, buildings, and machinery as fixed assets. They are also referred to as...
Are estimates allowed in bookkeeping? While bookkeeping involves mostly precise amounts from sales and purchase invoices, cash receipts and checks written, etc. there are situations when estimates need to be entered....
in a manufacturing facility. A part of each monthly electricity bill is a variable cost since more electricity is used when more machines are working to manufacture more products. However, part of each monthly...
What is job order costing? Definition of Job Order Costing Job order costing or job costing is a system for assigning and accumulating manufacturing costs of an individual unit of output. The job order costing system is...
What is a predetermined overhead rate? Definition of Predetermined Overhead Rate A predetermined overhead rate is often an annual rate used to assign or allocate indirect manufacturing costs to the goods it produces....
What is a budget? A budget is a financial plan for future activities. The budgets used in business often include a sales or revenues budget detailed by products or services, production budgets, budgets for each...
Is depreciation a direct or indirect cost? Definition of Depreciation Depreciation is defined as the systematic expensing of the cost of an asset such as equipment, building, vehicle, etc. over the useful life of the...
What are mixed costs? Definition of Mixed Costs In accounting, the term mixed costs refers to costs and expenses that consist of two components: A fixed component, the total of which does not change as the volume of...
What is COS? Definition of COS In accounting, the acronym COS could indicate either cost of sales or cost of services. The income statement of a manufacturer or a retailer might use the term cost of sales or it might use...
What is the acid test ratio? Definition of Acid Test Ratio The acid test ratio, which is also known as the quick ratio, compares the total of a company’s cash, temporary marketable securities, and accounts receivable...
Are the sales taxes part of a retailer's sales? Definition of Sales Taxes Sales taxes are likely state and local taxes collected by the sellers of specified goods and the providers of specified services. The sales taxes...
How is the account Cash Short and Over used? Definition of Cash Short and Over Account The account Cash Short and Over is an income statement account (within a company’s general ledger) in which shortages or overages...
How do you compute a selling price if you know the cost and the required gross margin? Definition of Selling Price A selling price is the amount that a customer will pay to buy a product. If a retailer wants to earn a...
What is an unfavorable variance? Definition of a Variance In accounting the term variance usually refers to the difference between an actual amount and a planned or budgeted amount. For example, if a company’s budget...
What is meant by overabsorbed? Overabsorbed is usually used in the context of a manufacturer’s production overhead costs. Since manufacturing overhead costs are not directly traceable to products, they need to be...
Why would a balance sheet list current liabilities as negative amounts? Reasons for Negative Current Liabilities on a Balance Sheet Some older accounting software used minus signs or parentheses to indicate credit...
In standard costing, how is the purchase price variance reclassified to arrive at actual cost? Definition of Purchase Price Variance In standard costing, the purchase price variance is the difference between the actual...
What is float? Definition of Float In accounting and bookkeeping, float is the time between the writing of a check and the time that the check clears the bank account on which it is drawn. Examples of Float Payer...
What are indirect manufacturing costs? Definition of Indirect Manufacturing Costs Indirect manufacturing costs are a manufacturer’s production costs other than direct materials and direct labor. Indirect manufacturing...
What is other comprehensive income? Definition of Other Comprehensive Income Other comprehensive income, or OCI, consists of items that have an effect on the balance sheet amounts, but the effect is not reported on the...
What are manufacturing costs? Definition of Manufacturing Costs Manufacturing costs are the costs of materials plus the costs to convert the materials into products. All manufacturing costs must be assigned to the units...
What is accumulated other comprehensive income? Definition of Accumulated Other Comprehensive Income Accumulated other comprehensive income is a separate line within the stockholders’ equity section of the balance...
What is an indirect cost? Definition of Indirect Cost An indirect cost is a cost that is not directly traceable to a cost object (product, department, etc.). Rather, the indirect cost is sometimes referred to as a common...
What is an incremental cost? Definition of Incremental Cost An incremental cost is the difference in total costs as the result of a change in some activity. Incremental costs are also referred to as the differential...
What is self-insurance? Self-insurance means no insurance. For example, if a retailer decides to self-insure its buildings, the retailer will not have an insurance policy to pay for losses that may occur to its...
a repair service to get its equipment back in working order. On January 5, AVCO received the repair bill for the quoted cost of $8,000 with terms of net 10 days. AVCO’s first accounting entry for the repair was made...
had earnings of $800,000 for its recent year. It had 200,000 shares of common stock throughout the year. Its balance sheet reported stockholders’ equity of $7,700,000 at the beginning of the year and increased...
Receivable Right! When interest has been earned but no cash has been received and no billing paperwork has been processed in the accounting records, a company will need to accrue 1) interest revenue or interest income,...
a contra-asset account Allowance for Doubtful Accounts for an estimated amount. The Allowance account is a contra-account to Accounts Receivable and the combined balances is referred to as the net realizable value of...
Our Explanation of Debits and Credits describes the reasons why various accounts are debited and/or credited. For the examples we provide the logic, use T-accounts for a clearer understanding, and the appropriate general...
Our Explanation of Financial Ratios includes calculations and descriptions of 15 financial ratios. As you calculate the financial ratios you will also gain a deeper understanding of a company's operations and financial...
ratio will change. 14. If obsolete inventory items that have no salvage value are included at their original cost in a company’s Inventory account, which of the following will still be accurate? Select... Amount of...
or if the company is in a unique industry would the inventory be at an amount other than its cost. Sales Value Wrong. Because of the cost principle, inventory is carried at cost. Only if there is some impairment or if...
Since our Explanation of Cash Flow Statement illustrates how the amounts are determined, you will get a better understanding of this very important financial statement. No longer will you look at only the income...
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