in an account that normally has a debit balance, or a debit balance in an account that normally has a credit balance A credit entry, when a debit entry will not have parentheses An unfavorable variance in standard...
in an account that normally has a debit balance, or a debit balance in an account that normally has a credit balance A credit entry, when a debit entry will not have parentheses An unfavorable variance in standard...
Usually used in describing fixed costs. We often state that fixed costs will not change as volume changes. However, if volume were to triple, there would likely be more fixed costs as the company will need more space and...
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,...
there will be 100,000 machine hours (MHs) involved in the production of goods. Therefore, the company will be assigning to the goods produced (and the goods will be absorbing) the fixed manufacturing overhead costs at...
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...
Do variance accounts have an impact on financial statements? Or are they for performance evaluation only? Since the financial statements must reflect the cost principle, both the standard costs and the variances must be...
A technique used to determine the variable rate (slope of a total cost line) of an independent variable and the fixed amount by using just two points: the highest point and the lowest point. For example, if at the...
variance accounts. For external financial reporting, the variances must be allocated to the inventories and the cost of goods sold. Definition of GAAP GAAP is the acronym for the phrase generally accepted accounting...
at an extremely high volume or low volume, a change will likely occur. Examples of Fixed Expenses Let’s assume that a retailer’s monthly rent is $2,000. If the rent will remain at $2,000 whether the monthly sales...
or Practice Quiz for this topic. For more insight regarding a specific question, use the search box at the top of the page. 1. Prior to using a cost estimation technique, it is prudent to first prepare a __________ of...
to as a variance. If the amount of the variance is not significant, it will usually be assigned to the cost of goods sold. If the variance is significant, it should be prorated to the cost of goods sold, the...
. Mack recorded the materials in its Materials Inventory account at its standard cost of $2.80 per pound. The difference between Mack’s actual cost of $3 per pound and Mack’s standard cost per pound of $2.80 times...
What is a flexible budget? Definition of a Flexible Budget A flexible budget is a budget that adjusts or flexes with changes in volume or activity. The flexible budget is more sophisticated and useful than a static...
Why would the cost behavior change outside of the relevant range of activity? Cost behavior often changes outside of the relevant range of activity due to a change in the fixed costs. When volume increases to a certain...
to the allocations (which are viewed as arbitrary), consider that changes in volume will affect a product’s cost. For example, if a company’s total fixed costs remain constant but its volume of products decreases by...
What is a trade discount? Definition of Trade Discount A trade discount is a routine reduction from the regular, established price of a product. The use of trade discounts allows a company to vary the final price based...
on knowing how a company’s costs or expenses will change as the volume of sales change. The break-even point calculation is based on the following amounts: Total amount of fixed expenses Variable expenses per unit or...
A cost and/or volume of activity that is outside of an expected range.
See cost-volume-profit (CVP).
What is a static budget? Definition of Static Budget A static budget is a budget in which the amounts will not change even with significant changes in volume. In contrast to a static budget, a company’s sales...
by reading our Improving Profits (Explanation). 1. Fixed expenses are best described as expenses that remain the same __________. In Total Even When Volume Triples Wrong. This is NOT the best answer. Fixed expenses are...
The actual cost incurred for manufacturing costs that does not change as production volume changes. Examples include the property tax, rent, and depreciation of the factory building and equipment, and the salaries of the...
A graph’s vertical scale that usually indicates the total dollars for the volume or units indicated by the x-axis.
The actual cost incurred for manufacturing costs other than direct materials and direct labor which increase as production volume increases. Examples include manufacturing supplies and electricity to operate the...
The estimated volume in a future period that will be used for allocating indirect manufacturing costs.
A graph’s horizontal base which indicates the total number of units or other units of volume or activity for the amounts indicated by the y-axis.
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.
The symbol for the number of units of product, number of machine hours, or other indicator of activity or volume as shown in the equation of the cost line y = a + bx.
A budget that does not flex for changes in volume or activity.
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...
suppliers have catalogs with prices before any discounts. Let’s assume that the supplier gives companies that purchase a high volume of goods a trade discount of 30%. A small volume buyer receives only a 10% discount....
What is a fixed cost? Definition of Fixed Cost A fixed cost is one that does not change in total within a reasonable range of activity. Since the fixed cost remains constant in total, the fixed cost per unit of activity...
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...
our Break-even Point (Explanation). 1. Fixed Expenses do not change in total when there is a modest change in sales. True Right! The total of a fixed expense is indeed fixed (does not change) as the volume increases or...
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