Fundamentals of Financial Accounting

Estimating the selling prices and the direct (variable) costs of a range of products, to compute the extent to which each unit sold will pay for indirect (fixed) costs and contribute to the net income. Contribution analysis shows whether or not a firm is

Method for determining the total unit cost of the output of a continuous production run (such as in food processing, petroleum, and textile industries) in which a product passes through several processes (or cost centers).

An order-specific costing technique, used in situations where each job is different and is performed to the customer's specifications. Job costing involves keeping an account of direct and indirect costs.

1. Selling and general administrative expenses identified with the accounting period in which they are incurred, and charged against sales revenue in the same period. Also called period expense. 2. Depreciation, interest, rent, and other such costs assoc

The sum of all costs associated with the production of a specific quantity of a good or service.

Employees or workers who are directly involved in the production of goods or services. Direct labor costs are assignable to a specific product, cost center, or work order.

The matter from which something can be made. Material can include but is not limited to raw and processed material, components, parts, assemblies, sub-assemblies, fuels, lubricants, coolants, cleaning agents, and small tools and accessories that may be co

1. Resource consumed or lost in completing a process, that does not contribute directly to the end-product. Also called burden cost. 2. Accounting: A cost or expense (such as for administration, insurance, rent, and utility charges) that (1) relates to a

Pre-established uniform price for a good or service, based on its historical price, replacement cost, or an analysis of its competitive position in the market.

An actual amount paid or incurred, as opposed to estimated cost or standard cost. In contracting, actual costs amount includes direct labor, direct material, and other direct charges.

Point in time (or in number of units sold) when forecasted revenue exactly equals the estimated total costs; where loss ends and profit begins to accumulate. This is the point at which a business, product, or project becomes financially viable.

In activity based costing, the types of activities for which the cost-behavior assumptions (fixed cost, mixed cost, variable cost) remain valid.

A periodic cost that remains more or less unchanged irrespective of the output level or sales revenue, such as depreciation, insurance, interest, rent, salaries, and wages.

A periodic cost that varies in step with the output or the sales revenue of a company. Variable costs include raw material, energy usage, labor, distribution costs,

Process of Identifying the cost of services necessary for operation of a business

A situation in which the overhead applied to a work in progress (WIP) product is less than the overhead that the WIP actually incurs. This results in the manufacturing overhead having a debit balance. Underapplied overhead is reported on the balance sheet

1. Excess of overhead applied to work-in-process inventory over the amount of overhead actually incurred. This amount (called favorable variance) is added to the budgeted profit in the end-of-accounting-period financial statements. Also called overabsorb

(AQ-SQ)xSP

EX.(22,000-24,000)x12.00

=24,000 Favorable

AQx(AP-SP)

EX. 22,000x(12.10-12.00)

=2,200 Unfavorable

Price Variance      2,200 U

Quantity Variance 24,000 F

Total Variance 21,800 F
 

Fixed Cost / Contribution Margin per Unt

Contribution Margin/ Price

EX. 30/100 = .30

Units to Break Even

(x)= FC/P-VC

EX. 24,000/100-70 = 24,000/30 = 800

30 is the Contribution Margin

Fixed Cost/ Contribution Margin Ratio

1. Facilitate decision making.

2. Measure income and assets for external parties.

3. Justify prices charged to customers for products and services.

4. Cost control / resource  conservation

5. Create  incentives for optimal resource utilization