ACCTG 202 Lecture Notes - Lecture 2: Direct Labor Cost, Sunk Costs, Fixed Cost

19 views5 pages

peachkoala371

3 Jun 2019

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Variable cost - cost that stays the same per unit. Determines if the cost goes on the income statement or the balance sheet. Direct cost - direct materials and direct labor. Indirect cost - indirect materials, indirect labor, manufacturing overhead. Cost classifications for assigning costs to cost objects. Cost object - anything which cost data are desired. To be traced to a cost object, cost must be caused by the cost object. Direct cost - cost that can be easily traced to a specify cost object. Indirect cost - cannot be easily traced to a specify cost object. Common cost - incurred to support cost objects, cannot be traced to them individually. Particular cost - can be direct or indirect cost. Raw materials - materials that go into the final product. Any materials that go into the final product. Direct material - become an intricate part of the finished product.

Related Questions

Wollogong Group Ltd. of New South Wales, Australia, acquired itsfactory building about 10 years ago. For several years, the companyhas rented out a small annex attached to the rear of the building.The company has received a rental income of $30,000 per year onthis space. The renterâs lease will expire soon, and rather thanrenewing the lease, the company has decided to use the space itselfto manufacture a new product.

Direct materials cost for the new product will total $80 perunit. To have a place to store finished units of product, thecompany will rent a small warehouse nearby. The rental cost will be$500 per month. In addition, the company must rent equipment foruse in producing the new product; the rental cost will be $4,000per month. Workers will be hired to manufacture the new product,with direct labor cost amounting to $60 per unit. The space in theannex will continue to be depreciated on a straight-line basis, asin prior years. This depreciation is $8,000 per year.

Advertising costs for the new product will total $50,000 peryear. A supervisor will be hired to oversee production; her salarywill be $3,500 per month. Electricity for operating machines willbe $1.20 per unit. Costs of shipping the new product to customerswill be $9 per unit.

To provide funds to purchase materials, meet payrolls, and soforth, the company will have to liquidate some temporaryinvestments. These investments are presently yielding a return ofabout $3,000 per year.

Required:

Using the table shown below, describe each of the costsassociated with the new product decision in four ways. In terms ofcost classifications for predicting cost behavior (column 1),indicate whether the cost is fixed or variable. With respect tocost classifications for manufacturers (column 2), if the item is amanufacturing cost, indicate whether it is direct materials, directlabor, or manufacturing overhead. If it is a nonmanufacturing cost,then select ânoneâ as your answer. With respect to costclassifications for preparing financial statements (column 3),indicate whether the item is a product cost or period cost.Finally, in terms of cost classifications for decision making(column 4), identify any items that are sunk costs or opportunitycosts. If you identify an item as an opportunity cost, then selectânoneâ as your answer in columns 1-3.

maroonmoose125

Question 1 10 pts A segment of a business probably should bediscontinued if its contribution margin exceeds its controllablefixed costs and its common costs. it cannot produce a contributionmargin. its common costs exceed its contribution margin. it has anet loss. Flag this Question Question 2 10 pts Contribution marginis calculated by deducting fixed costs from revenue. deductingvariable costs and controllable fixed costs from revenue. deductingvariable costs and common costs from revenue. deducting variablecosts from revenue. Flag this Question Question 3 10 pts Which ofthe following is the first step in the decision-making process?Identify workable alternatives Define the problem Considerappropriate nonfinancial factors Evaluate the cost and revenue dataFlag this Question Question 4 10 pts Fixed manufacturing costs arewritten off as current expenses of the period in which theyoccurred when using direct costing. standard costing. absorptioncosting. differential costing. Flag this Question Question 5 10 ptsDirect costing differs from absorption costing in that underabsorption costing all fixed manufacturing overhead is expensed inthe current period. under direct costing all fixed overhead isexpensed in the current period. under absorption costing anincrease in finished goods inventory does not affect the amount offixed costs expensed. under direct costing a portion of the fixedmanufacturing overhead is included in the finished goods inventory.Flag this Question Question 6 10 pts Which is the final step in thedecision-making process? Evaluate the cost and revenue dataIdentify workable alternatives Consider appropriate nonfinancialfactors Make a decision Flag this Question Question 7 10 pts Whichof the following is NOT a consideration when determining whether tocontinue making a part or to buy that part? the opportunity costthe timing of the cash receipts and expenditures the impact onemployees the sunk cost Flag this Question Question 8 10 pts Coststhat are not directly traceable to a segment of a business arecalled sunk costs. common costs. fixed costs. incremental costs.Flag this Question Question 9 10 pts Which of the following shouldNOT be a consideration when deciding whether to make or buy a part?impact on continued supply of the part impact on quality of thepart under each set of circumstances impact on sales to existingcustomers impact on factory employee morale Flag this QuestionQuestion 10 10 pts In making a decision to replace a machine, whichof the following is not relevant? the variable costs of operatingthe old machine the training that workers will need in order to usethe new machine the book value of the old machine the variablecosts of operating the new machine

lilacraccoon844

ACCTG 202 Lecture Notes - Lecture 2: Direct Labor Cost, Sunk Costs, Fixed Cost

Document Summary

Get access

Related Documents

ACCTG 202 Lecture 12: ACCTG 202 Lecture 12

ACCTG 202 Lecture 6: ACCTG 202 Lecture 6

ACCTG 202 Lecture Notes - Lecture 7: Contribution Margin, Fixed Cost, Income Statement

Related Questions