BUS 215 Lecture Notes - Lecture 1: Variable Cost, Indirect Costs, Opportunity Cost
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For external users (banks, board of directors, creditors, shareholders etc) Reports on past activities (transactions that have already occurred) Do what we want - no conformity. Sales - cogs = gross profit: gross profit - selling - admin = net income o. Balance sheet: assets = liabilities + stockholders" equity. Assets: cash, land, equipment, inventory, prepaid accounts, accounts receivable. Owners" equity: common stock, retained earnings (beg re + ni - dividends: one point in time. Focus on cost of goods sold and inventory (three subcategories of inventory) Beginning inventory + purchases - end inventory = cost of goods sold. Predicting cost behavior: variable cost: a cost that varies, in total, in direct proportion to changes in the level of activity. Activity base (cost driver): a measure of what causes the incurrence of a variable cost; explanatory variable o. Fixed cost: a cost that remains constant, in total, regardless of changes in the level of the activity.