[ACC 310F] - Midterm Exam Guide - Comprehensive Notes for the exam (29 pages long!)

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7 Feb 2017
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UT-Austin
ACC 310F
MIDTERM EXAM
STUDY GUIDE
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Traceability
Direct and Indirect Benefits
Organizations frequently refer to indirect costs as common costs and to indirect
manufacturing costs as manufacturing overhead
Traceability
Is the degree to which we can directly relate a cost or revenue to a
decision option
A cost or revenue that we can uniquely relate (trace) to a decision option
is a direct cost or direct benefit
Ex. new model of refrigerator, direct benefit is revenue from sales
of new refrigerator
If only a portion of the cost or revenue pertains to a particular decision
option, then it is an indirect cost or an indirect benefit
Ex. indirect result: buyers might be more likely to purchase other
appliances from this company in the future, thereby increasing
overall revenue
Direct and Indirect Costs
A direct cost can be fixed or variable
Ex. the cost of a machine used only for manufacturing this refrigerator is a
fixed, direct cost
The cost of raw materials is a variable, direct cost
Indirect costs can also be fixed or variable
Ex. regular salary paid to the plant manager who oversees the production
of this and other refrigerators is a fixed, indirect cost
The cost of oils and lubricants to run the machines is indirect and variable
because the amount depends on the number of refrigerators made
(variable) and it is not possible to identify the amounts of coolants used
for a particular model(indirect)
Video: Traceability
Whether a cost is a direct or indirect cost
Ex. each friend order personalized pizza and drinks
Cost: direct, directly traced to each person
Ex. order several pizzas and drinks to share
Cost: indirect, unclear who caused which portion of meal cost, shared
among all
Probably split check equally, but it may be unfair for people who
consumed less
Practice Quiz:
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1. Eastern plant rent
Indirect - This cost is only partly attributable to Kappa as both Kappa and
Gamma are produced in the same plant.
2. Raw materials purchased to produce Kappa
Direct - This cost is entirely attributable to Kappa. Kappa and Gamma use
different raw materials, allowing us to directly trace the materials costs to each
product.
3. Eastern plant utilities and water
Indirect - This cost is only partly attributable to Kappa as the utilities relate to the
entire plant and the production of both Kappa and Gamma.
4. Salary of the Eastern plant manager
Indirect - This cost is only partly attributable to Kappa as the plant manager
oversees all activities in the plant (i.e., the production of both Kappa and
Gamma).
5. Equipment maintenance
Indirect - This cost is only partly attributable to Kappa as the equipment is used
to produce both Kappa and Gamma.
6. Salary of a production employee who works the day shift at the Eastern plant
Direct - This cost is entirely attributable to Kappa as the production employee
only works the day shift (when the firm produces Kappa but not Gamma).
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