Key Terms
Definition
A technique for separating fixed and variable cost components of a mixed cost using only the highest and lowest activity
Income Statement Structure
Service Revenue
Cost of Goods Sold Formula (Merchandising)
Beginning Inventory + Purchases = Cost of Goods Available for Sale
Indirect Labor
Labor that supports production but is not directly involved in converting materials into finished products. Part of manu
Indirect Materials
Materials used in production that cannot be efficiently traced to a specific unit. Part of manufacturing overhead.
Cost of Goods Manufactured Statement
Beginning WIP Inventory + Current Period Manufacturing Costs:
Cost of Goods Sold Formula (Manufacturing)
Beginning Finished Goods Inventory + Cost of Goods Manufactured = Cost of Goods Available for Sale
Direct Materials Used Formula
Beginning Raw Materials Inventory + Raw Materials Purchased = Raw Materials Available for Use
Intangible product
A product with financial value but no physical presence. Examples: copyrights, patents, goodwill, trademarks, legal repr
Tangible product
A physical good customers can handle and see.
Cost behavior
How a cost responds to changes in the level of activity. Classification changes depending on how the data will be used.
Example
$10,800 annual insurance paid in January. Each month = $900 expensed as period cost.
Committed Fixed Costs
Cannot be eliminated if the company is to continue operating. Example: factory equipment lease.
Discretionary Fixed Costs
Can be postponed temporarily but cannot be permanently eliminated without negative effects. Examples: advertising campai
Cost Driver
Activity that causes a variable cost to increase or decrease. Examples: labor hours, machine hours, units produced, unit