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20 Cards in this Set
- Front
- Back
What are some characteristics of service companies? What accounts do they have/don't have?
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- Sell intangible services
- Make up 55% of US workforce. - Don't have Inventory or COGS. - Majority of their costs go to labor. |
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What are characteristics of merchandising companies? What accounts do they have/don't have?
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- Resell tangible products they buy from suppliers.
- Include retailers and wholesalers. - One inventory account. |
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What are characteristics of manufacturing companies? What accounts do they have/don't have?
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- Convert raw materials into finished products.
- Sell products to retailers/wholesalers. - 3 types of inventory: raw materials, work in process, and finished goods. |
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Name the parts of the value chain and describe them.
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1. Research & Development - research and develop products and the processes for producing them.
2. Design - engineering of products and the processes for producing them, the style of the product to fit customers' needs. 3. Production - resources used to produce a product, includes raw materials, labor, and MOH. 4. Marketing - promotion and advertising of products. Also includes dealerships. 5. Distribution - delivery of products to customers. 6. Customer Service - support for customers AFTER the sale, warranties. |
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What is a cost object, indirect cost, and direct cost? Do you trace or allocate them?
Give examples |
Cost object - anything for which managers want a separate measurement of cost. Ex) Individual products (Xterra/Pathfinder), strategies, geographic segments, and departments.
Direct cost - can be traced to a cost object. Trace. Ex) If an Xterra is the cost object, then tires is a direct cost. Indirect cost - cannot be traced to the cost object. Allocate. Ex) MOH costs |
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What is the difference between period costs and inventoriable product costs? (Manufacturing and merchandising firms)
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Both add up to the full product cost (full product cost is not allowed on financial statements)
Period cost - costs of the value chain excluding production. AKA operating costs. Expensed when they are incurred. Inventoriable product cost - costs incurred during the "production or purchases" stage of the value chain. Treated as inventory and then expensed through COGS when sold. |
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What is included in merchandising companies' inventoriable product cost?
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- Cost of purchasing the inventory from suppliers
- Freight-in costs (costs to get products to the merchandiser) - Import duties or tariffs (if any) |
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What is included in manufacturing companies' inventoriable product cost?
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- Direct materials
- Direct labor (assembly workers, machine operators, technicians, etc.) Manufacturing Overhead (MOH) - includes indirect costs of production, cannot be traced to individual product. Includes indirect material (janitorial supplies, oil for machines), and indirect labor (forklift operators, security, janitors, supervisors) - Other MOH - insurance & depreciation on plant, property taxes, plant repairs, plant utilities. |
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What is the difference between a prime cost and a conversion cost?
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Prime costs = direct materials + direct labor
Conversion costs = MOH + direct labor |
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How do you find operating income for a service company?
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Revenues - Operating expenses (salary, rent expense, depreciation on equipment, marketing expense, etc.) = Operating income
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How do you find operating income for a merchandising company?
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Sales revenue - COGS* = Gross profit - Operating expenses** = Operating income
*COGS: Beg. inventory + purchases and freight-in = COGavailable for sale - Ending inventory = COGS **Operating expenses: Rent expense + Sales salary expense + etc. |
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How do you find operating income for a manufacturing company?
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Sales revenue - COGS* = Gross profit - Operating expenses = Operating income
*COGS: Beg. finished goods inventory + Cost of goods manufactured = Cost of goods available for sale - Ending finished goods inventory = COGS |
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What is cost of goods manufactured? How do you calculate it?
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It is the cost of the goods that are finished.
COGmanufactured = Beg. WIP inventory + Direct materials USED + Direct labor + MOH - Ending WIP inventory |
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What is the difference between a controllable cost and an uncontrollable cost?
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Controllable cost - management can influence or change them in the short run
Uncontrollable cost - management cannot influence or change them in the short run |
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What is a differential cost and a sunk cost?
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Differential cost - the difference in costs between two options of a decision.
Sunk cost - costs that have already been incurred and should not be used in decision making. |
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What is the difference between a fixed cost and a variable cost?
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Fixed cost - stay constant over a wide range of activity levels. Ex) insurance, depreciation.
Variable cost - changes in direct proportion to changes in volume. Ex) cost of gas in a car |
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What is total cost?
How do you calculate total cost? |
Total cost is all the fixed and variable costs that are incurred for the product(s).
Total cost = Total fixed cost + (Variable cost per unit x Number of units) |
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How do you calculate the average cost of manufacturing one unit?
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Average cost = Total cost / Number of units
Note: You CANNOT find the average cost and multiply it for different number of units. The average cost per unit will generally be lower when there are more units being produced. |
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What is the marginal cost?
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It is the cost of producing one more unit. It equals the variable cost.
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How do you calculate the fixed cost per unit?
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Fixed cost per unit = Fixed cost / Number of units
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