| A | B |
|---|
| Cost benefit approach | There should be reasonable relationship between the cost of gathering information & benefits derived from those costs. The greater detail that is accumulated the greater the cost of gathering data. Sometimes cos. are required to gather info regardless of the benefits to the company |
| 3 types of inventory in manufacturing companies | raw materials, work in process inventory, finished goods inventory |
| 3 manufacturing costs | direct materials, direct labor, factory overhead |
| Factory overhead | Indirect materials, indirect labor & all other factory related costs |
| FOH | Factory Overhead is applied to work in process based on a predetermined FOH rate. |
| Sunk costs | Mgt. no longer has control over historical costs (they have already happened) they are considered sunk costs. They can't be changed & in this sense are irrevelant to future decisions |
| Opportunity costs | are not recorded but they are relevant costs to consider in decision making. It's the net cash in flow that could have been obtained from an alternative course of action |
| 3 manufacturing costs | Direct materials, direct labor, FOH |
| FOH= | Indirect materials, indirect labor & other factory related costs |
| FOH | is applied to work in progress (WIP) |
| 3 manufacturing costs | Direct materials, direct labor, FOH |
| Average costs-3 | AVERAGE COSTS=tOTAL MANUFACTURING COSTS (OVER) # OF UNITS PRODUCED |
| Average costs = unit cost are useful for- 3 | Valuing inventory & calculating COGS for external statements, but they shouldn't be used for internal palnning & control. Total costs are more useful for internal purposes. |
| Three methods used to separate mixed costs into their fixed & variable components-3 | High low method, least squares method, scatter method |
| High low method-3 | easiest, least exact, uses two sets of data |
| Scatter method-3 | Diagrams-alittle harder, a little more exact |
| Least squares method-3 | Hardest, most exact, uses all available data |
