University:
California State University, Northridge
Course:
ACCT 230 | Introduction to Managerial Accounting
Academic year:

2024
Views:

137

Pages:

20
Author:

decquireew3

Chapter 1 Managerial Accounting and Cost Concepts Part 3 1-44 Learning Objective 6 Understand the differences between variable costs and fixed costs. 1-45 Cost Classifications for Predicting Cost Behavior How a cost will react to changes in the level of business activity.  Total variable costs change when activity changes.  Total fixed costs remain unchanged when activity changes. 1-46 Variable Cost Total Texting Bill Your total texting bill is based on how many texts you send. Number of Texts Sent 1-47 Variable Cost Per Unit Cost Per Text Sent The cost per text sent is constant at 5 cents per text. Number of Texts Sent 1-48 Fixed Cost Monthly Cell Phone Contract Fee Your monthly contract fee for your cell phone is fixed for the number of monthly minutes in your contract. The monthly contract fee does not change based on the number of calls you make. Number of Minutes Used Within Monthly Plan 1-49 Fixed Cost Per Unit Monthly Cell Phone Contract Fee Within the monthly contract allotment, the average fixed cost per cell phone call made decreases as more calls are made. Number of Minutes Used Within Monthly Plan 1-50 Cost Classifications for Predicting Cost Behavior Behavior of Cost (within the relevant range) Cost In Total Per Unit Variable Total variable cost changes as activity level changes. Variable cost per unit remains the same over wide ranges of activity. Fixed Total fixed cost remains the same even when the activity level changes. Average fixed cost per unit goes down as activity level goes up. 1-52 Quick Check  Which of the following costs would be variable with respect to the number of cones sold at a Baskins & Robbins shop? (There may be more than one correct answer.) A. The cost of lighting the store. B. The wages of the store manager. C. The cost of ice cream. D. The cost of napkins for customers. 1-53 Learning Objective 7 Understand the differences between direct and indirect costs. 1-54 Assigning Costs to Cost Objects Direct costs Indirect costs • Costs that can be easily and conveniently traced to a unit of product or other cost object. • Costs that cannot be easily and conveniently traced to a unit of product or other cost object. • Examples: Direct material and direct labor • Example: Manufacturing overhead 1-55 Learning Objective 8 Understand cost classifications used in making decisions: differential costs, opportunity costs, and sunk costs. 1-56 Cost Classifications for Decision Making Every decision involves a choice between at least two alternatives. Only those costs and benefits that differ between alternatives are relevant to the decision. All other costs and benefits can and should be ignored. 1-57 Differential Costs and Revenues Costs and revenues that differ among alternatives. Example: You have a job paying $1,500 per month in your hometown. You have a job offer in a neighboring city that pays $2,000 per month. The commuting cost to the city is $300 per month. Differential revenue is: $2,000 – $1,500 = $500 Differential cost is: $300 Net Differential Benefit is: $200 1-58 Opportunity Costs The potential benefit that is given up when one alternative is selected over another. Example: If you were not attending college, you could be earning $15,000 per year. Your opportunity cost of attending college for one year is $15,000. 1-59 Sunk Costs Cannot be changed by any decision. They are not differential costs and should be ignored when making decisions. Example: You bought an automobile that cost $10,000 two years ago. The $10,000 cost is sunk because whether you drive it, park it, trade it, or sell it, you cannot change the $10,000 cost. 1-61 Quick Check  Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the cost of the train ticket relevant in this decision? In other words, should the cost of the train ticket affect the decision of whether you drive or take the train to Portland? A. Yes, the cost of the train ticket is relevant. B. No, the cost of the train ticket is not relevant. 1-63 Quick Check  Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the annual cost of licensing your car relevant in this decision? A. Yes, the licensing cost is relevant. B. No, the licensing cost is not relevant. 1-65 Quick Check  Suppose that your car could be sold now for $5,000. Is this a sunk cost? A. Yes, it is a sunk cost. B. No, it is not a sunk cost. 1-66 Summary of the Types of Cost Classifications Financial Reporting Predicting Cost Behavior Assigning Costs to Cost Objects Decision Making