Cost Classifications in Accounting Flashcards

Cost Classifications in Accounting Flashcards
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Opportunity Cost
The cost of not pursuing one course of action in order to take another course. If you choose to sell spoons instead of forks, this is the money you don't make off forks.
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Mixed Costs
Costs that are made up of fixed and variable costs. An example would be the cost of running a business that requires you to purchase materials for a set price and pay employees by the hour.
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You company is going to begin making 200 spoons a day instead of 100. Your total costs were $200, and now they are going to rise to $240. What is your marginal cost?
$40 / 100 = $0.40
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Marginal Cost: Formula
Cost change / quantity change = marginal cost
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Marginal Cost
The amount of extra money a company has to pay in order to create one additional product, or to offer service to one additional customer.
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Fixed Cost
These costs will stay the same no matter how many products a company creates. Rent payments are an example of these costs.
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Direct Cost
Costs that are tied directly into a specific project or a certain business department. Examples can include raw materials or shipping costs.
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Conversion Cost
This accounting cost contains a business's costs for direct labor and for manufacturing overhead.
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You need to make 1,000 spoons. Each spoon has a variable cost of $1. Your fixed cost is $4,000. What is your average total cost for the spoons?
$4,000 + $1,000 / 1,000 = ATC
$5,000 / 1,000 = $5 per spoon
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Average Total Cost: Formula

FC + VC / Q = ATC


This means: fixed cost + variable cost / quantity = average total cost.

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Average Total Cost / Per Unit Total Cost
All of the fixed and variable costs a company must pay to produce one unit of a product.
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Flashcard Content Overview

Working with this set of flashcards can give you the chance to review the following accounting costs:

  • Direct
  • Indirect
  • Fixed
  • Variable
  • Mixed
  • Total
  • Conversion
  • Unit
  • Sunk
  • Irrelevant
  • Prime
  • Marginal
  • Opportunity

You'll also be able to go over the formulas accountants use to calculate some of these costs. Additionally, these cards contain practice problems to help you put these formulas to use.

Front
Back
Average Total Cost / Per Unit Total Cost
All of the fixed and variable costs a company must pay to produce one unit of a product.
Average Total Cost: Formula

FC + VC / Q = ATC


This means: fixed cost + variable cost / quantity = average total cost.

You need to make 1,000 spoons. Each spoon has a variable cost of $1. Your fixed cost is $4,000. What is your average total cost for the spoons?
$4,000 + $1,000 / 1,000 = ATC
$5,000 / 1,000 = $5 per spoon
Conversion Cost
This accounting cost contains a business's costs for direct labor and for manufacturing overhead.
Direct Cost
Costs that are tied directly into a specific project or a certain business department. Examples can include raw materials or shipping costs.
Fixed Cost
These costs will stay the same no matter how many products a company creates. Rent payments are an example of these costs.
Marginal Cost
The amount of extra money a company has to pay in order to create one additional product, or to offer service to one additional customer.
Marginal Cost: Formula
Cost change / quantity change = marginal cost
You company is going to begin making 200 spoons a day instead of 100. Your total costs were $200, and now they are going to rise to $240. What is your marginal cost?
$40 / 100 = $0.40
Mixed Costs
Costs that are made up of fixed and variable costs. An example would be the cost of running a business that requires you to purchase materials for a set price and pay employees by the hour.
Opportunity Cost
The cost of not pursuing one course of action in order to take another course. If you choose to sell spoons instead of forks, this is the money you don't make off forks.
Implicit Opportunity Cost
This kind of opportunity cost doesn't have a dollar amount attached.
Matching Principle in Accounting
This principle tells us that we have to report expenses related to income in the accounting period when the income was generated.
Prime Costs
Direct costs that are spent buying raw materials for a specific product and providing payment to employees who are involved in producing a good.
Product Cost
Every cost that a company spends to manufacture a product it plans to sell. These costs include: manufacturing overhead, direct labor and direct materials.
Irrelevant Cost
Costs that don't impact a certain decision by management. For example, if a company is trying to decide what to produce and has to pay the same rent no matter what, rent is this type of cost.
Sunk Cost
Money that a company has paid out and cannot ever get back.
Unit Cost
The cost for a company to create one unit of a specific product.
Variable Costs
Costs that rise or fall depending on the amount of a product that a company produces.
Total Variable Cost: Formula
Number of goods produced x variable cost per product = total variable cost
Your company is going to produce 1,200 spoons. It costs you $2.00 to make each spoon. What is your total variable cost to make all the spoons?
1,200 x $2.00 = $2,400
Indirect Costs
The costs a company faces that don't directly relate to a specific project or the production of a certain product.
Categorizing Costs
The process that allows you to tell the difference between variable costs and various other types of costs, including fixed costs.

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