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Accounting Terms for Cost

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For each statement indicate the accounting term or terms described:
A. Examination of differences between costs to be incurred and revenue to be earned under different courses of action.
B. A cost incurred in the past that cannot be changed as a result of future actions.
C. Costs and Revenue that are expected to vary depending on the course of action.
D. The benefit foregone by not pursuing an alternative course of action.
E. Products made from common raw materials and shared production processes.
F. A cost yet to be incurred that will require future payment and may vary among alternative course of action.
G. The point at which manufacturing costs are split equally between ending inventory and cost of goods sold.

Use the following accounting terms:
- Opportunity cost
- Out of pocket cost
- Joint products
- Incremental analysis
- Sunk cost
- Split off point
- Relevant information

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A. Examination of differences between costs to be incurred and revenue to be earned under different courses of action.

Incremental analysis. Incremental analysis is a technique which attempts to determine the net income/loss between two or more choices. For example, assume that a company can use its excess production capacity to either produce Product A or Product B. Incremental analysis would attempt to determine what net income/loss would be to the company for the production of both products, Product A only or Product B only.

B. A cost incurred in the past that cannot be changed as a result of future actions.

Sunk Cost. A sunk cost is a cost that has already been incurred and for which any future decisions would not affect. For example, the rent ...

Solution Summary

The expert examines accounting terms for costs. An examination of differences between costs to be incurred and revenues to be earned under different courses of actions are provided.

See Also This Related BrainMass Solution

Planning for Profit and Cost Control Matching Terms: Rodriguez Company, Soto Flower Shop, and Mason Company

Problem #1

Matching. Select the term from the list provided that best matches the description provided.
Definition or Description
a. Composed of numerous separate but interdependent budgets covering sales, production, and administrative expenses.
b. Budgeting technique that allows subordinates and Upper-level managers to work together in setting budgetary targets.
c. Financial planning activities that cover the intermediate range of time (such as whether to buy or lease equipment.
d. Activities associated with long-range decisions such as defining the scope of the business and deciding which products to develop.
e. Budgeted financial statements.
f. The group of individuals responsible for the coordination of budgeting activities,
g. Examples of these budgets include sales budget, inventory purchases budget, and cash budget,
h. Budgeting techniques that keeps managers constantly involved in the budget process.
i. Form of planning that formalizes goals and objectives of a company in financial terms.

1. Budgeting
2. Capital budgets
3. Pro forma financial statements
4. Budgets committee
5. Master budgets
6. Operating budgets
7. Strategic planning
8. Participative budgeting
9. Perpetual budgeting

Problem #3
Mason Company currently produces a component that it uses in making some of its products. Mason has
Calculated the following costs for making the part:

Unit-level costs
Materials $20
Labor 28
Overhead 2
Allocated facility-level costs 10
Total cost $60

Mason is considering outsourcing the component. A supplier has offered to sell the component to Mason for $54 each. Hart needs 10,000 units each year.

Required: Should Mason outsource the component? Support your answer with appropriate computations.

Problem #4
Rodriguez Company is considering purchasing new equipment. The manager has gathered the following

Current Machinery
Original cost $25,000
Accumulated depreciation 20,000
Annual operating costs 5,500
Current market value 750
Salvage value at the end of five years 0

New Machinery:
Cost $28,000
Annual operating costs 500
Salvage value at end of five years 0

1) Identify the sunk costs associated with this decision.
2) Compute the increase or decrease in total income over the five-year period if the company chooses to buy the new equipment.
3) What is your recommendation for this decision?

Problem #5
The budget director of Soto's Flower Shop has prepared the following sales budget. The company had
$100,000 of accounts receivable at January 1. The company normally collects 100 percent of its accounts
receivable in the month following the sale.

Sales January February March
Cash sales $30,000 $66,000 $72,000
Sales on account 90,000 120,000 140,000
Total budgeted sales $120,000 $186,000 $212,000

Schedule of cash receipts
Current cash sales ? ? ?
Plus collection of accounts receivable ? ? ?
Total budgeted cash collections ? ? ?

a) Complete the schedule of cash receipts by filling in the missing amounts. What are the total budgeted cash receipts for the first quarter?
b) Determine the amount of accounts receivable that Flory's should report on the first quarter pro forma balance sheet.

Problem #6
Matching. Select the term from the list provided that best matches each of the following descriptions.

Description or Definition
A. Costs incurred on behalf of the whole company .
B. An offer from someone other than a regular customer buy goods or services at below normal selling prices.
C. The numbers in decision making that are subject to mathematical manipulation.
D. The attainment of control over the entire spectrum of business activity from production to sales.
E. Companies that provide buyers with preferred customer status in exchange for guaranteed purchase quantities and prompt payment schedules.
F. Evaluating whether an existing machine should be traded in for a newer machine.
G. Decision whether to make a component or product or to acquire it from a supplier.
H. Costs that increase each time another unit of a product is made.

1. Outsourcing decision
2. Certified suppliers
3. Equipment replacement decisions
4. Facility-level costs
5. Unit-level costs
6. Quantitative characteristics
7. Special-order decision
8. Vertical integration

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