Assignment 1.1
Assignment 1.1: Forum Discussion, Chapters 1 & 2
Kizzy Reed
Jones International University
February 8, 2012
Assignment 1.1: Forum Discussion, Chapters 1 & 2
Response to Questions from Chapter 1
7 How do product cost effect the financial statements? How does the classification of product cost (as an asset vs. an expense) affect net income?
One asset (product cost cash payments) will decrease while one asset (product) increases.
The product is an asset until it is sold. The expenses for products will not be seen until the product is sold (Edmonds, 2011)
8 What is an indirect cost? Provide examples of product costs that would be classified as indirect.
Cost of products and services that cannot be traced in a cost effective …show more content…
way. Example would are factory utilities, rental of manufacturing facility, and depreciation of manufacturing assets (Edmonds, 2011)
10 Why is cost classification important to managers?
To minimize taxes (Edmonds, 2011)
12 How has the Institute of Management Accountants responded to the need for high standards of ethical conduct in the accounting profession?
The IMA issued an A Statement of Ethical Professional Practice (Edmonds, 2011).
Response to Questions from Chapter 2
2 How can knowing cost behavior relative to volume fluctuations affect decision making?
Managers will know of to effectively plan and control costs (Edmonds, 2011).
3 Define the Term operating leverage and explain how it affects profits.
A proportionate cost based on condition of generating a larger percent change in net income for a percentage change in revenue (Edmonds, 2011). The higher the fixed cost to total costs proportions result in a great operating leverage (Edmonds, 2011).
Contribution Margin / Net Income
10 How is the relevant range of activity related to fix and variable cost? Give an example of how the definitions of these costs become invalid when volume is outside the relevant range.
When activities increase fixed cost per unit will decrease. When activities decrease fixed cost will increase. Cost variable depends on change in volume. Variable cost stays as fixed (Edmonds, 2011).
A concert hall is rented for $4,000 that seated only 300 people. If 400 tickets are sold 100 people will be out of a seat because this is out of their range for seating. A larger concert will have to be rented which more money will be spent if the budget permits if not 100 people will money should be refunded. This will result in a loss of some
revenue.
15 All costs are variables because if a business ceases operations, its costs falls to zero. Do you agree with this statement? Explain.
No, I disagree with the statement. If a business cease operation wages, and bills have to be paid. If a business has partners or investors they will also have to receive something. Taxes will also have to be paid. A business cost will not fall to zero unless all everything is paid out and all cost falls to zero meaning no offices, no facility, no employees, no expenses, not taxes, no partners, no product, simply everything is gone and stopped.
Reference
Edmonds, T. P. (2011). Fundamental Managerial Accounting Concepts. New York: McGraw-Hill/Irwin.
Kizzy Reed
Jones International University
February 8, 2012
Assignment 1.1: Forum Discussion, Chapters 1 & 2
Response to Questions from Chapter 1
7 How do product cost effect the financial statements? How does the classification of product cost (as an asset vs. an expense) affect net income?
One asset (product cost cash payments) will decrease while one asset (product) increases.
The product is an asset until it is sold. The expenses for products will not be seen until the product is sold (Edmonds, 2011)
8 What is an indirect cost? Provide examples of product costs that would be classified as indirect.
Cost of products and services that cannot be traced in a cost effective …show more content…
way. Example would are factory utilities, rental of manufacturing facility, and depreciation of manufacturing assets (Edmonds, 2011)
10 Why is cost classification important to managers?
To minimize taxes (Edmonds, 2011)
12 How has the Institute of Management Accountants responded to the need for high standards of ethical conduct in the accounting profession?
The IMA issued an A Statement of Ethical Professional Practice (Edmonds, 2011).
Response to Questions from Chapter 2
2 How can knowing cost behavior relative to volume fluctuations affect decision making?
Managers will know of to effectively plan and control costs (Edmonds, 2011).
3 Define the Term operating leverage and explain how it affects profits.
A proportionate cost based on condition of generating a larger percent change in net income for a percentage change in revenue (Edmonds, 2011). The higher the fixed cost to total costs proportions result in a great operating leverage (Edmonds, 2011).
Contribution Margin / Net Income
10 How is the relevant range of activity related to fix and variable cost? Give an example of how the definitions of these costs become invalid when volume is outside the relevant range.
When activities increase fixed cost per unit will decrease. When activities decrease fixed cost will increase. Cost variable depends on change in volume. Variable cost stays as fixed (Edmonds, 2011).
A concert hall is rented for $4,000 that seated only 300 people. If 400 tickets are sold 100 people will be out of a seat because this is out of their range for seating. A larger concert will have to be rented which more money will be spent if the budget permits if not 100 people will money should be refunded. This will result in a loss of some
revenue.
15 All costs are variables because if a business ceases operations, its costs falls to zero. Do you agree with this statement? Explain.
No, I disagree with the statement. If a business cease operation wages, and bills have to be paid. If a business has partners or investors they will also have to receive something. Taxes will also have to be paid. A business cost will not fall to zero unless all everything is paid out and all cost falls to zero meaning no offices, no facility, no employees, no expenses, not taxes, no partners, no product, simply everything is gone and stopped.
Reference
Edmonds, T. P. (2011). Fundamental Managerial Accounting Concepts. New York: McGraw-Hill/Irwin.