Organization-sustaining costs and the costs operating at idle capacity should not be assigned to products. They are not product costs. These costs represent resources that are not consumed by production of the products.
Organization-sustaining costs can be considered sunk costs by the company
When a
plant asset is acquired during the middle of a year or month, depreciation is calculated for the fraction of the year the
asset is owned. For example, if it was purchased in June, it would be equal to .5 years
There is one main assumption that an accountant must remember when using the
absorption costing approach. This method assumes that consumers and purchasers do not react to prices at all when making their decisions to purchase.
It assumes that consumers will purchase the foretasted unit sales regardless of the price that is charged to them. It is important to remember this when using the
absorption costing approach.
In a manufacturing company, the three major elements of product costs are
direct materials,
direct labor, and
manufacturing overhead costs.
To
calculate depreciation per unit use the following equation:
Depreciation Per Unit= (Cost- Salvage Value)/ Total Units of Production
Additional Links to Accounting Problems and Examples:
The use of debt in a firm's capital structure is called
Financial Leverage. It measures the amount of debt is a firm's
capital structure.
The more debt a first must use, the more
financial leverage it has. Using financial leverage is like a double edged sword because it can magnify the firm's potential gains and loses. It can
Financial Leverage can increase returns for shareholders but also eliminate profits in rough times.
Financial Accounting Foundation FAF Established 1973- Responsible of appointing members to Financial Accounting Standards Board (FASB)
- Responsible of appointing members to Financial Accounting Standards Adviory Committe (FASAC)
- Provides financial support to FASB
To
Calculate Depletion per unit of a resource, use the following accounting equation:
Depletion Per Unit = (Cost - Salvage Value)/ Total Units of Capacity
Accounting Principles Board APB 1959- 1973
- Appointed by the American Institute of Certified Public Accountants (AICPA)
- Primarily Members from public accounting
- Issued 31 AFB Opinions
- Reputation of being slow to reaction with problems
Manufacturing overhead is applied to jobs that are in process. An allocation base, such as direct labor hours, direct labor dollars, or machine hours, assigns manufacturing overhead to individual jobs.
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