Question
In: Accounting
3.10 It has been said that ‘all costs become expenses’. a) Distinguish between ‘costs; and ‘expenses’....
3.10 It has been said that ‘all costs become expenses’.
a) Distinguish between ‘costs; and ‘expenses’.
b) Do you agree with this statement? Why/why not?
Solutions
Expert Solution
Answer:- A cost might be an expense or it might be an asset. An
expense is a cost that has expired or was necessary in order to
earn revenues. We hope the following three examples will illustrate
the difference between a cost and an expense.
A company has a cost of $6,000 for property insurance covering the
next six months. Initially the cost of $6,000 is reported as the
current asset Prepaid Insurance. However, in each of the following
six months, the company will report Insurance Expense of $1,000—the
amount that is expiring each month. The unexpired portion of the
cost will continue to be reported as the asset Prepaid
Insurance.
The cost of equipment used in manufacturing is initially reported
as the long lived asset Equipment. However, in each accounting
period the company will report part of the asset's cost as
Depreciation Expense.
A retailer's purchase of merchandise is initially reported as the
current asset Inventory. When the merchandise is sold, the cost of
the merchandise sold is removed from Inventory and is reported on
the income statement as the expense entitled Cost of Goods
Sold.
The matching principle guides accountants as to when a cost will be
reported as an expense.
ekkarill92 answered 1 year agoRelated Solutions
Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in...
Absorption costing does not distinguish between variable and
fixed costs. All manufacturing costs are included in the cost of
goods sold.
Saxon, Inc.
Absorption Costing Income Statement
For the Year Ended December 31
1
Sales
$1,200,000.00
2
Cost of goods sold:
3
Beginning inventory
$0.00
4
Cost of goods manufactured
800,000.00
5
Ending inventory
(160,000.00)
6
Total cost of goods sold
640,000.00
7
Gross profit
$560,000.00
8
Selling and administrative expenses
289,000.00
9
Income from operations
$271,000.00
Under variable costing,...
Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in...
Absorption costing does not distinguish between variable and
fixed costs. All manufacturing costs are included in the cost of
goods sold.
Saxon, Inc.
Absorption Costing Income Statement
For the Year Ended December 31
1
Sales
$1,125,000.00
2
Cost of goods sold:
3
Beginning inventory
$0.00
4
Cost of goods manufactured
840,000.00
5
Ending inventory
(210,000.00)
6
Total cost of goods sold
630,000.00
7
Gross profit
$495,000.00
8
Selling and administrative expenses
275,000.00
9
Income from operations
$220,000.00
Variable Statement
Under...
QUESTION 21 In the long run A. all costs become fixed. B. all costs become variable....
QUESTION 21
In the long run
A. all costs become fixed.
B. all costs become variable.
C. all costs become neither fixed nor variable.
2 points
QUESTION 22
Which statement is false?
A. The MC always intersects the ATC at its minimum point.
B. The MC always intersects the AVC at its minimum point.
C. The MC always intersects the AFC at its minimum point.
D. None of these statements is false.
2 points
QUESTION 23
The average...
Absorption Statement Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are...
Absorption Statement
Absorption costing does not distinguish between variable and
fixed costs. All manufacturing costs are included in the cost of
goods sold.
Saxon, Inc.
Absorption Costing Income Statement
For the Year Ended December 31
Sales
$1,200,000
Cost of goods sold:
Cost of goods manufactured
$800,000
Ending inventory
(200,000)
Total cost of goods sold
(600,000)
Gross profit
$600,000
Selling and administrative expenses
(290,000)
Operating income
$310,000
Variable Statement
Under variable costing, the cost of goods manufactured includes
only variable manufacturing...
Absorption Statement Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are...
Absorption Statement
Absorption costing does not distinguish between variable and
fixed costs. All manufacturing costs are included in the cost of
goods sold.
Saxon, Inc.
Absorption Costing Income Statement
For the Year Ended December 31
Sales
$1,200,000
Cost of goods sold:
Cost of goods manufactured
$800,000
Ending inventory
(200,000)
Total cost of goods sold
(600,000)
Gross profit
$600,000
Selling and administrative expenses
(290,000)
Operating income
$310,000
Variable Statement
Under variable costing, the cost of goods manufactured includes
only variable manufacturing...
Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in the cost of goods sold.
Absorption StatementAbsorption costing does not distinguish between variable and
fixed costs. All manufacturing costs are included in the cost of
goods sold.Saxon, Inc.Absorption Costing Income StatementFor the Year Ended December 31Sales$1,275,000Cost of goods sold: Cost of goods manufactured$800,000 Ending inventory(120,000) Total cost of goods sold(680,000)Gross profit$595,000Selling and administrative expenses(286,000)Operating income$309,000Variable StatementUnder variable costing, the cost of goods manufactured includes
only variable manufacturing costs. This type of income statement
includes a computation of manufacturing margin.Saxon, Inc.Variable Costing Income StatementFor the Year Ended December 31Sales$1,275,000Variable...
Product costs are all the expenses related to producing or acquiring products. Period costs are all...
Product costs are all the expenses related to producing or
acquiring products. Period costs are all other expenses. Period
costs are tracked during the period in which they occur and
products costs are moved to the expense account for costs of goods
sold so when the good they are associated with is sold to make
matching those expenses with the sales revenue easy. For example
the wages for sales staff who sell a books would be a period cost
and...
Distinguish between full, direct, and indirect costs. Distinguish among average, fixed, and variable costs. What can...
Distinguish between full, direct, and indirect costs.
Distinguish among average, fixed, and variable costs. What can a
manager do if a break-even analysis indicates that a venture will
lose money? (2-3 paragraphs)
Please journal and manufaturing decisions! Absorption costing does not distinguish between variable and fixed costs. All...
Please journal and manufaturing decisions!
Absorption costing does not distinguish between variable and
fixed costs. All manufacturing costs are included in the cost of
goods sold.
Saxon, Inc.
Absorption Costing Income Statement
For the Year Ended December 31
1
Sales
$1,200,000.00
2
Cost of goods sold:
3
Beginning inventory
$0.00
4
Cost of goods manufactured
800,000.00
5
Ending inventory
(160,000.00)
6
Total cost of goods sold
640,000.00
7
Gross profit
$560,000.00
8
Selling and administrative expenses
289,000.00
9
Income from...
1–9 Distinguish between discretionary fixed costs and committed fixed costs.
1–9 Distinguish between discretionary fixed costs and committed fixed costs.1–10 Does the concept of the relevant range apply to fixed costs? Explain.1–11 What is the difference between a traditional format income statement and a contribution format income statement?
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