Index

A

ABC. See Activity-based costing

Absorption costing, 87, 89–92

Accounting costs, 75–77, 107

Accounting-derived costs, decision making, 80–82

activity-based costing (ABC), 95–100

cost allocation, 85–95

taxing externalities, 82–85

Activity-based costing (ABC), 95–100, 105

Activity-based costing overhead rates, 96–97

Average fixed cost, 55–59. See also Fixed costs

Average product, 52, 53

Average total cost, 58, 59, 67

Average variable cost, 55–59, 67. See also Variable costing

Avoidable fixed costs, 23, 68. See also Fixed costs

B

Balance sheets, 11, 13, 22

Breakpoint level of sales, 9

C

Consumer choice theory, 25

Conversion cost, 79

Costing information, 96

Cost of goods sold expense, 80

Cost of transaction, 4

Cost theory, 49, 54–73

average fixed and variable cost, 55–59

long-run costs, 71–73

marginal cost, 59–62

profit-maximizing price and output, 62–67

step cost functions, 68–71

total fixed and total variable cost, 54–55

Cross-elasticity coefficient, 44, 45

Cross-price elasticity of demand, 43–45, 104. See also Demand

D

Death spiral, 85

Decision making, 31

economic theory in, 5–11

Decisions, 4, 13–19

Demand

cross-price elasticity of, 43–45

decrease in, 32

factors that change demand, 31–32

increase in, 31

law of demand, 25–31

price elasticity of, 33–43

Demand analysis, 104

Demand curve, 30

Depreciation, 8, 22

Direct labor, 79

Direct materials, 78

Diseconomies of scale, 72

E

Economic theory, 1, 47–73, 51, 62

in decision making, 5–11

Economies of scale, 72

Elastic demand, 34, 36, 38, 40

Elasticity, measuring and defining, 37

F

Factors that change demand, 31–32

FASB. See Financial Accounting Standards Board

Financial accounting, 76

Financial Accounting Standards Board (FASB), 76

Firm demand curve, 28

Fixed costs, 23

average fixed cost, 55–59

avoidable fixed costs, 23

total fixed cost, 54–55

unavoidable fixed costs, 23, 24

Fixed rent, 9

Foregone revenue, 8

G

GAAP. See Generally Accepted Accounting Principles

General and administrative expenses, 8

Generally Accepted Accounting Principles (GAAP), 76, 78, 80, 86, 91, 99

H

Highest valued alternative foregone, 3, 4

Historical costs, 21, 22

I

Income statements, 7, 8, 9, 11, 13

Incorrect inference of elasticity, 38

Individual demand, 25–27

Inelastic demand, 34, 37, 39, 40

Inferior good, 32

Internal Revenue Service Tax Code, 77

Inventory cost analysis, 96, 98

Inventory cost data, 92

Inventory costs, 77–80

L

Law of demand, 25–31. See also Demand

definition, 27

demand faced by firm, 28

individual demand, 25–27

and marginal revenue, 28–31

Law of diminishing marginal returns, 51

Law of diminishing marginal utility, 26

Long-run average cost curve, 72

Long-run costs, 71–73

M

Managerial accounting, control aspect of, 77

Manufacturing overhead, 79, 87

Marginal cost, 59–62, 67

Marginal cost analysis, 64, 65

Marginal product, 50, 52, 53

Marginal revenue, 28–31, 64, 65

Marginal utility, 26

Mark-to-market accounting, 22

N

Net profits to net sales, 13

Net sales to inventory, 13

Normal goods, 32

O

Opportunity cost, 6

in capital budgeting decisions, 5

foregone activities, 3

role of, 3–5

Output effect, 29

Overhead reallocation, 91

P

Percentage rent, 9

Period costs, 80

Potential price effects, 104

Predetermined overhead rate, 87, 89

Price effect, 29–30

Price elasticity coefficient, 37, 38, 43

Price elasticity of demand, 33–43. See also Demand

determinant of, 34–35

graphical representation of, 33

measuring, 36

relationship between revenue and, 39, 40

and revenue-maximizing price, 42–43

Prime cost, 79

Product costs, 79–80

Production cost information, 90

Production cost schedule, 88

Production theory, 49–54

Product profit report, 85–86

Profit-maximizing price and output, 62–67

Promotional expenses, 10

R

Relevant costs, 13–24, 23, 104

Relevant revenues, 13–24, 104

cross-price elasticity of demand, 43–45

factors that change demand, 31–32

law of demand, 25–31

price elasticity of demand, 33–43

S

Step cost functions, 68–71

Sunk costs, 16, 19, 47

T

Tax-based accounting, 77

Taxes, 76–77

Taxing externalities, 82–85

Total fixed cost, 54–55

Total product, 50

Total variable cost, 54–55. See also Variable costing

Traditional absorption costing, 97, 99. See also Absorption costing

Tried-and-true way to set prices, 103

U

Unavoidable fixed costs, 23, 24, 68. See also Fixed costs

Unitary elasticity, 37

Unit cost, 4, 20, 22, 47, 48

Utility, 26

V

Variable costing, 23, 24, 93–95, 108

average variable cost, 55–59, 67

total variable cost, 54–55