CH 1 Flashcards
Direct Costs?
Costs easily + conveniently traced to unit of product or other product
Indirect Costs?
Costs that CAN’T easily or conveniently traced to unit of product or other product
Common Costs?
type of indirect cost
–> number of indirect costs incurred to support a quantity of cost objects
Direct Materials?
Raw materials that are used as “ingredients” of the product
–> can conviently be traced back
ex. radio in a car
Direct Labor?
Labor costs of labor that was DIRECTLY used to make a product
Ex. Wages for Assembly Workers in a car plant
Manufacturing Overhead? Indirect costs only associated with… ?
ALL manufacturing costs EXCEPT Direct Material/Labor
–> Not readily traced to finished products
–> included INDIRECT materials/labor
–> –> Only indirect costs associated with “operating factory”
Manufacturing Overhead Examples?
- Depreciation of manufacturing equipment
- Utility costs
- Property taxes
- Insurance premiums incurred to operate a manufacturing facility
Selling Costs?
Costs used to secure the order (get it sold) and deliver the product.
–> can be DIRECT or INDIRECT costs
Administrative Costs?
Executive, organizational & clerical costs
–> can be DIRECT or INDIRECT costs
“Clerical” Definition?
relating to work in an office, especially routine “documentation” and “administrative tasks”.
Product Costs?
All cost involved in MAKING or “ACQUIRING” a PRODUCT
3 types of product costs?
Raw materials
–> Work in process
–> Finished Goods Costs
Work in process?
Units of product that are PARTIALLY complete
–> require further work
Finished Goods Costs?
“Completed” units of products, NOT YET sold
Period Costs include what other small costs? (direct, selling costs, etc)
Includes selling costs & administrative costs
Product Costs include what other small costs? (direct, selling costs, etc)
Includes Direct Materials, Direct Labor & Manufacturing Overhead
Variable Costs?
cost that varies in total in DIRECT proportion to CHANGES to level of activity
Fixed Cost? How it reacts to changes in activity?
A cost that stays constant, in total, regardless of CHANGES in the level of the activity.
–> Reacts/varies INVERSELY
2 types of fixed costs? their respective defs’?
Committed - Long term, CAN’T be reduced in SHORT-term
Discretionary - CAN be altered in SHORT-term by current managerial decisions
Differential/Incremental Costs ? Fixed or Variable? “Relevant” to what?
Difference in cost between TWO alternatives
–> relevant to decisions
–> can be fixed or variable
Sunk Costs? Take into count when making decisions and why/why not?
Have ALREADY been charged/incurred and CAN’T be changed (now or in future)
–> no, don’t take it into account (cuz it can’t be changed when choosing alternatives)
Cost Object?
Anything for which cost data is desired
–> Includes products, plants, customers, office locations & departments, etc
Prime Cost?
SUM of Direct Materials & Direct Labor costs
Are MINOR items such as nails and glue (that could be used in a product’s creation) considered Direct Materials?
What are they treated as INSTEAD?
NO because to “insignificant” to do this.
Treated as indirect costs
Cost Behavior?
How a cost reacts to changes in the level of activity
Examples of Fixed Costs? (5)
Depreciation, insurance, property taxes, rent, supervisor salaries
Relevant Range?
Range of activity au-dedans duquel the assumption that cost behavior is strictly linear is valid
When are PERIOD costs “expensed”?
In the period INCURRED
“Contribution Format” Income Statements focus on what?
Focus on “Cost Behavior”
Equation to get “Variable Cost per Unit Produced and Sold”
Total variable manufacturing cost + Variable Selling Expense + Variable Administrative Expense / units produced and sold (in a month)
Rows for contribution format (income statement)?
–>Sales
–> Variable expenses
—–> COGS
—–> Variable Selling ex
—–> Variable Administ. ex —–> total vari:
–> Contribution Margin: (Sales - total variable)
–> Fixed expenses
—–> fixed selling
—–> fixed adminis. —–> Total fixed
Net operating income: (contribution margin - fixed)
What is “contribution margin”?
Amount remaining from SALES REVENUES after all VARIABLE expenses have been deducted
Sales - COGS = ?
Gross Margin/profit.
Gross Profit - Vari/fix (operating ex) = ?
Net income
