Ch 2 Flashcards
Actual cost
Cost incurred, historical cost
Cost
Resource sacrificed or foregone to achieve specific objective
Budgeted cost
Predicted or forecasted cost
Cost object
Context of finding a cost
Anything where measurement of costs is desired
6 examples of cost objects?
Product Service Project Customer Activity Department
Cost accumulation and assignment
Collection of data in organized way using an accounting system
Manager accountants assign accumulated costs to
Designated cost objects
Direct costs of a cost object
Related to particular cost object and can be traced
In cost effective way
Ex. Cost of steel tires is a direct cost to BMW X5
Cost tracing
Describes assignment of direct costs to particular
cost object
Indirect costs of cost object
Related to particular cost object but can not be traced in cost effective way
Ex. Salaries of plant managers that oversee production of many cars
Cost allocation
Used for the assignment of indirect costs to
Particular cost object
Cost assignment
Encompasses both tracing direct costs to cost object
And allocating indirect costs to cost object
Materiality of cost in question
The smaller the amount of the cost, the less
Likely it is to trace the cost
3 factors that are used to determine direct and indirect costs?
Materiality of cost
Info gathering technology
Design of operations
Available information gathering technology, 1 ex?
Improvements in info gathering technology to consider
More costs as direct costs
Ex. Bar codes
Design of operations
If operation is designed exclusively for
one specific cost object
Variable costs
Changes in total in proportion to changes in related
Level of total activity
Remain unchanged on a per unit basis
Fixed cost
Remains unchanged in total for given time period
Despite wide changes in activity level
Decrease on a per unit basis as activity increases
Cost driver
Variable such as level of activity or volume that
Casually affects costs over a given time span
Activity
Event, task or unit of work with a specified purpose
Relevant range
Band of normal activity level where there is
Specific relationship between level of activity
And cost in question
Calculate unit cost
Unit cost = total manufacturing costs/# units manufactured
Manufacturing sector company
Purchase materials and components and
Converts them into finished goods
Merchandiser sect companies
Purchase than sell tangible products without
Changing their basic form
Service sector companies
Provide services of intangible products
Ex. Legal advice, audits for clients
Direct materials inventory
Direct materials in stock and waiting for
manufacturing process
Work in process inventory
Goods partially worked on but not completed
Finished goods inventory
Goods completed but not yet sold
Direct materials costs
Acquisition costs of all materials that eventually
become part of cost object and can be traced
To cost object in cost effective way
Direct manufacturing labor costs
Compensation of all manufacturing labor that can be
Traced to cost object
Indirect manufacturing costs AKA Manufacturing overhead costs
All manufacturing costs that are related to cost object
But can’t be traced to cost object in cost effective way
Inventoriable costs
All costs of a product that are considered assets on
Balance sheet when they are incurred and become
Cost of goods sold only when product is sold
Revenues
Inflows of assets received for products or services
Provided to customers
Period costs
All costs on income statement other than cost of goods sold
All non manufacturing costs for manufacturing companies
Include marketing, distribution, costumer service, R&D
Cost of goods manufactured
Cost of goods brought to completion, whether
started before or during the current accounting period
Operating income 2 equations?
Operating income = operating revenue - cost of goods sold
-operating costs
Operating income = gross margin - period costs
Prime cost equation
Prime costs = direct materials cost + direct labor cost
Conversion costs
All manufacturing costs other than direct materials cost
Conversion costs = direct labor cost + manu. overhead cost
Overtime premium
Wage rate paid to workers in excess of straight time
Wage rates
Considered an indirect cost or manufacturing overhead
Idle time
Wages paid for unproductive time caused by lack of orders,
Machine or computer breakdowns, work delays, poor
Scheduling
Fringe costs 4 examples?
Health insurance, social security, life insurance, pensions
Product cost
Sum of costs assigned to a product for a specific purpose
Pricing product mix decisions
For purpose of making decisions about pricing and which
Products provide the most profits
Contracting with government agencies
Government contracts often reimburse contractors
On basis of the coat of the product and prespecified
Margin of profit
What do product costs include under GAAP?
Only Inventoriable manufacturing costs
3 features for cost accounting framework?
Calculate cost of products, services and other cost objects
Obtain info for planning, control, performance evaluation
Analyze relevant info for making decisions
