Chapter 1 Flashcards
Activity base
A measure of whatever causes the incurrence of a variable cost
Administrative costs
ALL executive, organizational, and clerical costs associated with the general management of an organization rather than with manufacturing
Committed fixed costs
investments in facilities, equipment, and basic organizational structure that can’t be significantly reduced even for short periods of time without making fundamental changes
Contribution margin
the amount remaining from sales revenues after all variable expenses
Conversion cost
direct labor cost plus manufacturing overhead cost
fixed cost
a cost that remains constant, in total, regardless of changes in the level of activity within the relevant range. if a fixed costs is expressed on a per unit basis, it varies inversely with the level of activity.
Finished goods
unit of product that have been completed but not yet sold to customers
indirect cost
a cost that cannot be easily and conveniently traced to a specified cost object
direct cost
a cost that can be easily and conveniently traced to a specified cost object
direct labor
factory labor costs that can be easily traced to individual units of product (touch labor)
direct materials
materials that become an integral part of a finished product and whose costs can be conveniently traced to it
indirect labor
the labor costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced to particular products
indirect materials
small items of material such as glue and nails that may be an integral part of a finished product, but whose costs cannot be easily or conveniently traced to it
inventoriable costs
product costs
manufacturing overhead
all manufacturing costs except direct materials and direct labor
mixed cost
a cost that contains both variable and fixed cost elements
opportunity cost
the potential benefit that is given up when one alternative is selected over another
period costs
costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued
prime cost
direct materials cost plus direct labor cost
product costs
all costs that are involved in acquiring or making a product. in the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead. also see inventoriable costs
raw material
any materials that go into final product
sunk cost
a cost that has already been incurred and that cannot be changed by any decision made by now or in the future
variable cost
a cost that varies, in total, in direct proportion to changes in the level of activity. A variable cost is constant per unit
work in process
units of product that are only partially complete and will require further work before they are ready for sale to the customer
selling cost
all costs that are incurred to secure customer orders and get the finished product or service into hands of the customer
relevant range
the range of activity within which assumptions about variable and fixed cost behavior are valid
relevant benefit
a benefit that should be considered when making decisions
relevant cost
a cost that should be considered when making decisions
Common cost
a cost that is incurred to support a number of cost objects but that cannot be traced to them individually.
contribution approach
an income statement format that organizes cost by their behavior. costs are separated into variable and fixed categories rather than being separated into product and period costs for external reporting purposes
cost behavior
the way in which a cost reacts to changes in the level of activity
cost object
anything for which cost data are desired
cost structure
the relative proportion of fixed, variable, and mixed costs in an organization
differential revenue
future revenue that differs between any two alternatives
discretionary fixed costs
those fixed cost that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research
incremental cost
an increase in cost between two alternatives
