Chapter 1 Flashcards
What can cost objects be
Products, Lines of products, customers, divisions, departments, geographical regions, business segments
Direct Costs
Costs that can be directly and conveniently traced to a product
Indirect costs
Costs that cannot be easily and conveniently traced to a unit of a product or other cost
What are the three types of classifications for Manufacturing Costs
Direct Materials, Direct Labor, Manufacturing Overhead
What are direct materials
Direct Materials are raw materials that can be conveniently traced directly to units of product
Give an example of direct materials
free response
What is direct labor
Direct labor costs are those labor costs that can be easily traced to individual units of a product
Give an example of direct labor costs
free response
Manufacturing overhead
Includes all manufacturing costs except direct material and direct labor. These costs cannot be readily traced to finished products
What are the two components of manufacturing overhead
indirect materials and indirect labor
Give examples of manufacturing overhead
free response
Prime Costs =
Prime Cost = Direct Material + Direct Labor
Convergent Costs =
Convergent Costs = Direct Labor + Manufacturing Overhead
What is classified as a non manufacturing cost
SG& A (Selling costs and administrative costs), R&D Expenses (Research and Development)
What is classified as a manufacturing cost
Direct Labor + Direct Material = Prime Costs; Direct Labor + Manufacturing Overhead = Conversion Costs
Selling Costs
Costs necessary to secure the order and delivery of a product. Selling can be indirect or direct
Administrative Costs
All executive, organizational, and clerical costs. Administrative costs can be either direct or indirect costs
Research costs
Costs of planned search or critical investigation aimed at discovery of new knowledge.
Development Costs
Costs incurred to translate research findings into a plan or design for a new product or process
What is the difference between product costs vs period costs
Product costs includes all the costs that are involved in acquiring or making a product
Product costs “attach to”
Product costs “attach” to a unit of a product as it is purchased or manufactured and they stay attached to each unit of product as long as it remains in inventory awaiting sale
Period costs are all costs
That are not product costs
3 Components of Manufacturing Product Costs
Raw materials, work in process, finished goods
Raw materials
Includes any materials that go into the final product. Also includes indirect materials
Work in process
consists of units of product that are only partially complete and will require further work before they are ready for sale to the customer
Finished goods
Consists of completed units of product that have not yet been sold to customers
Outline of Cost flows
Draw Picture (See Chap 1 Slides)
What is cost behavior
Cost behavior refers to how a cost will react to changes in level of activity
Three most common classifications of cost behavior
Variable costs, fixed costs, mixed costs
What is Variable Cost
A cost that varies, in total, in direct proportion to changes in the level of activity
A variable cost per unit is
constant
What is a fixed cost
A cost that remains constant, in total, regardless of changes in the level of the activity
If fixed cost is expressed on a per unit basis
the average fixed cost per unit varies inversely with changes in activity
What is the relevant range
refers to a normal range of volume or normal amount of activity in which the total amount of a company’s fixed costs will not change as the volume or amount of activity changes
A mixed cost
Is a cost that contains both variable and fixed elements
An example of a mixed cost
Utility cost
draw fixed, mixed, variable, and relevant range graphs
see Chap 1 slides for help with drawing
