Chapter 18 Flashcards
Product’s contribution margin divided by its sale price.
Contribution margin ratio
Expenditures incurred in converting raw materials to finished goods; includes direct labor costs and overhead costs.
Conversion costs
Work of employees who physically convert materials to finished product.
Direct labor
Raw material that physically becomes part of the product and is clearly identified with specific products or batches of product.
Direct materials
Expenditures for factory overhead that cannot be separately or readily traced to finished goods; also called overhead costs.
Factory overhead costs
Account that controls the finished goods files, which acts as a subsidiary ledger (of the Inventory account) in which the costs of finished goods that are ready for sale are recorded.
Finished Goods Inventory
Cost that does not change in total with changes in the volume of activity.
Fixed cost
Account in which costs are accumulated for products that are in the process of being produced but are not yet complete; also called Goods in Process Inventory.
Work in Process Inventory
Costs incurred for the benefit of more than one cost object.
Indirect costs
The potential benefit lost by taking a specific action when two or more alternative choices are available.
Opportunity Cost
Expenditures identified more with a time period than with finished product costs; include selling and general administrative expenses.
Period costs
Expenditures directly identified with the production of finished goods; include direct materials costs and direct labor costs.
Prime costs
Costs that are capitalized as inventory because they produce benefits expected to have future value; include direct materials, direct labor, and overhead.
Product costs
Goods a company acquires to use in making products.
Raw materials inventory
Arises from a past decision and can’t be avoided or changed; Most of a company’s allocated costs, including fixed overhead items such as depreciation and administrative expenses
Sunk Cost
