chapter 2 Flashcards
cost
a resource sacrificed or forgone to achieve a specific objective.
actual costs
incurred costs (historical costs)
budgeted costs
predicted or forecasted costs
cost object
anything for which a separate measurement of costs is desired.
cost accumulation
collection of cost data in some organised way through an accounting system.
cost assignment
a general term that encompasses both tracing accumulated costs to a cost object and allocating costs to a cost object. this can also occur simultaneously.
direct costs
costs that are related to a particular cost object and that can be traced to it in an economically feasible (cost-effective) way.
indirect costs
costs that are related to a particular cost object and that cannot be traced to it in an economically feasible way. they’re allocated to the cost object using a cost-allocation method.
cost tracing
assigning direct costs to the chosen cost object.
cost allocation
assigning indirect costs to the chosen cost object.
value-added activities
activities that customers perceive as adding value to the products or services they purchase.
cost driver/cost generator/cost determinant
any factor that affects total costs.
cost management
set of actions that managers take to satisfy customers while continuously reducing and controlling costs. therefore, changes in a cost driver may not automatically lead to changes in overall costs.
variable costs
costs that change in proportion to changes in the related level of total activity or volume.
fixed costs
costs that do not change in total despite changes in the related level of total activity or volume.
relevant range
range of the cost driver in which a specific relationship between cost and the level of activity or volume is valid.
service-sector companies
provide services or intangible products to their customers. they do not hold any stock of tangible products. the operating-cost line items will include costs from all areas of the value chain.
merchandising-sector companies
provide tangible products they have previously purchased in the same basic form from suppliers. merchandise purchased but not sold is held as stock. the sector includes retailing, distributing, or wholesaling.
manufacturing-sector companies
provide tangible products that have been converted to a different form from that of the products purchased from suppliers. their stock includes direct materials, work-in-process stock, and finished goods stock.
direct material costs
acquisition costs of all materials that eventually become part of the cost object and that can be traced to the cost object in an economically feasible way.
direct manufacturing labour costs
include the compensation of all manufacturing labour that is specifically identified with the cost object and that can be traced to the cost object in an economically feasible way.
indirect manufacturing costs/manufacturing overhead costs/factory overhead costs
all manufacturing costs considered to be part of the cost object, but that cannot be individually traced to that cost object in an economically feasible way.
capitalised costs
first recorded as an asset of the accounting period when they are incurred. they’re presumed to provide future benefits and are written off to those periods assumed to benefit from their incurrence.
revenue costs
recorded as expenses of the accounting period when they are incurred.
operating costs
all costs associated with generating revenue, other than cost of goods sold.
stock-related costs/inventoriable costs
those costs associated with the purchase of goods for resale or costs associated with the acquisition and conversion of materials and all other manufacturing inputs into goods for sale. becomes part of COGS in the period in which the stock item is sold.
period costs
all costs in the income statement other than COGS. these costs are treated as expenses in the period in which they are incurred rather than being inventoried because managers expect these costs to increase revenues in only that period and not in future periods. for manufacturing-sector companies, all non-manufacturing costs in the income statement are period costs.
absorption costing
method in which all manufacturing costs are inventoriable.
variable costing
costing in which only variable manufacturing costs are inventoriable. fixed manufacturing costs under variable costing are treated as period costs.
prime costs
all direct manufacturing costs. as information-gathering technology improves, companies may add other direct-cost categories.
conversion costs
all manufacturing costs other than direct material costs. these costs are for transforming direct materials into finished goods.
product cost
the sum of the costs assigned to a product for a specific purpose.
