Chapter 2 Flashcards
Product Costing
Gathering & assigning the costs of all inputs in the manufacturing or acquisition process to individual products
Cost Object
Anything for which business managers must determine a cost
Product Costs
All costs necessary to bring a product to completion.
Manufacturer product costs include materials, components, human labor, utilities, and the use of factory assets.
Period Costs
Shown as expense on income statement in period incurred and not assigned to products.
Examples: Manufacturers selling expenses and non-factory administrative expenses.
Variable Cost
Cost that varies in total but is fixed per unit
Variable costs change proportionately with changes in the volume of activity
Fixed Cost
Fixed in total but variable on a per unit basis.
Fixed costs do not change when the volume of activity changes. Examples- property taxes, depreciation of buildings
Mixed or Semi Variable Costs
Costs with both fixed and variable components
Ex: Apple factory shut down for 1 month but still costs $200,000 in utilities. The same factory will have higher utilties when in operation.
Direct Cost
Cost that can be easily and cost effectively traced to a specific cost object
Ex: Manufacturer direct costs- main material and labor used to produce a unit of product
Indirect cost
A cost that cannot be easily and cost effectively traced to a specific cost object.
Period Costs
Service firms and merchandisers expense period costs in the period in which they were incurred.
Used by service sirms to understand the cost of providing their services to customers.
3 Inventories Maintained by a Manufacturer
1- Materials Inventory
2- Work-in-process inventory
3- Finished goods inventory
Factory Supplies
Consumable items used in the factory but not incorporated into the product
Ex: cleaning supplies, machine lubricant
Office Supplies
Examples include copy paper, toner, and paper clips
3 Manufacturing Product Cost Categories
1- Direct materials
2- Direct labor
3- Manufacturing overhead
Direct Materials
All the important materials and components that physically make up product
Indirect Materials
Incidental materials such as glue and fasteners
Inluded in manufacturing overhead
Direct Labor
Includes salary and wages of factory employees who work directly on product
Ex: machine operator, assembler, painter
Indirect Labor
Salary and wage cost of factory employees who do not work directly on the product
Ex: supervisors, inspectors, material handlers. Included in manufacturing overhead
3 Subcategories of Manufacturing Product Costs
1- Direct materials
2- Direct labor
3- Manufacturing overhead
Manufacturing Overhead
Consists of all costs not included in direct materials and direct labor. Specifically excludes selling and non-factory administrative expenses bc they are not incurred in the manufacturing process.
Ex: indirect material, indirect labor, factory supplies used, factory payroll tax & fringe benefits costs
Combined Costs
Prime Costs
Direct Materials + Direct Labor
Conversion Cost
Direct Labor + Manufacturing Overhead
The Flow of Materials Costs Through The Inventory System
