Chapter 2 Flashcards
Direct Materials
materials that can be physically and conveniently traced into a product( such as wood in a table)
Direct Labor
labor costs that can be physically traced to the creation of a product (such as assembly-line workers in a plant).
Direct labor is sometimes called touch labor
Manufacturing overhead
all costs of manufacturing a product other than direct material and direct labor( such as indirect material, indirect labor, factory utilities and depreciation of factory buildings and equipment
Marketing or selling costs
all costs necessary to secure costumer orders and get finished product or service into the hands of the customer (such as sale commissions, advertising, and depreciation of delivery equipment and finished goods warehouse)
Administrative Costs
all costs associated with the general management of the company as a whole
ex. executive compensation, executive travel costs, secretarial salaries, and depreciation of office buildings and equipment
Fixed Costs
Total cost stays SAME as volume changes
Per Unit changes inversely
(i.e., the more activity, the less per unit)
Variable Costs
Total cost varies as volume changes
Per unit stays the same
(total increases with increased activity)
Mixed Costs
Mixed costs have an element of both fixed and variable cost behaviors.
Mixed Costs ⇒ Total Costs Vary; Per unit changes inversely
Relevant range
is the normal range of production that can be expected for a particular unit without adding new fixed resources like building and equipment.
Need to separate mixed costs into fixed and variable elements
Control purpose
Decision making purposes
Three methods to differentiate mixed costs
High-low method
Scatter graph
Least squares (multiple regression)
Contribution Margin
Contribution Margin = Sales minus variable costs…thus,
Contribution Margin = Fixed costs plus net income
what is the behavior of COGS for merchandising?
variable
What is the behavior of COGS for a factory?
mixed
When are product costs expensed?
when sold
