Chapter 2 Flashcards
Finished Goods Inventory
Completed goods that have not yet been sold.
Manufacturing Company
A company that uses labor, plant, and equipment to convert raw materials into new finished products.
Merchandising Company
A company that resells tangible products previously bought from suppliers.
Raw Materials Inventory
All raw materials (direct materials and indirect materials) not yet used in manufacturing.
Retailer
Merchandising company that sells to consumers.
Service Company
A company that sells intangible services rather than tangible products.
Triple Bottom Line
Evaluating a company’s performance not only by its ability to generate economic profits, but also by its impact on people and the planet.
Value Chain
The activities that add value to a firm’s products and services; includes R&D, design, production or purchases, marketing, distribution, and customer service.
Wholesaler
Merchandising companies that buy in bulk from manufacturers, mark up the prices, and then sell those products to retailers.
Work in Process Inventory
Goods that are partway through the manufacturing process but not yet complete.
Biomimicry
A means of product design in which a company tries to mimic, or copy, the natural biological process in which dead organisms (plants and animals) become the input for another organism or process.
Customer Service
Support provided for customers after the sale.
Design
Detailed engineering of products and services and the processes for producing them.
Distribution
Delivery of products or services to customers.
Greenwashing
The unfortunate practice of overstating a company’s commitment to sustainability.
Life-Cycle Assessment
A method of product design in which the company analyzes the environmental impact of a product, from cradle to grave, in an attempt to minimize negative environmental consequences throughout the entire lifespan of the product.
Marketing
Promotion and advertising of products or services.
Production or Purchases
Resources used to produce a product or service, or to purchase finished merchandise intended for resale.
Research and Development (R&D)
Researching and developing new or improved products or services or the processes for producing them.
Allocate
To assign an indirect cost to a cost object.
Assign
To attach a cost to a cost object.
Cost Object
Anything for which managers want a separate measurement of costs.
Direct Cost
A cost that can be traced to a cost object
Indirect Cost
A cost that relates to the cost object but cannot be traced to it.
Trace
To assign a direct cost to a cost object
Conversion Costs
The combination of direct labor and manufacturing overhead costs.
Direct Labor
The cost of compensating employees who physically convert raw materials into the company’s products; labor costs that are directly traceable to the finished product.
Direct Materials
Primary raw materials that become a physical part of a finished product and whose costs are traceable to the finished product.
Indirect Labor
Labor costs that are difficult to trace to specific products.
Indirect Materials
Materials whose costs are difficult to trace to specific products.
Inventoriable Product Costs
All costs of a product that GAAP requires companies to treat as an asset (inventory) for external financial reporting. These costs are not expensed until the product is sold.
Manufacturing Overhead
All manufacturing costs other than direct materials and direct labor; also called factory overhead and indirect manufacturing cost.
Other Indirect Manufacturing Costs
All manufacturing overhead costs aside from indirect materials and indirect labor.
Period Costs
Costs that are expensed in the period in which they are incurred; often called operating expenses or selling, general, and administrative expenses.
Prime Costs
The combination of direct material and direct labor costs.
Total Cost
The cost of all resources used throughout the value chain.
Cost of Goods Manufactured
The cost of manufacturing the goods that were finished during the period.
Operating Income
Earnings generated from the company’s primary ongoing operations; the company’s earnings before interest and taxes.
Perpetual Inventory
An inventory system in which both Cost of Goods Sold and Inventory are updated every time a sale is made.
Periodic Inventory
An inventory system in which Cost of Goods Sold is calculated at the end of the period, rather than every time a sale is made.
Controllable Costs
Costs that can be influenced or changed by management.
Differential Cost
The difference in cost between two alternative courses of action.
Sunk Cost
A cost that has already been incurred.
Uncontrollable Costs
Costs that cannot be changed or influenced in the short run by management.
Average Cost
The total cost divided by the number of units.
Fixed Costs
Costs that stay constant in total despite wide changes in volume.
Marginal Cost
The cost of producing one more unit.
Variable Costs
Costs that change in total in direct proportion to changes in volume.
