Chapter 2 info Flashcards
Cost
sacrifice of resources
-Payment of cash, or the commitment to pay cash in the future for the purpose of generating revenues
outlay costs
past, present, or future cash outflow
opportunity cost
forgone benefit from the best alternative course of action
expense
cost charged against revenue in an accounting period
Product Cost
-cost related to inventory
-DM,DL,MOH
As product costs are incurred, they are recorded and reported on
the balance sheet as inventory
* When the inventory is sold, the cost of the manufactured product
sold is reported as cost of goods sold on the income statement
Period Costs
-nonmanufacturing costs related to the firm
-SG&A
-Selling expenses: incurred in marketing the product and delivering it
to the customer
* Administrative expenses: incurred in managing the company and
are not directly related to the manufacturing or selling functions
* Period costs are reported as expenses on the income statement in
the period in which they are incurred never appear on the
balance sheet
Direct Cost
can be traced to a cost object
-DL & DM
Indirect Cost
Cannot be identified with or traced to a cost object
-MOH
Prime Cost
Cost that cannot be broken down into any smaller unit
-DM+DL
Conversion Costs
-DL+MOH
-Costs needed to CONVERT RM into FG
Cost Allocation
the process of assigning indirect costs to products, services, people, business units, etc
Cost Behavior
How costs respond to a change in activity level within the relevant range
Revelent Range
Activity levels within which a given total fixed cost or unit variable cost will be unchanged
Fixed Costs
-remain unchanged in total as volume changes
-FC per unit varies inversely to a change in activity
-FC are “fixed” in total as activity changes
Variable Costs
-change in direct proportion with a change in the volume
-VC per unit stays constant when activity changes within the relevant range
-VC “vary” in total as activity changes
