Chapter 2 Terms Flashcards
Prime Costs
Direct Materials + Direct Labor
Conversion Costs
MOH + Direct Labor
Manufacturing Overhead (MOH)
all costs other than DM and DL
Direct Labor
cost of compensating employees who physically convert raw materials into the company’s product
Direct Materials
primary materials that become the physical part of the finished product
Product Cost
Direct Materials + Direct Labor + Manufacturing Overhead
Product Costs
incurred by manufacturers to produce their products
relate to obtaining inventory
Period Costs
cost expensed in the period they are incurred
example: operating expenses, selling expenses, general expenses
NOT inventoriable
Direct Cost
Costs that can be traced to the cost object
Indirect Cost
costs that relate to the cost object but cannot be traced specifically to it
The Value Chain
Activities that add value to the company’s products and services
Business Sectors
Service companies
Merchandising companies
Manufacturing companies
Service Companies
Sell intangible services
No inventory
Manufacturing Companies
Use labor, plant, and equipment to convert raw materials into finished products
Merchandising Companies
Resells tangible products
Carries substantial inventory
Additional labor compensation
- Salaries and wages
- Fringe benefits
a. health insurance
b. retirement plan contributions
c. payroll taxes
d. paid vacation
e. costs an additional 35% beyond gross salaries
Controllable Costs
management is able to influence or change
Uncontrollable Costs
costs companies are locked into in the short run
Relevant Costs
there is a difference between alternatives
Irrelevant Costs
do not differ among alternatives
Sunk Costs
costs that have already been incurred and cannot be changed
Fixed Costs
stay constant, in total, over a wide range of activity levels
Variable Costs
Change, in total, in direct proportion to changes in volume
Total Costs
Total Costs = Total Fixed Costs + (Variable cost per unit x number of units)
