Chapter 2 - Terms and concepts Flashcards
What is accumulating costs?
The way that costs are measured and recorded. Accumulating costs tells the company what was spent.
What is assigning costs?
The way that a cost is linked to some cost object. Assigning costs tells the company why the money was spent. For example, if the cost was to support the manufacturing or the selling of the product.
What is cost object?
Any item such as a product, service, customer, department, project, geographic region, plant, and so on, for which costs are measured and assigned.
What is a opportunity cost?
A benefit given up or sacrificed when one alternative is chosen over another
What are direct costs?
Those costs that can be easily and accurately traced to a cost object.
When we say that a cost is easy to trace, we often mean that the relationship between the cost and the object can be physically observed and is easy to track.
What are indirect costs?
Costs that cannot be easily, accurately, or economically traced to a cost object.
Why is it important to allocate indirect costs?
For example, allocating indirect costs to products is needed to determine the value of inventory and the amount of cost of goods sold.
What is a variable cost?
A cost that in total varies in direct proportion to changes in output. It increases in total as output increases, and decreases in total as output decreases.
What is a fixed cost?
A cost that does not increase in total as output increases, and does not decrease in total as output decreases. For example property taxes.
What are product costs?
Those costs, both direct and indirect, of producing a product in a manufacturing firm, or of acquiring a product in a merchandising firm and preparing it for sale. Therefore, only costs in the production section of the value chain are included in product costs.
How are product costs treated?
Product costs initially are added to an inventory account and remain in inventory until they are sold, at which time they are transferred to COGS. Product Costs Include Direct Materials, Direct Labour, and Factory Overhead
What are direct materials?
Those materials that are part of the final product and can be directly traced to the goods being produced. The cost of these materials can be directly charged to products because physical observation can be used to measure the quantity used by each product.
What is direct labour?
The labour that can be directly traced to the goods being produced. Physical observation can be used to measure the amount of labour used to produce a product.
How is indirect labour traced?
Indirect labour is included in manufacturing overhead and, therefore, is allocated as an indirect cost rather than traced as a direct cost.
What is manufacturing overhead?
All product costs, other than direct materials and direct labour. Costs are included as manufacturing overhead if they cannot be easily traced to the cost object of interest.
