Chapter 3 Flashcards
Cost driver
is any factor that has the effect of changing the amount of total cost.
cost object
any product, service, customer, activity, or organizational unit to which costs are assigned.
value streams
groups of products
cost assignment
process of assigning resource costs to cost pools and then from cost pools to cost objects.
direct cost
can be conveniently and economically traced directly to a cost pool or a cost object.
indirect cost
there is no economical or convenient way to trace a cost to the cost pool or from the cost pool to the cost object.
cost allocation
The assignment of indirect costs to cost pools and cost objects
allocation bases
The cost drivers used to allocate or assign indirect costs to cost objects
direct materials cost
includes the cost of materials in the product or other cost object (less purchase discounts but including freight and related charges) and usually a reasonable allowance for scrap and defective units (e.g., if a part is stamped from strip steel, the material lost in the stamping is ordinarily included)
indirect materials cost
the cost of materials used in manufacturing that are not part of the finished product
Direct labor cost
includes the labor used to manufacture the product or to provide the service plus some portion of non-value-added time that is normal and unavoidable, such as coffee breaks and personal time.
Indirect labor costs
labor costs associated with production, but are not direct labor. Examples include supervision, quality control, inspection, purchasing and receiving, materials handling, janitorial labor, downtime, training, and cleanup.
factory overhead
All indirect costs-for indirect materials, indirect labor, and other indirect items
prime costs
Direct materials and direct labor
conversion costs
direct labor and overhead
Activity-Based cost drivers
factors that cause or contribute to the changes in an activity.
volume-based cost drivers
Increases at the rate of increase in volume. the amount produced or quantity of service provided.
step cost
varies with the cost driver within the relevant range, but does so in steps.
unit cost
aka average cost, the total cost of resources consumed divided by the number of units of output
structural cost drivers
strategic in nature. involve decisions that have long-term effects on the firm’s total costs.
executional cost drivers
factors the firm can manage in short-term, operational decision making to reduce costs.
product costs
include only the costs necessary to complete the product at the manufacturing step in the value chain. Direct materials, direct labor and factory overhead.
period costs
all other costs for managing the firm and selling the product that are not product costs. They are expensed in the period in which they incurred. Selling, General and Administrative costs AKA operating expenses.
perpetual inventory system
point-of-sale or transaction-based computer system for recording sales and changes in inventory.
periodic inventory system
involves a count of inventory at the end of each period to determine the ending balance in inventory.
relevant range
the range of the cost driver in which the actual value of the cost driver is expected to fall and for which the relationship to total cost is assumed to be approximately linear.
materials inventory
cost of the supply of materials to be used in manufacturing process
work in process inventory
contains all costs put into the manufacture of products that are started but not complete at financial statement date
finished goods inventory
cost of goods that are ready for sale
