chapter 3 Flashcards
Define cost objects
resources or activities that serve as the basis for management decisions
require separate cost measurement and may e products, product lines, departments, georgraphic territories or any other classification taht aids in decision making
product costs
not expensed until the product is sold.
all costs related to the manufacture of the product
inventory and COGS
comprised of direct materials direct labor and manufacturing overhead appled
period costs
are expensed in the period in which they are incurred
not inventoriable like product costs
SG&A expense, interest expense
manufacturing cost
treated as product costs
include all costs asociated with the manufacture of a product
nonmanufacturing costs
costs that do not relate to the manufacture of a porduct
i.e. period costs
type of cost - wages for factory employees?
direct labor - product cost
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type of cost - wages for accounting department?
period cost
type of cost - sales and promotion expense
period cost
type of cost - raw materials purchased
direct material - product cost
type of cost - general and administrative costs
period cost
type of cost - manufacturing overhead
product cost
type of cost - interest expense
period cost
What is comprised in product costs?
DM + DL + MOH
define direct costs
can be easily (without excessive cost or significant error) traced to a cost pool or object, as the cost directly relates to that item
includes direct raw material and direct labor
define direct raw materials
costs of materials purchased to be used in production (including freight in net of any applicable purchase discounts )PLUS a reasonable amount for normal scrap created by the process
define direct labor
cost of the labor that is directly related to the production of a product or the performance of a service PLUS a reasonable amount of expected downtime for the labor (i.e. breaks, setup , training, etc.)
define indirect cost
not easily traceable to a cost pool or cost object. Typically incurred to benefit two or more cost pools or objects. The specific benefit each cost gives to the cost pool or object cannot be determined without making some sort of reasonable estimate or using an allocation methodology.
known as “overhead”
includes indirect material, indirect labor, other indirect costs
define indirect materials
cost of materials that were not used specifically or could not be traced to the completed procut with ease Ii.e. cleaning supplies to clean up work space)
define indirect labor
cost of labor that is not easily traceable to a particular product, service, etc.
most often, the type of labor supports the manufacturing process but does not work directly on the specific job
ex: maintenance owkrers, shift supervisors, workers in the receiving department, janitorial staff, inspectors, engineers, training, et.
included in manufacturing overhead
define other indirect costs
“factory costs”
costs other than those for materials or labor
costs for depreciation, rent of production warehouse, machine maintenance, property tax on building, insurance, utilities, etc.
prime cost
= DL + DM
conversion cost
= DL + MOH
Traditional costing
all indirect costs (MOH) are allocated to a single cost pool or account called overhead and allocated as a single pool.
- overhead rate = budgeted OH / est. cost drive
- applied OH = actual cost driver x OH rate
variable cost
changes proportionally with the cost driver (typical cost drivers include sales volume and production volume)
change in total, but constant per unit
