Chapter 5 FINAL Flashcards
Direct Cost
Costs that can be easily and conveniently traced to a unit of product or other cost object
Examples of Direct Cost
Direct Material & Direct Labor
Indirect Costs
Costs that cannot be easily and conveniently traced to a unit of product or other cost object
Example of Indirect Costs
Manufacturing overhead
Common Costs
Indirect Costs incurred to support a large number of cost objects. These costs cannot be traced to any individual cost object
Direct Material
Raw materials that become an integral part of the product and that can be conveniently traced
Direct Labor
Labor costs that can be easily traced to individual units of product (such as wage paid to assembly line workers)`
Manufacturing Overhead
cost that cannot be easily traced to specific units
Examples of Manufacturing Overhead
Indirect materials-oils and lube used on a factory machine
indirect labor-janitors, security guards,
Selling Costs
Costs necessary to secure the order and deliver the product. Selling costs can be either direct or indirect costs
Administrative Costs
All executive, organizational, and clerical costs. Administrative costs can be either direct or indirect costs
Product Costs
include direct materials, direct labor, and manufacturing overhead
Period Costs
include all selling costs and administrative costs
Prime Costs
Direct Materials & Direct Labor
Conversion Cost
Direct Labor & Manufacturing Overhead
The 3 cost behaviors
Variable Cost. Mixed Cost. Fixed Cost.
Variable Cost
A cost that varies, in total, in direct proportion to changes in the level of activity
Variable Cost Per Unit
Doesn’t change
Fixed Cost
A cost that remains constant, in total, regardless of changes in the level of the activity
Committed Fixed Cost…ex
Long-term, cannot be significantly reduced in the short term
Depreciation on Buildings & Equipment
Discretionary Fixed Cost …ex
May be altered in the short-term by current managerial decisions
R&D/Advertising
High Low Method
Total Fixed Cost= Total Cost - Total Variable Cost
Least Square Regression Method
Y=a+bX
Contribution Income Statement
Sales-Variable Costs=Contribution Margin
Contribution Margin-Fixed Expenses=Net Operating Income
Account Analysis
method for analyzing cost behavior in which an account is classified as either variable or fixed based on the analyst’s prior knowledge of how the cost in the account behaves.
Engineering Approach
detailed analysis of cost behavior based on an industrial engineer’s evaluation of the inputs that are required to carry out a particular activity and of the prices of those inputs.
Independent Variable
X in Y=a+bX
Dependent Variable
Y in Y=a+bX
Variable Cost
Change in Cost/Change in Activity
