Chapter 8: Product costing Flashcards
Cost Object
Anything we want to know the cost of
Product costs
Any cost that is associated with units of product for a particular purpose. Identification of product costs depends on the purpose for which it is done.
Inventoriable costs
Costs that are debited to inventory for external or internal reporting purposes
Manufacturing firms: manufacturing costs (but not necessarily all manufacturing costs)
Merchandising firms: purchase price of inventory
Period costs
Costs that are expenses when incurred (distinguished from inventoriable costs, generally not associated with manufacturing of products)
Direct costs
Cost that can be traced to a cost Object in an economically feasible way
Overhead costs
Aka indirect costs
Associated with a coat object but cannot be traced to the cost object in an economically feasible way.
Cost driver
Any factor that affects costs
Change in cost driver = change in total cost of cost object
One cost object generally has numerous cost drivers
Economic concept: relates to the economic reality of the business
Cost allocation
Assignment of overhead costs to the cost object
Cost allocation base
A quantitative characteristic shared by multiple cost objects that is used to allocate overhead costs among the cost objects.
Can be financial or nonfinancial
An accounting choice (usually best choice is a cost driver)
Conversion costs
All manufacturing costs other than direct materials
Product costing steps
1- identify the cost object
2- identify the direct costs associated with that cost object
3- identify the overhead costs
4- select the cost allocation base to use in assigning overhead costs to the cost object
5- develop the overhead rate for allocating overhead to the cost object
Product costing steps
1- identify the cost object
2- identify the direct costs associated with that cost object
3- identify the overhead costs
4- select the cost allocation base to use in assigning overhead costs to the cost object
5- develop the overhead rate for allocating overhead to the cost object
Direct materials
Materials that become part of the finished product and that can be conveniently and economically traced to specific units or batches of product
Direct labor
Cost for labor that can be conveniently and economically traced to a unit or batch of product
Overhead rate
Overhead costs in the pool / total quantity of the allocation base
= Dollars per unit of the allocation base
