Cost Accounting Pt. 1 Flashcards
What is a cost object?
resources or activities that serve as the basis for management decisions, and they require separate cost measurement; a single cost object can have more than one measurement; inventory (product) costs for financial statements are usually different from costs reported for tax purposes; both inventory (product) costs and costs reported for tax purposes are different from costs used by management to make decisions
What are product costs?
they are related to the manufacture of the product and are inventoriable (considered as assets before the product is sold); they attach to the units of output and consist of DM, DL, and MOH
What are period costs?
they are expensed in the period in which they are incurred and are not inventoriable; includes SG&A expenses as well as interest (financing) expense; these are the costs of selling the product and administering and managing the operations of the firm
What is a direct cost?
it is easily tied to a cost pool or object as the cost directly relates to that item; common direct costs include:
DM - cost of material 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
DL - cost of 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 (breaks, setup, training, etc.)
What is an indirect cost (aka overhead/manufacturing overhead)?
it is not easily traceable to a cost pool or cost object; they are 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
indirect materials - covers the cost of materials that were not used specifically or could not be traced to the completed product with ease
indirect labor - cost of labor that is not easily traceable to a particular product, service, etc; most often, this type of labor supports the manufacturing process but does not work directly on the specific job
What are prime costs?
direct labor and direct material
What are conversion costs?
direct labor and manufacturing overhead
T/F: indirect costs are allocated to benefiting cost pools or cost objects using cost drivers that are considered to have a strong relationship to the incurrence of these costs (overhead can also be allocated using ABC costing)
True; when traditional costing is used, the application of overhead is accomplished in two steps:
1) overhead rate = budgeted overhead costs / estimated cost drive
2) applied overhead = actual cost driver * overhead rate (from step 1)
T/F: costs can be classified by their behavior, the degree to which the costs are either fixed or variable
True; DM and DL are generally variable costs, and indirect costs consist of both fixed and variable components
variable cost: changes proportionally with the cost driver; costs change in total, but they remain constant per unit; the short-run and long-run effects of variable costs are the same within relevant ranges
fixed cost: in the short term and within a relevant range, a fixed cost does not change when the cost driver changes; costs remain constant in total, but they vary per unit; given enough time and a long enough relevant range, any cost can be considered variable
semi-variable cost: contain both fixed and variable components
What is a relevant range?
the range of production over which cost behavior assumptions are valid; when the cost driver activity is no longer within the relevant range, the variable and fixed cost assumptions for that cost driver cannot be used to allocate costs to cost objects
