Lectures 1 - 4 Flashcards
A cost is
the sacrifice made, measured by the value of resources given up to achieve a particular purpose
Total costs =
Direct costs + Indirect costs
Direct costs are
costs that can be traced easily and conveniently to a product / department
Indirect costs are
costs that need to be allocated before theyre assigned to a product / department
opportunity costs
the potential benefit that is given up when one alternative is selected as opposed to another
cash/out of pocket cost
the incremental cost paid by cash or credit to achieve a purpose
Sunk cost
past payments for resources that cant be changed by any current/future decisions
Variable costs
vary in direct proportion to production values
committed costs
incurred due to a contractual obligation or policy
Fixed costs
costs that dont change
Product costs
related to the purchase or manufacture of goods for resale
Period costs
related to selling and admin operations
Gross margin ration=
(sales turnover-cost of sales) / sales turnover
Operating income =
gross margin - period expenses
return on sales ratio
operating income / sales
Service firm
provide a service that is consumed when produced - have no inventories
Retailers
buy finished goods and sell them
manufacturers
buy raw materials, produce and sell finished goods
direct materials
raw materials that can be traced back to a specific product
direct labour
payments to employees who convert DM into finished product
manufacturing overhead
indirect materials, indirect labour, other overhead
PRIME COSTS
direct materials + direct labour
CONVERSION COSTS
direct labour and manufacturing overhead
cost estimation is used to
manage costs, make strategic decisions and plan standards
