Topic 3 - Full costs and Their Uses Flashcards
A measurement, in monetary terms, of the amount of resources used for an activity, product, department, project etc.
Cost
An activity, a product or an organizational unit where costs are measured.
* Ex. Jeans production or production of a specific pair of jeans.
Cost Object
All resources used for a cost object. This includes direct costs like labor and materials and indirect costs like marketing and HR. This is of course depending on the cost object.
? = Direct costs + Indirect costs
? = Inventory costs + Nonproduction costs
Full costs
Costs that can be directly traced to a cost object
Direct costs
Costs that are associated with multiple cost object that can’t be traced only to a single cost object.
Indirect costs
Indirect production costs
* Ex. indirect labor and indirect material cost
Overhead costs
The sum of direct labor and overhead costs
Includes all production costs needed to convert direct material into finished goods.
Conversion costs
The total cost incurred to produce a product or service. It includes all the costs directly and indirectly related to the production process.
Full production cost (inventory cost)
The cost of raw materials used directly in the production of the goods.
Direct Material Costs
The wages paid to workers who are directly involved in manufacturing the product.
Direct Labour Costs
Indirect costs that support production but cannot be directly traced to a single unit, such as utilities, factory rent, equipment depreciation, and factory maintenance.
Manufacturing Overhead Costs
All other costs incurred in the organization that are not inventory costs
* Ex. marketing costs not related to a specific production
* Ex. logistics costs like warehousing and delivery
Non-production costs
Costs from birth to abandonment of a product
Lifecycle costing
Costs for R&D, testing, training
Birthing costs
Costs held when a product is discontinued
Abandonment costs
