Unit 1 Chapter 2 Flashcards
Manufacturing costs
Direct material
Direct labour
Manufacturing overheads
Direct material
materials that become an integral part of the finished product and that can be physically and conveniently traced to it
Direct labour
labour costs that can easily (i.e., physically and conveniently) be traced to individual units of product.
Also called TOUCH LABOUR
Manufacturing overheads
all costs of manufacturing except direct materials and direct labour.
Conversion cost
Manufacturing overhead combined with direct labour
Incurred in the conversion of materials into finished products.
Prime cost
Direct labour combined with direct materials
Non-manufacturing costs
Marketing or selling costs
Administrative costs
Marketing or selling costs
all costs necessary to secure customer orders and get the finished product or service into the hands of the customer
Advertising, shipping, etc
Administrative costs
all executive, organizational and clerical costs associated with the general management of an organization rather than with manufacturing, marketing or selling
Public relations, general accounting, etc
Product costs
all the costs that are involved in acquiring or making
a product.
Absorption costing
Direct materials, direct labour and manufacturing overheads
Period costs
all the costs that are not included in product costs
Selling and administrative expenses
Cost classifications of financial statements
Raw materials
Work-in-progress
Finished goods
Flow of direct costs
Raw materials purchases are recorded in the Raw Materials inventory account.
When raw materials are used in production, their costs are transferred to the Work in Progress inventory account as direct materials used in production.
Flow of direct labour and manufacturing overheads
added directly to Work in Progress.
All manufacturing costs are then transferred to the Finished Goods account as cost of goods manufactured
differences between services and manufacturing
Services cannot be stored as inventory
Service outputs are often specially customized for a client (heterogeneous)
In services, the customer is usually present in the delivery process
cost behaviour
how a cost will react or respond to changes in the level of business activity.
Variable cost
a cost that varies, in total, in direct proportion to changes in the level of activity.
Cost of goods sold, direct material and labour, indirect materials, shipping costs, etc
Activity base
a measure of whatever causes the incurrence of costs, sometimes also referred to as a
cost driver
Fixed cost
a cost that remains constant, in total, regardless of changes in the level of activity.
Advertising, salaries, insurance, etc
costs fixed within some relevant range
Relevant range
the range of activity within which the assumptions about variable and fixed costs are valid.
cost object
anything for which cost data are desired
Direct cost
a cost that can be easily and conveniently traced to the particular cost object under consideration
Meat, vegetables and chef when preparing a plate of food
Indirect cost
a cost that cannot easily and conveniently be traced to the particular cost object under consideration.
Spices, rent and electricity when preparing a plate of food
Differential cost
A difference in costs between any two alternatives
Incremental cost (cost increases) and decremental cost (cost decreases)
Differential revenue
A difference in revenues between any two alternatives
Opportunity cost
the potential benefit that is given up when one alternative is selected over another
Sunk cost
a cost that has already been incurred and that cannot be changed by any decision made now or in the future
