Week 5 (Cost concepts) Flashcards
are the costs incurred in the production (manufacture) of a product
what is this ?
manufacturing costs
what are the 3 manufacturing costs ?
- direct material
- direct labor
- manufacturing overhead
are raw materials that become an integral part of the finished product and can be easily and efficiently traced to the product
what is this ?
direct materials
if materials cannot be traced directly to products, the materials are considered ____ and are part of manufacturing overhead
what is this ?
indirect
represents the payroll cost of those employees who work directly on the product being manufactured
what is this ?
direct labor
the cost of employees who work in the factory but not directly on the product is considered ____ ____ and is part of manufacturing overhead
what is this ?
indirect labor
represents all manufacturing costs other than direct materials and direct labor
what is this ?
manufacturing overhead
- rent on factory buildings
- utilities on the factory building
- depreciation on the factory building and equipment
- property taxes on factory building
- indirect materials
- indirect labor
what are these examples of ?
overhead costs
what are the 2 key words to identify if a cost is an overhead cost ?
- indirect
- factory
materials used to support the production process
what is this ?
indirect materials
- lubricants
- cleaning supplies
used in the automobile assembly plant are examples of what ?
indirect materials
wages paid to employees who work in the factory but not directly on the product
what is this ?
indirect labor
- maintenance workers
- janitors
- security guards
are examples of what ?
indirect labor
would salary paid to the CEO be classified as direct or indirect labor ?
neither bc they have nothing to do with the manufacturing process
are costs incurred outside of the manufacturing process
what is this ?
non-manufacturing costs
- CEOs salary
- advertising
- commissions paid to salespeople
- utilities on the administrative building
- rent on sales and administrative buildings and equipment
what are these examples of ?
non-manufacturing costs
non-manufacturing costs are typically referred to as what ?
S&A costs
(selling & administrative)
the production supervisors salary is always what ?
considered part of overhead
- these costs include direct materials, direct labor, and manufacturing overhead
- initially recorded as part of inventory on the balance sheet
- they are expensed on the income statement only when the inventory is sold
- manufacturing costs are referred to as ____
what is this ?
product costs
- these costs include all selling and amninstrative costs
- are never recorded as part of inventory as they have nothing to do with the production of a good
-are recorded as an expense as soon as they are incurred - non-manufacturing costs are referred to as ____
what is this ?
period costs
companies that produce their own product have 3 classifications of inventory, what are they ?
- direct (raw) materials
- work in process
- finished goods
inventory on hand and available for use
what is this ?
direct (raw) materials inventory
partially completed goods
what is this ?
work in process inventory
completed goods awaiting sale
what is this ?
finished goods inventory
since direct materials represent both a type of inventory and a manufacturing costs, when are direct materials considered an inventory and when are they considered a manufacturing costs ?
- direct material inventory => when the materials have been purchased and are available in the storeroom
- direct material cost => when the materials are actually used in the production of goods
with product costs (DM used, DL, and overhead) they are initially recorded as part of inventory but what specific inventory ?
work in process
- these costs are attached to units that are being produced, so when goods are completed the costs associated with those goods will transfer to finished goods inventory
the transfer (the costs transferred from work in process to finished goods) is called ?
cost of goods manufactured
these costs (and units) will remain in finished goods until the units are sold at which time the costs are transferred to the income statements as the expense ?
cost of goods sold
