Basic Cost Management Concepts Flashcards
What is a cost in managerial accounting?
A cost is incurred when a resource is used for a specific purpose.
What is a cost pool?
A grouping of individual costs based on their nature or source, such as materials or labor.
What is a cost driver?
Any factor that causes a change in the total cost.
What is a cost object?
Any product, service, customer, activity, or unit to which costs are assigned.
In cost assignment, how are resources related to cost objects?
Resources are used in activities, activities are grouped into cost pools, and cost pools are assigned to cost objects.
What are direct material costs?
Costs of materials that can be directly traced to outputs, including purchase price, freight, and adjustments for scrap.
What are indirect material costs?
Material costs that cannot be directly traced to outputs, like rags or lubricants.
What are direct labor costs?
Wages and related costs that can be directly traced to outputs.
What are indirect labor costs?
Labor costs that cannot be directly traced to outputs, such as supervision and inspection.
What is overhead?
A cost pool combining all indirect costs like indirect materials, labor, and other expenses.
Define Prime Costs.
Direct Materials + Direct Labor.
Define Conversion Costs.
Direct Labor + Overhead.
What is an activity-based cost driver?
A detailed driver identified through analyzing specific activities.
What is a volume-based cost driver?
A driver related to the total volume of production or services provided.
How does cost behave with volume-based drivers within the relevant range?
The relationship between cost and driver is approximately linear.
What is a variable cost?
A cost that changes directly with the level of output.
What is a fixed cost?
A cost that remains constant regardless of output level.
What is a mixed cost?
A cost that includes both fixed and variable components.
What is a step cost?
A cost that changes at certain points of volume but remains fixed between steps.
What are structural cost drivers?
Long-term strategic decisions about the scale, scope, and technologies of operations.
What are executional cost drivers?
Short-term operational decisions such as workforce training and quality control.
What are product costs?
Costs necessary to complete a product, including direct materials, direct labor, and manufacturing overhead.
What are period costs?
Costs not related to production, such as selling and administrative expenses.
How do costs move in a manufacturing company?
Through Raw Materials Inventory, Work-in-Process Inventory, Finished Goods Inventory, and then to Cost of Goods Sold.
