Ch 2 Flashcards
(32 cards)
What is a cost object?
Anything for which we want to accumulate costs
Define product costs.
Costs incurred only because the company manufactures their cost object
Define period costs.
Costs incurred because the company is in business, such as administrative and selling expenses
What does manufacturing consist of?
Activities that convert raw materials into finished goods
What are direct materials?
Raw materials that can be physically and directly associated with the finished product
Provide an example of direct materials.
Flour in the baking of bread
What is direct labour?
Work completed by employees that can be directly associated with converting raw materials into finished goods
Provide an example of direct labour.
Legal staff at a law firm
What is manufacturing overhead?
Costs incurred in the manufacture of a finished good that cannot be practically traced to a specific unit
List components included in manufacturing overhead.
- Indirect materials
- Indirect labour
- Depreciation on factory buildings
- Insurance
- Taxes
What are indirect materials?
Raw materials that cannot be easily associated with the cost object
Provide an example of indirect materials.
Lubricants, cleaning supplies, polishing compounds
What is indirect labour?
Work completed by employees that has no direct physical association with the finished product
Provide an example of indirect labour.
Wages of maintenance workers and janitors
Define prime costs.
Sum of all direct materials and direct labour costs
Define conversion costs.
The cost of converting raw materials into a final product, consisting of direct labour and manufacturing overhead costs
What are product costs?
Consist of direct material cost, direct labour cost, and manufacturing overhead cost
What happens to product costs when the finished good is sold?
They become an expense to the business
What are period costs matched with?
Revenue earned within a specific time period
List examples of period costs.
- Selling expenses
- Marketing expenses
- General and administrative expenses
True or False: Property taxes on the factory building are classified as overhead.
True
What is cost behaviour analysis?
The study of how specific costs respond to changes in the level of business activity
What is the activity level index?
Identifies the activity that causes changes in the behaviour of costs
Define variable costs.
Costs that vary in total directly and proportionately with changes in the activity level
