CHAPTER 2 Flashcards
Cost Classification:
Depends on how the information is to be used.
Different costs and classifications are used for different purposes.
Can the same cost be classified in a number of ways?
Yes, depending on the intended use of the cost information.
What are costs?
Costs are resources given up to achieve a particular objective.
Variable costs
- costs that change in total proportionally to changes in the activity level. e.g commission based wage
Fixed Costs
Costs that remain unchanged in total when the activity level changes.
E.g. Salaries, Rent
Cost Object
An item assigned a seperate measure of costs.
e.g. products, divisions, customers, responsibility centre
Direct Costs
a cost that can be identified with or traced to a particular cost object in an economic manner.
- are directly traced to the cost object
Indirect costs
a cost that cannot be identified with or traced to a cost object in an economic manner.
- are allocated to the cost object.
Controllable costs
can be controlled or significantly influenced by the manager
Uncontrollable costs
cannot be controlled or significantly influenced by the manager.
Direct product cost
Manufacturing costs that can be traced to products in an economic manner.
Indirect product cost
Manufacturing costs that cannot be traced to products in an economic manner.
Value Chain
a set of linked processes or activities that begins with acquiring resources and ends with providing and supporting products that customers value.
Manufacturing costs
the cost of direct material, direct labour and manufacturing overheads.
Non-manufacturing costs
all costs incurred outside of manufacturing, that is the cost of upstream and downstream activities
Direct Material
The cost of materials consumed in the manufacturing process to produce a product, physically incorporated in the product and able to be traced to the product in an economic matter.
Direct Labour
the cost of salary, wages and labour on cost for personnel who work directly on the manufactured product.
Indirect material costs
the costs of material used in production that cannot be directly assigned to individual products in an economic matter.
Indirect labour costs
the costs of any Labour used in production that cannot be directly traced to individual products in an economic manner.
Conversion Costs
the costs of direct labour and manufacturing overhead incurred to convert raw material to a finished product.
Prime costs
the costs of direct material and direct labour incurred to produce a product.
Product Cost
the cost assigned to goods that were either manufactured or purchased for resale.
determines cost of goods sold.
COGS expense
the cost of products transferred from the inventory account when sold, matched against revenue to determine gross margin.
Period costs
costs that are expensed in the accounting period in which they are incurred.
