Flashcards in Chapter 2 - An Intro. to Cost Terms and Purposes Deck (29):
What is a cost object?
product, service, project, activity, department
What is actual cost?
incurred (pas or historical cost)
What is budgeted cost?
future cost (forecasted and predicted)
What is direct cost?
related to a particular cost object can be easily traced to:
a) material requisitions form (Direct materials used in production)
b) Time sheet (Labor hours used in production)
What is tracing?
assignment of direct cost to cost object
What is indirect cost?
related to a particular cost object but cannot be traced
- have to be allocated and then assigned
What is allocation?
assignment of indirect cost to cost object
What is a variable cost?
a) variable in total (increases with # of units produced and vice versa) - direct relationship
b) fixed per unit
What is a cost driver?
Variable such as the level of activity (designing products, setting up machines, etc.) causally affects costs over a given time span.
What would be the variable cost driver for total cost of steering wheels?
# of vehicles assembled
Are there cost drivers for fixed costs (short-run, long-run)?
No cost driver in short-run
Cost driver in long-run
What are fixed costs?
a) fixed in total
b) variable per unit (decreases with # of units produced and vice versa) - Inverse relationship
What are the three sectors of the economy?
1. Manufacturing sector - purchasing materials and converting them into finish goods
2. Merchandising sector - Purchase and sell products without changing them (are type of inventory; retailing, distribution or wholesaling)
3. Service sector - providing services (e.g. legal advice or audits to customer)
What are the three types of inventory?
1. Direct materials inventory: Direct materials in stock that will be used in the manufacturing process
2. Work-in-process inventory: goods partially worked on but not yet completed
3. Finished goods inventory: goods completed but not yet sold
What is cost?
Cost is a resource sacrificed or foregone to achieve a specific objective.
What are the total manufacturing costs?
1. Direct materials used in production
2. Direct manufacturing labor
3. Manufacturing overhead or Indirect manufacturing costs (Indirect materials, Indirect labor, other)
What is a product cost?
The sum of the costs assigned to a product for a specific purpose
What are the 6 types of product costs?
1. Research and development
2. Design of products and processes
6. Customer service
What would we classify as product costs?
1. Manufacturing costs >>> Asset >>> Expense
2. Inventoriable costs >>> Inventory >>> COGS (Income Statement)
What is a period cost?
All costs in the income statement other than Costs of Goods Sold (COGS)
What would we classify as period costs?
1. Selling expense
2. General expense
3. Administrative expense
On the Inventory Balance Sheet, what would we Debit/Credit in the Direct Materials T-Account?
Debit: Beg. Balance + Purchase of materials = Ending Balance
Credit: Direct materials used in production
On the Inventory Balance Sheet, what would we Debit/Credit in the Work-in-Process T-Account?
Debit: Beg. Balance + Direct Materials used in production + Direct Labor + Manufacturing Overhead = Ending Balance
Credit: Cost of Goods Manufactured (COGM)
On the Inventory Balance Sheet, what would we Debit/Credit in the Finished Goods T-Account?
Debit: Beginning balance + Cost of Goods Manufactured (COGM) = Ending balance
Credit: Cost of Goods Sold (COGS)
What are prime costs?
All direct manufacturing costs: Direct Materials + Direct Labor
What are conversion costs?
All manufacturing costs other than Direct Materials cost: Direct Labor + Manufacturing Overhead
What is the unit cost?
AKA Average Cost = Total Cost/# of units produced
- Over-reliance on unit cost could lead to insufficient cash being available to pay the company's costs if volume declines.
How do we calculate Gross Profit Margin?
Revenue - COGS = GPM