Cost Elements and Classification Flashcards
What is a cost?
A payment or commitment to pay cash for the purpose of generating revenues.
What is an expense?
A decrease in cash or assets due to normal business operations.
What is a loss?
A decrease in net income outside normal business operations.
What are direct costs?
Costs that can be identified and traced to a cost object.
What are indirect costs?
Costs that cannot be identified or traced to a cost object.
What are the three basic cost elements in manufacturing?
Direct Materials, Direct Labor, and Factory Overhead.
What two costs make up Prime Costs?
Direct Materials + Direct Labor.
What two costs make up Conversion Costs?
Direct Labor + Factory Overhead.
What criteria must a direct material cost meet?
It must be an integral part of the finished product and a significant portion of the total product cost.
What criteria must a direct labor cost meet?
It must be an integral part of the finished product and a significant portion of the total product cost.
What is included in factory overhead?
All manufacturing costs other than direct materials and direct labor, such as heating, maintenance, and depreciation of factory equipment.
What is production flow?
The path followed by raw materials from arrival at the factory to becoming a finished product, ensuring efficient use of materials and labor.
How are costs classified based on function?
Production costs and Operation (Selling and Administrative) costs.
How are costs classified by activity?
Direct costs and Indirect costs.
How are costs classified by calculation time?
Historical costs and Pre-determined (estimated) costs.
How are costs classified by registration time?
Product costs (manufacturing costs) and Period costs (selling and administrative costs).
How are costs classified by behavior?
Fixed, Variable, and Mixed costs.
Give an example of a direct cost.
Cost of wood used to build a guitar (Legend Guitars example).
Give an example of an indirect cost.
Factory insurance or maintenance costs.
What type of cost is factory heating?
Factory Overhead (indirect cost).
Is depreciation of factory equipment a direct or indirect cost?
Indirect cost (part of Factory Overhead).
