FFMA Week 5 - The Different Type of Costs Flashcards
What are Direct Costs?
Direct costs are costs that can be directly traced to a specific cost object, such as a product, project, or department. Examples include direct materials and direct labor
What are Indirect Costs?
Indirect costs are costs that cannot be directly traced to a specific cost object or that require too much effort to do so. They are typically allocated to cost objects using a predetermined rate. Common examples include utilities, rent, and administrative salaries.
What are Variable Costs?
Variable costs change in proportion to the level of production or business activity. These costs increase as production increases and decrease as production decreases. Examples include raw materials, production supplies, and commissions.
What are Fixed Costs?
Fixed costs do not change with the level of production or business activity within a certain scale of operations. These costs remain constant regardless of how much is produced. Examples include rent, salaries, and insurance.
What are Product Costs?
Product costs are all costs involved in acquiring or producing a product. These are directly associated with the manufacture of goods and include direct materials, direct labor, and manufacturing overhead. They are capitalized as inventory on the balance sheet and expensed as cost of goods sold when the product is sold.
What are Period Costs?
Period costs are costs that are expensed in the period in which they are incurred. They are not directly tied to the production process and include selling, general, and administrative expenses. Examples are office supplies, marketing expenses, and audit fees.
