Accounting Chapter 1 Part 2

matching principle

accrual concept that costs incurred to generate a particular revenue should be recognized as expenses in the same period that the revenue is recognized

product costs

all the cost that are involved in aquiring or making a product. in man. goods, include DM, DL, and MOH.

conversion cost

direct labor cost + manufacturing overhead cost

prime cost

direct materials + direct labor

period cost

include all selling and administrative costs ex. sales commission, advertising, executive salaries, public relations

activity base <cost driver>

is a measure of whatever causes the incurrence of a variable cost. total output ex. DL-hours, machine hours, units produced and units sold

cost behavior

refers to how a cost reacts to changes in the level of activity

cost structure

the relative proportion of each type of cost in an organization

variable cost

varies, in total, in direct proportion to changes in the level of activity ex. CGS for merchandising company, DM, DL, variable element of MOH, such as IM, supplies, power, and variable elements of selling and admin. expenses, commissions, shipping cost