Managerial Accounting Chapter 2

administrative costs

all costs associated with research, development, and general administration of the organization that cannot reasonably be assigned to either selling or production.

product (manufacturing) costs

costs of producing a product in a manufacturing firm or of acquiring a product in a merchandising firm and preparing it for sale. Product costs include direct materials, direct labor, and manufacturing overhead.

period costs

costs that are not product costs (i.e., all areas of the value chain except for production).

expenses

costs that are used up (expired) in the production of revenue.

products

goods produced by converting raw materials through the use of labor and indirect manufacturing resources, such as the manufacturing plant, land, and machinery.

cost

the amount of cash or cash equivalent sacrificed for goods and/or services that are expected to bring a current or future benefit to the organization.

work in process (WIP)

the cost of the partially completed goods that are still being worked on at the end of a time period.

manufacturing overhead

all product costs other than direct materials and direct labor. In a manufacturing firm, manufacturing overhead also is known as factory burden or indirect manufacturing costs. Costs are included as manufacturing overhead if they cannot be traced to the cost object of interest (e.g., unit of product).

service organizations

an organization that produces intangible products.

manufacturing organizations

an organization that produces tangible products.

cost object

any item such as products, customers, departments, projects, and so on, for which costs are measured and assigned.

direct costs

costs that can be easily and accurately traced to a cost object.

indirect costs

costs that cannot be easily and accurately traced to a cost object.

fixed cost

costs that, in total, are constant within the relevant range as the level of output increases or decreases.

variable cost

costs that, in total, vary in direct proportion to changes in output within the relevant range.

direct materials

materials that are a part of the final product and can be directly traced to the goods or services being produced.

opportunity cost

the benefit given up or sacrificed when one alternative is chosen over another.

gross margin

the difference between sales revenue and cost of goods sold.

direct labor

the labor that can be directly traced to the goods or services being produced.

price

the revenue per unit.

conversion cost

the sum of direct labor cost and overhead cost.

prime cost

the sum of direct materials cost and direct labor cost.

accumulating costs

the way that costs are measured and recorded.

cost of goods manufactured

the total product cost of goods completed during the current period.

allocation

when an indirect cost is assigned to a cost object using a reasonable and convenient method.

services

tasks or activities performed for a customer or an activity performed by a customer using an organization's products or facilities.

cost of goods sold

the total product cost of goods sold during the period.

assigning costs

the way that a cost is linked to some cost object.

selling costs

those costs necessary to market, distribute, and service a product or service.