Accounting 202 Chapter 2 Terms

direct cost

a cost that can be easily and conveniently traced to a specified cost object

indirect cost

a cost that cannot be easily and conveniently traced to a specified cost object

mixed cost

a cost that contains both variable and fixed cost elements

sunk cost

a cost that has already been incurred and hat cannot be changed by any decision made now or in the future

common cost

a cost that is incurred to support a number of cost objects but that cannot be traced to them individually

fixed cost

a cost that remains constant

variable cost

a cost that varies, in total, in direct proportion to changes int he level of activity. a variable cost is constant per unit.

engineering approach

a detailed analysis on cost behavior based on an industrial engineers evaluation of the inputs that are required to carry out a particular activity and of the prices fo those inputs

differential cost

a difference in cost between two alternatives

Activity base

a measure of whatever causes the incurrence of a variable cost. the total cost of an x-ray film in a hospital will increase as the number of x-rays taken increases. therefore, the number of x-rays is the activity base that explains the total cost of x-ray film.

Account analysis

a method for analyzing cost behavior in which a n account is classified as either variable or fixed based on the analyst's prior knowledge of how the cost in the account behavews

highlow method

a method of separating a mixed cost into its fixed and variable elements analyzing the change in cost between the higha dn low activty levels

least squares regression method

a method of separating a mixed cost into its fixed and variable elements by fitting a regression line that minimizes the sum of the squared arros

independent variable

a variable that acts as a casual factor , activity is the independent variable

dependent variable

a variable that responds to some casual factor

indirect materials

small items of material such as glue and nails that may be an integral part of finished product but who cost cannot be easily or conveniently traced to it

inventoriable cost

synonym for product costs

contribution margin

the amount remaining from sales revenues after all variable expenses have been deducted

differential revenue

the difference in revenue between two alternatives

indirect labor

the labor cost of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced to particular products

opportunity cost

the potential benefit that is given up when one alternative is selected over another

relevant range

the range of activity within which assumptions about variable and fixed cost behavior are valid

cost structure

the relative proportion of fixed, variable, and mixed costs in an organization

cost behavior

the way in which a cost reacts to changes in the level of activity

discretionaary fixed costs

those fixed costs that arise from annual decisions y management spend on certain fixed cost items, such as advertising and research

product cost

all costs that are involved in acquiring or making a product

selling costs

all costs that re incurred to secure customer orders and get the finished product or service into the hands of the customerq

administrative cost

all executive organization and clerical cost associated with the management f an organization rather than with manufacturing or selling

manufacturing overhead

all manufacturing costs except direct materials and direct labor

contribution approach

an income statement format that organizes costs by their behavior.

incremental cost

an increase in cost between to alternatives

raw materials

any materials that go into the final product

cost object

anything for which cost data are desired ie customers, products, jobs, and parts of an organization like departments or devisions

linear cost behavior

cost behavior is said to be linear whenever a straight line is a reasonable approximation for the relation between cost and activity

period costs

cost that are taken directly to the income statement as expenses in the period in which they are incurred r accrued

conversion cost

direct labor cost plus manufacturing overhead cost

prime cost

direct materials cost plus direct labor cost

direct labor

factory labor costs that can be easily traced to individual units of products. also called touch labor

committed fixed costs

investments in facilities, equipment and basic organizational structure that cant be significantly reduced even for short periods of time without making fundamental changes.

direct materials

materials that become an integral part of a finished product and whose costs can be conveniently traced to it