Acct202 Chapter 2 Definitions

indirect materials

relatively insignificant materials to end products for example (solder and glue)

Period Costs

this includes all selling and administrative expenses

variable cost

varies, in total, in direct proportion to changes in the level of activity. Common examples of variable costs include cost of goods sold for a merchandising company, direct materials, direct labor, variable elements of manufacturing overhead, such as indirect materials, supplies, and power, and variable elements of selling and administrative expenses, such as commissions and shipping costs.2

Cost Calculations

Product Cost=Direct Materials + Direct Labor + Manufacturing Overhead Period Cost= Selling Expense + Adminstrative Expense Conversion Cost = Direct labor +Manufacturing Overhead Prime Cost= Direct materials + Direct Labor

Raw Materials

The materials that go into the final product are called

Product Costs

This includes direct materials,direct labor, and manufacturing overhead

Conversion cost

This is the sum of direct labor and manufacturing overhead.

Prime Cost

This is the sum of direct materials cost and direct labor cost

Direct Materials

are those materials that become integral part of the finished product and whose costs can be conveniently traced to the finished product

Direct labor

consists of labor costs that can be easily (physically and conviently) traced to individual units of product.

Administrative costs

include all costs associated with the general management of an organization rather than with manufacturing or selling. Examples of administrative costs include executive compensation, general accounting, secretarial, public relations, and similar costs involved in the overall, general administration of the organization as a whole.

Selling Costs

include all costs that are incurred to secure customer orders and get the finished product to the customer. Examples of selling costs include advertising, shipping, sales travel, sales commissions, sales salaries, and costs of finished goods warehouses.

direct cost

is a cost that can be easily and conveniently traced to a specific cost object.

Common Cost

is a cost that is incurred to support a number of cost objects but cannot be traced to them individually . A common cost is a type of indirect cost.

fixed cost

is a cost that remains constant, in total, regardless of changes in the level of activity. Examples of fixed costs include straight-line depreciation, insurance, property taxes, rent, supervisory salaries, administrative salaries, and advertising.

Cost Behavior

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

Manufacturing overhead

includes all manufacturing costs except direct materials and direct labor. Manufacturing overhead includes items such as indirect materials; indirect labor; maintenance and repair on production equipment, and heat and light, property taxes, depreciation, and insurance on manufacturing facilities. Only costs associated with operating the factory are included in manufacturing overhead.

Indirect Cost

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

Cost Object

is anything for which cost data are desired-including products,customers, jobs, and organizational sub units

indirect labor

labor costs that cannot be physically traced to particular products,or that can be traced only at great cost and inconvenience