Managerial Accounting & Cost Concepts Ch. 1
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 that 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, in total, regardless of changes in the level of activity within the relevant range. If it is expressed on a per unit basis, it varies inversely with the level of activity
variable cost
a cost that varies, in total, in direct proportion to changes in the level of activity. It is constant per unit.
engineering approach
a detailed analysis of cost behavior based on an industrial engineer's evaluation of the inputs that are required to carry out a particular activity and of the prices of those inputs
differential cost
a difference in cost between two alternatives.
activity base
a measure of whatever causes the incurrence of a variable cost.
account analysis
a method for analyzing cost behavior in which an account is classified as either variable or fixed based on the analyst's prior knowledge of how the cost in the account behaves.
high-low method
a method of separating a mixed cost into its fixed and variable elements by analyzing the change in cost between the high and low activity 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 errors
independent variable
a variable that acts as a casual factor
dependent variable
a variable that responds to some casual factor; Y=a+bX
indirect materials
small items of material such as glue and nails that may be an integral part of a finished product, but whose costs cannot be easily or conveniently traced to it
inventoriable costs
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 costs of janitors, supervisors, material 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 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
discretionary fixed costs
those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research.
selling costs
all costs that are incurred to secure customer orders and get the finished product or service into the hands of the customer
product costs
all costs that are involved in acquiring or making a product.
administrative costs
all executive, organizational, and clerical costs associated with the general management of 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. Costs are separated into variable and fixed categories rather than being separated into product and period costs for external reporting purposes.
incremental cost
an increase in cost between two alternatives.
raw materials
any materials that go into the final product
cost object
anything for which cost data are desired.
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
costs that are taken directly to the income statement as expenses in the period in which they are incurred or 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 product.
committed fixed costs
investments in facilities, equipment, and basic organizational structure that can't 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