Introduction to Cost Accounting

Fixed costs

Costs that remain constant in total but will vary on a per unit basis

Historical costs

Costs that are incurred in the past

Step-variable costs

Costs that stay fixed over a range of activity and then change after this range is overcome

Variable costs

Costs that vary in total as the volume of production or sales changes

Mixed cost or Semi-Variable costs

Costs that vary with changes in volume but unlike variable cost, do not vary in direct proportion

Indirect materials

Those materials needed to complete a product but the use of which is so minimal or so complex that treating them as direct materials is futile.

Direct materials

Those materials that form an integral part of the finished product whose costs can be conveniently traced into it.

Staff position

A position which gives advice and performs technical functions

Line position

A position which makes desicion

Step cost

A variable or fixed cost that shifts upward or downward when activity changes by a certain interval or step

Product cost

Any cost incurred in the factory; inventoriable cost

Period costs

Costs that are expensed in the period in which they are incurred.

Relevant range

Company's normal operating range

Sunk cost

Cost that already incurred in the past whose total will not be affected by any decision

Non-manufacturing or non-production costs.

Costs associated with the functions of selling and administration

Manufacturing costs (also known as production costs or factory costs)

Costs that are associated with the production activities of the company.

Budgeted costs

Costs that are expected to be incurred in the future

Selling (marketing or distribution) expenses

Expenses associated with obtaining sales and delivery of the product or service.

General and administrative expenses

Expenses incurred in connection with performing general and administrative activities.

Cost accounting

It is a bridge between financial and management accounting.

Cost tracing

It is a cost assignment which refers to the assignment of direct costs to a particular cost object.

Cost allocation

It is a cost assignment which refers to the assignment of indirect costs to a particular cost object.

Semi-fixed cost

It is a cost that increases in lumps of cost with changes in output or activity

Cost

It is defined as a resource sacrificed or forgone to achieve a specific objective.

Expense

It is defined as an expired cost

Indirect labor

It is defined as expended labor which does not directly affect the construction or the composition of the finished product or those factory costs which are supportive or supervisory in nature.

Conversion cost

It is the costs of converting direct materials into finished product and is the sum of direct labor costs and factory overhead.

Direct labor

It is the labor directly involved in the making of the product or those labor costs that can be so traced without undue cost or inconvenience.

Cost Accounting

It is the process of tracking, recording, and analyzing cost associated with the products or activities of an organization.

Prime cost

It is the sum of direct materials and direct labor costs

Cost classification

It means the grouping of costs according to their common characteristics.

Cost management system

It refers to a set of methods developed for planning and controlling cost-generating activities to achieve profitability in the short run and maintaining a competitive position in the long run.

Cost object

It refers to any unit, activity, or segment for which management wants to accumulate and measure a cost.

Cost management

It refers to the approaches and activities of managers in short-run and long-run planning and control decisions that increase value for customers and lowers costs of products and services.

Cost of goods manufactured

It represents the total cost of goods completed during the current period.

Factory overhead (also known as manufacturing overhead; production overhead; factory expense; or factory burden)

Production costs incurred in the plant or factory that cannot be classified as direct materials nor direct labor.

True

T/F: A cost can be controlled only when the related activity is monitored and the information is available.

False, it is designed to meet external information needs.

T/F: Financial accounting is designed to meet internal information needs.

False, losses are not intentionally incurred.

T/F: Losses are intentionally incurred in the process of gathering revenues.

False, one cannot.

T/F: One can prepare financial statements or internal management report without first determining the cost of the product the company is producing.

True

T/F: The guiding light for cost accounting is usefulness.

High-low method, scatter-graph method, and method of least squares.

The three alternative methods of separating mixed cost into its fixed and variable components

Materials, Labor, and Factory Overhead

The three elements of production

Cost accumulation and cost assignment

The two basic stages of accounting for costs

Cost behavior

The way a cost responds to a change in activity is known as its ____________________.

Expenses and losses

These are both considered as expired costs.