MA 2

Fixed cost

A cos that is constant regardless of the change in the level of activity. It is not fixed per unit. It decreases per unit as quantity of goods increases.

Non value added activities

Activities that do not add value to the product or services that customers are not willing to pay for

Product cost

All costs that are involved in the purchase or manufacture of goods. In the case f manufactured goods, they are direct materials, direct labor and manufacturing overhead. Also called inventorial goods. Not treated as an expense in the period they are incurred, but instead in the period they were sold.

Business process

Any series of steps that are followed to carry out some task in the business

Constraint

Anything that keeps you from getting more of what you want. It's a bottleneck in the system that had the smallest capacity

Indirect labor

Can't be directly traced to a product or it can be only traced at great inconvenience. Part of manufacturing overhead.

Variable cost

Cost that varies in direct proportion to the change in activity. A variable cost is constant per unit.

Period costs

Costs that are tank directly to the income statement as expenses in the period which they are incurred or accrued.

Prime cost

Direct materials combined with direct labor

Process reengineering

Eliminates all activities that do not add value to the product or service

Manufacturing overhead

Includes all manufacturing costs except direct labor and direct materials. Indirect labor, indirect materials, maintenance and repairs of production equipment, heat and light, property taxes, depreciation and insurance on manufacturing facilities.

Direct labor

Labor costs that can be easily traced to individual units of a product. Sometimes called touch labor.

Indirect materials

Materials used in the final product but they are difficult to trace.

Direct materials

Raw materials. Any material used as a final product. Integral part of the final product. Can be trace conveniently to it.

Non manufacturing cost

Selling, general and administrative cost

Conversion cost

Sometimes called value added cost. Manufacturing overhead combined with direct labor.