ACCY 200 CH. 13

direct cost

a cost directly related to a product or activity; the cost would not be incurred if the product or activity were discontinued

indirect cost

a cost that is indirectly related to the product or activity under consideration; the cost would continue to be incurred if the product or activity were discontinued

process costing system

a costing system used to accumulate costs for a production process that is more or less continuous, frequently involving several departments

overapplied overhead

a credit balance in the manufacturing overhead account that results from applied overhead in excess of actual overhead costs

underapplied overhead

a debit balance in the manufacturing overhead account that results from actual overhead costs in excess of applied overhead

absorption costing

a product costing method by which both variable and fixed manufacturing costs are included in product costs

variable costing

a product costing method by which only variable manufacturing costs are included in product cost. sometimes called direct costing

direct costing

a product costing method in which only variable manufacturing costs are included in product cost. sometimes called variable costing

job order costing system

a product costing system used when discrete products, or "jobs" are manufactured

cost distortion

a shift in the relative amount of manufacturing overhead costs applied to the mix of products produced that occurs because a single cost driver application rate is used instead of activity-based costing rates

cost accounting

a subset of managerial accounting that relates to the accumulation and determination of product, process, or service costs

statement of cost of goods manufactured

a supplementary financial statement that supports cost of goods sold, which is an element of the income statement. This statement summarizes raw material, direct labor, and manufacturing overhead costs during the period

manufacturing overhead (overhead)

all manufacturing costs except those classified as raw materials or direct labor

cost driver

an activity that causes the incurrence of a cost

cost object

any reference point for which cost is measured

cost pool

costs that have been accumulated for assignment to a cost object

direct labor

effort provided by workers who are directly involved in the manufacture of a product, ex. wages paid to an automobile assembly workers

equivalent units of production

in a process costing system, the number of units that would have been produced if all production efforts during the period had resulted in completed products

direct materials

ingredients of the product ex. radio installed in an autmobile

product cost

inventoriable costs including raw materials, direct labor, and manufacturing overhead

finished goods inventory

inventory account applicable to goods available for sale to customers

raw materials inventory

inventory account applicable to materials ready for the production process

work in process inventory

inventory account for the costs (raw material, direct labor, and manufacturing overhead) of items that are in the process of being manufactured

period cost

noninventoriable costs, including selling, general, and administrative expenses, that relate to an accounting period

raw material (DM or direct material)

the ingredients of a product

activity-based costing (ABC)

the process of accumulating manufacturing overhead costs by production support activity and then applying manufacturing overhead to production based on the activity required for each job or product

cost assignment

the process of allocating an amount of cost to a cost object

cost management

the process of using cost information to manage the activities of the organization

predetermined overhead application rate

the rate per unit of activity used to apply manufacturing overhead to work in process

value chain

the sequence of functions (R&D, design, production, marketing, distribution, and customer service) and related activities that, over the life of a product or service, adds value for the customer

activity-based management (ABM)

use of activity-based costing information by managers to support the decision-making process