Costs Terms

Raw Materials

The materials that go into the final product are

Indirect Materials

Materials such as solder and glue and are included as part of manufacturing overhead.

Mixed Cost

contains both variable and fixed cost elements. Mixed costs are also known as semivariable costs.

Manufactoring Overhead

includes all manufacturing costs except direct materials and direct labor. Manufacturing overhead includes items such as indirect materials; indirect labor; maintenance and repairs on production equipment; and heat and light, property taxes, depreciation, and insurance on manufacturing facilities.

Fixed Costs

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. Unlike variable costs, fixed costs are not affected by changes in activity. Consequently, as the activity level rises and falls, total fixed costs remain constant unless influenced by some outside force, such as a landlord increasing your monthly rental expense.

Understand cost behavior

mixed, fixed and variable-be sure to understand the definition of these cost behaviors and examples of these costs.

Period costs

are selling and administrative costs and expensed in the period incurred-they do not go into the cost of the product-understand what types of items go into these costs-remember key words like selling, marketing, administrative are normally classified as Period costs. Costs with words like production, factory or manufacturing would go into one of the Product cost categories.

Direct Materials

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

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

Product costs

understand the three product costs and what they mean-direct materials, direct labor and manufacturing overhead (remember all manufacturing costs other than direct materials and direct labor go into manufacturing overhead)