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Cost accounting chapter 2
Terms in this set (38)
Sacrifice or forgone resource a specific objectives .
Is the cost incurred. (Historical or past cost ).
A predicted cost .
Anything for which cost measurement is desired.
Is the collection of cost data in an organized way by means of an accounting system.
A general term that encompasses the gathering of accumulated costs to a cost object in two ways:
1. Tracing costs with a direct relationship to the cost object
2. Allocating accumulated cost with an indirect relationship to a cost object.
can be conveniently and economically traced (tracked) to a cost object.
example : DM and DL
cannot be conveniently or economically traced (tracked) to a cost object. Instead of being traced, these costs are allocated to a cost object in a rational and systematic manner.
Direct Costs example
Material (steel or tires for a car, as an example)
Labor (Assembly line wages)
Indirect Costs example
Plant administration expenses
Change in total in proportion to changes in the related level of activity or volume of output produced
Remain unchanged in total, for a given time period, despite changes in related level of activity or volume of output produced .
Are constant on a per unit basis. If a product takes 5 pounds of materials each, it stays the same per unit regardless if 10 or thousand units are produced
Fixed cost per unit
Change inversely with the level of production. As more units are produced the same fixed cost is spread over more and more units, reducing the cost per unit
A variable, such as the level of activity or volume, that causally Affects cost over a given time span.
The band or range of normal activity level or volume in which there is a specific relationship between the level of activity or volume and of cost in question.
for example fixed costs are considered fix only within the relevant range
What is a unit cost?
Also called as average cost, is calculated by dividing the total cost by related number of units produced .
Different types of firms
1.manufacturing-sector companies 2.merchandising-sector companies 3. service-sector companies
Companies purchase materials and component and convert them into finished products .
Companies purchase and then sell tangible products without changing their basic form .
provide services (intangible products) like legal advice or audits.
Three types of inventory of manufacturing- sector companies
Direct materials inventory,
work in process inventory,
finished goods inventory
Direct materials inventory/ Raw materials
Direct materials in stock that will be used in manufacturing process .
Work-in-Process Inventory (WIP)
Good partially work on but not yet completed .
Finished goods inventory
Good completed but not yet sold or ready for sale. When it sold it transfer to COGS
Hold only one type of inventory which is merchandise inventory .
Manufacturing cost classification also known as inventoriable cost
Direct material cost,
Direct labor costs
indirect manufacturing cost
Direct material cost
Are the acquisition cost of all materials that eventually become part of the cost object (work in process and then finished goods.
- Can be traced to be cost object in an economically feasible way
Direct labor cost
Include the compensation of all manufacturing labor cost that can be traced to the cost object ( work in process and then finished goods) in an economically feasible way.
Indirect manufacturing cost / manufacturing overhead
All manufacturing costs that are related to the cost object but cannot be traced to that object in an economically feasible way.
Are all cost of a product that are considered assets in the companies balance sheet when the cost are incurred and that are expensed as the cost of good sold only when the product is sold.
For manufacturing companies all manufacturing cost our inventory of all cost .
Are all cost in the income statement either done cost of good sold. They are treated as expenses of the accounting period in which they are incurred.
Is a term referring to all direct manufacturing cost (materials and labor)
Direct materials Plus direct labor.
Is a term referring to a direct labor an indirect manufacturing cost
Overtime labor cost
Considered part of indirect cost .
Pricing and Product Mix Decisions
Decisions about pricing and maximizing for profits.
Contracting would government agency
Very specific definition of allowable cost for a cost plus profits contracts
Preparing external use financial statement
GAAP driven product cost only
Recommended textbook explanations
Glencoe Accounting: First Year Course
Don Herrmann, J. David Spiceland, Wayne Thomas
Bundle: Intermediate Accounting 16e Binder Ready Version + WileyPLUS Access Code
Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
Horngren's Cost Accounting: A Managerial Emphasis
Madhav V Rajan, Srikant M. Datar
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