Account analysis
method for analyzing cost behavior in which an account is classified as either vairable or fixed based on analyst's prior knowledge of how the cost in the account behaves
activity base
measure of whatever causes incurrence of variable cost
administrative cost
all executive, organizational, and clerical costs associated with general management of an organization rather than with manufacturing or selling
committed fixed costs
investments in facilities, equipment, and vasic organizational structure that can't be significantly reduced even for short periods of time without making fundamental changes
common cost
cost incurred to support a number of cost objects but that cannot be traced to them individually
contribution approach
an income statement format that organizes costs by their behavior (eg variable and fixed)
contribution margin
amount remaining from sales revenues after all variable expenses have been deducted
conversion cost
direct labor + MOH
cost behavior
way in which a cost reacts to changes in level of activity
cost object
anything for which cost data are desired
cost structure
relative proportion of fixed, variable, and mixed costs in an organization
differential cost
a difference in cost between two alternatives
differential revenue
difference in revenue between two alternatives
direct cost
cost that can be easily and conveniently traced to a specified cost ofject
direct labor
factory labor costs that can be easily traced to individual units of product
direct materials
materials that become an integral part of a finished product and whose costs can be convenienty traced to it
discretionary fixed costs
fixed costs that arise from annual decisions by management to spend on certain fixed cost items (eg research and advertising)
engineering approach
detailed analysis of cost behavior based on an industrial engineer's evaluation of the inputs that are required to carry out a particular activity and of the prices of those inputs
fixed cost
cost that remains constant, in total, regardless of changes in level of activity within relevant range
high-low method
method of separating a mixed cost into its fixed and variable elements by analyzing the change in cost between the high and low activity levels
(high-low cost)
(high- low activity)
incremental cost
increase in cost between two alternatives
indirect cost
cost that can't be easily and conveniently traced to a specified cost object
indirect labor
labor costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced to particular products
indirect materials
small items of material such as glue and nails that may be an integral part of a finished product, but whose costs cannot be easily or conveniently traced to it
leas-squares regression method
method of separating mixed cost into its fixed and variable elements by fitting a regression line that minimizes the sum of the squared errors
linear cost behavior
whenever straight line is a reasonable approximation for relation between cost and activity
manufacturing overhead
all manufacturing costs except direct materials and labor
mixed cost
cost that contains both variable and fixed elements
opportunity cost
potential benefit that is given up when one alternative is selected over another
period costs
costs that are taken directly to the income statment as expenses in the period in which they are incurred or accrued
prime cost
direct materials cost plus direct labor cost
product costs
involved in acquiring or making a product
direct labor, direct material, MOH
raw materials
any materials that go into final product
relevant range
range of activity within which assumptions about variable and fixed cost behavior are valid
selling costs
incurred to secure customer orders and get the finished product or service into the hands of customer
sunk cost
cost that has already been incurred and that can't be changed by any decision made now or in the future
vairable cost
cost that varies, in total m in direct proportion to changes in level of activity
constant per unit
product cost
accrual method
manufacturing
recognized as expense (COGS) when product sold
period cost
non-manufacturing
recognized as expense in period incurred, no matter if product sold or not
more conservative
absorption costing
how is cost absorbed over time
onto balance sheet
prime cost
direct material because easy to trace
conversion cost
indirect (factory overhead)
manufacturing overhead
anything with plant, factory
ex: machinery, plant facilities, plant utilities, plan maintenance, supervisors, plant accountant, other indirect labor, plant management, other plant overhead
SG&A
selling general and administrative
everything included in running the company
costs flow through income statement and balance sheet
inventory leaves balance sheet and moves to income statement as COGS when customer buys
factory overhead
T account is a clearing account that should be 0 at end of period