cost
a sacrificed or forgone resource to achieve a specific objective (for our purposes in this class a cost is typically the amount paid to acquire a good or service)
actual cost
a cost that has occurred.
budgeted cost
a predicted cost.
cost object
anything for which a cost measurement is desired.
cost assignment
a general term that encompasses the gathering of accumulated costs to a cost object in two ways
tracing
accumulated costs with a direct relationship to the cost object
allocating
accumulated costs with an indirect relationship to a cost object
direct costs
can be conveniently and economically traced (tracked) to a cost object.
indirect costs
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.
variable costs
change in total in response to changes in the level of activity or volume of output produced.
fixed costs
remain unchanged in total, for a given time period, despite changes in the level of activity or volume of output produced.
cost driver
a variable, such as the level of activity or volume, that causally affects costs over a given time span.
relevant range
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 the cost in question.
Manufacturing-sector companies
purchase materials and components and convert them into finished products.
Merchandising-sector companies
purchase and then sell tangible products without changing their basic form.
service sector companies
companies provide services (intangible products) like legal advice or audits.
raw materials
resources in-stock and available for use
work in process
products started but not yet completed
finished goods
products completed and ready for sale
direct materials
acquisition costs of all materials that will become part of the cost object.
direct labor
compensation of all manufacturing labor that can be traced to the cost object.
indirect manufacturing
factory costs that are not traceable to the product in an economically feasible way. Examples include lubricants, indirect manufacturing labor, utilities, and supplies.
inventorial costs
all costs of a product that are considered assets in a company's balance sheet when the costs are incurred and that are expensed as cost of goods sold only when the product is sold
peroid costs
all costs in the income statement other than cost of goods sold. They are treated as expenses of the accounting period in which they are incurred.
direct materials cost
costs of all materials that eventually becomes part of the cost object (work in process then finished goods) and can be traced to the cost object in an economically feasible way
direct manufacturing labor cost
include the compensation of all manufacturing labor that can be traced to the cost object (work in process then finished goods) in an economically feasible way
manufacturing overhead costs
all manufacturing costs that are related to the cost object (work in process then finished goods) but cannot be traced to that cost object in a economically feasible way
prime costs
all direct manufacturing costs (direct materials cost and direct manufacturing labor costs
conversion costs
all manufacturing costs other than direct materials cost
product cost
sum of the costs assigned to a product for a specific purpose