Indirect costs
cannot be traced easily and accurately to a cost
object.
Direct costs
can be traced easily and accurately to a cost object.
Direct tracing:
relies on physical observance of causal relationships to
assign costs to cost objects (i.e. pair of jeans)
Driver tracing
relies on drivers as causal factors to assign costs to
cost objects. Drivers cause changes in resource usage, activity usage,
costs, and revenues. (i.e. cost of electricity for the jeans manufacturing
plant - driver: "machine hours")
� Direct materials:
those materials directly
traceable to the goods or services being
produced.
-Example: The cost of wood in furniture.
� Direct labor:
labor that is directly traceable to
the goods or services being produced.
-Example: Wages of assembly-line workers.
Overhead:
all other manufacturing costs.
-Example: Plant depreciation, utilities, property
taxes, indirect materials, indirect labor, etc.
Prime costs
Direct Materials + Direct labor
Conversion Costs
Direct Labor + overhead costs
Production or Manufacturing costs
Direct materials, direct labor, overhead
Nonproduction or Operating Costs
R&D Expense, Marketing (Selling) Expense, Administrative Expense
value chain
set of activities required to design, develop, produce, market, deliver, and provide post-sales service for the products and services sold to customers
cost
the cash of cash equivalent value sacrificed for goods and services that are expected to bring a current or future benefit to the organization
expense
an expired cost or a cost used up in the production of revenues
loss
cost that expires without producing any revenue benefits
cost object
any item for which costs are measured and assigned
activity
a basic unit of work performed within an organization
traceability
the ability to assign a cost to a cost object in an economically feasible way by means of a causal relationship
tracing
is the process of assigning costs to a cost object using an observable measure of the resources consumed by the cost object
allocation
is the least accurate cost assignment method. no causal relationship exists between the cost and the basis used to assign the cost to the cost object
difference between products and services
intangibility, perishability, inseparability
selling costs
cost necessary to market, distribute, and service a product of service
administrative costs
the costs associated with research, development, and general administration of the organization that cannot reasonably be assigned to either marketing or production
marketing and admin costs
are period costs and are deducted as an expense on the income stmt in the period incurred. do no appear on the balance sheet
measurement costs
costs assoc. with the measurements required by the cost mgmt system
error costs
costs assoc. with making poor decisions based on bad cost information