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Cost Accounting
Chapter 2
17
Accounting
Undergraduate 3
06/08/2010

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Term
Cost
Definition
A resource sacrificed or forgone to achieve a specific objective. May be capitalized (not expensed, turned into asset)
Term
Cost Object
Definition
A parameter for defining costs: Product, Store, Division, Company. Ex: If cost object is product, store supervisor salary is an indirect cost, if cost object is the store, store supervisor salary becomes a direct cost
Term
Direct Cost
Definition
A cost that are incurred for a particular cost object and can be traced to that specific cost object
Term
Indirect Cost
Definition
Costs that are incurred to support a cost object but cannot be totally traced to a specific cost object, must be allocated
Term
Variable Cost
Definition
A cost that varies with units of production. Ex: Cheese costs $1.00 PER Pizza. Total cost changes with volume, cost per unit remains constant
Term
Fixed Cost
Definition
A cost that doesn't change with changes in activity or volume.
Term
Relevant Range
Definition
The range over which relationships remain constant, considered the range of volume or activity that can be sustained without changing capacity (of production). Essentially, all variables except for Units remains constant.
Term
Inventoriable (Product) Costs
Definition
All costs of a product that are regarded as an asset, these costs are capitalized until asset is sold, at which point they are expensed. (Would the cost disappear if product was not produced)
Term
Period Costs
Definition
Costs that are expensed in the period in which they are incurred. Costs that are expected to benefit revenues. Key Q: Would cost be incurred despite ceasing production
Term
Service Firm (types of firms)
Definition
A firm that sells services to the public and do not maintain an inventory.
Term
Merchandising Firm (types of firms)
Definition
A firm that sells products produced by a different company(ies), maintain an inventory of products for resale.
Term
Manufacturing Firm (types of firms)
Definition
Produce and sell said products, maintain three (3) inventories; materials, WIP, and finished goods.
Term
Direct Materials
Definition
The direct cost of raw materials used in the production of products
Term
Direct Labor Costs
Definition
These are the wages of those employed specifically for producing products.
Term
Indirect Manufacturing Costs
Definition
(Overhead) These are the indirect costs that were incurred to produce the product
Term
Prime Cost
Definition
Direct Manufacturing Costs: Direct Materials and Direct Labor
Term
Conversion Costs
Definition
The costs incurred to convert raw materials into finished goods: Direct Labor and Overhead
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