Direct costs= the particular cost object and can be traced to that cost object in an economically feasible (cost-effective) way, such as steel...traced to cost object easily!Indirect costs= particular cost object but cannot be traced to that cost object in an economically feasible (cost-effective) way, such as salaries
Because direct costs that are traced to a particular cost object are more accurately assigned to that cost object than indirect allocated costs. Managers prefer to use more accurate costs in their decisions. (When costs are allocated, managers are less certain whether the cost allocation base accurately measures the resources demanded by a cost object)-anything indirect becomes overhead-you can"t control it!
Three factors:-The materiality of the cost in question.-Available information-gathering technology.-Design of operations.
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Variable cost= changes in total in proportion to changes in the related level of total activity or volume. An example is a sales commission that is a percentage of each sales revenue dollar. (increases as quantity increases!)Fixed cost= remains unchanged in total for a given time period, despite wide changes in the related level of total activity or volume of output produced. An example is the leasing cost of a machine that is unchanged for a given time period (such as a year) regardless of the number of units of product produced on the machine. (doesn"t change as volume or quantity does!...as quantity increases, fixed cost per unit decreases)
A cost driver is a variable, such as the level of activity or volume, that causally affects total costs over a given time pan...contributes the most to the cost, causes the cost!For example, the number of vehicles assembles is a driver of the costs of steering wheels on a motor-vehicle assembly line.
what is the relevant range. What role does the relevant-range concept play in explaining how costs behave.
Relevant range=the band 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. Costs are described as variable or fixed with respect to a particular relevant range...normal for range between quantity and costs..something is fixed at a certain point in production
A unit cost is computed by dividing some amount of total costs ( the numerator) by the related number of units ( the denominator)...includes fixed costs and variable costs-limited to that volume, that quantity produced.In many cases, the total costs will included a fix cost that will not change despite changes in the number of units.
Manufacturing-sector companies= purchase materials and components and convert them into various finished goods, for example automotive and textile companies.Merchandising-sector companies=purchase and then sell tangible products without changing their basic form, for example retailing or distribution.Service-sector companies=provide services or intangible products to their customers, for example, legal advice or audits.
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Manufacturing companies have one or more of the following three types of inventory:1. Direct materials inventory. Direct materials in stock and awaiting use in the manufacturing process.2. Work-in-process inventory. Goods partially worked on but not yet completed. also call work in progress.3. Finished goods inventory. Goods completed but not yet sold
Inventorial costs= all costs of a product that are considered as assets in the balance sheet when they are incurred and that become cost of goods sold when the product is sold. These costs are included in work-in-process and finished goods inventory (they are "inventoried") to accumulated the costs of creating these assets...flows from Balance Sheet to COGSPeriod costs=all costs in the income statement other than cost of goods sold. These costs are treated as expenses of the accounting period in which they are incurred because they are expected not to benefit future periods...go right to income statement!
define the following: direct material costs, direct manufacturing labor costs, manufacturing over head costs, prime costs, and conversion costs.
Direct material costs= the acquisition costs of all materials that eventually become part of the cost object (W/P and then FG) and can be traced to the cost object in an economically feasible way.Direct manufacturing labor costs= the compensation of all manufacturing labor that can be traced to the cost object (W/P and then FG) in an economically feasible way.Manufacturing overhead costs=all manufacturing costs that are related to the cost object (W/P and then FG) but cannot be traced to that cost object in an economically feasible way..need to be estimatedPrime costs= all direct manufacturing costs (direct material and direct manufacturing labor).Conversion costs- all manufacturing costs other than direct material costs(labor and overhead_