Cost Accounting Chapter 1 Flashcards

Cost Object: Any item for which cost data is sought, such as products, departments, or customers. Costs are categorized as direct or indirect.
Direct Cost: Easily traced to a specific cost object (e.g., paper used for brochures in a printing company).
Indirect Cost: Cannot be directly traced to a cost object (e.g., factory manager's salary for a specific soup variety in a Campbell Soup factory).
Common Cost: Indirect costs that support multiple cost objects but cannot be individually traced.

Raw Materials: Inputs that become part of the finished product.
Manufacturing Costs: Divide into direct materials and direct labor (direct costs) and manufacturing overhead (indirect cost).
Direct Materials: Raw materials integral to a finished product, easily traced (e.g., electronic components in cell phones).
Direct Labor: Labor that can be conveniently traced to specific products (e.g., assembly-line workers).
Prime Cost: The sum of direct materials and direct labor costs.

Manufacturing Overhead: Indirect manufacturing costs excluding direct materials and labor, such as utilities and depreciation, along with indirect materials and labor costs.
Indirect Materials: Raw materials not easily traced to finished products.
Indirect Labor: Labor costs for employees essential for operations but not directly involved in production (e.g., janitors, supervisors).

Selling Costs: All expenses incurred to secure orders and deliver products to customers, can be direct or indirect (e.g., shipping, advertising).
Administrative Costs: Expenses related to the general management of an organization (e.g., executive compensation, accounting).
Product Costs: All costs involved in making a product, including direct materials, direct labor, and manufacturing overhead. Flows through Raw Materials, Work in Process, and Finished Goods on the balance sheet.

Period Costs: Costs not associated with product costs, including selling and administrative expenses.

Cost Behavior: How costs change with activity levels; costs can rise, fall, or remain constant.
Cost Structure: The proportion of variable, fixed, or mixed costs in an organization.
Variable Cost: Costs that vary in total with changes in activity levels (e.g., cost of goods sold, direct labor).

Fixed Cost: Remains the same regardless of activity level, often classified as committed or discretionary.
Committed Fixed Costs: Long-term investments that cannot be reduced without significant changes (e.g., facility investments).
Discretionary Fixed Costs: Annual spending decisions by management (e.g., advertising).

Mixed Cost: Contains both variable and fixed components.
Mixed Cost Equation: Y = a + bX (Y = total cost, a = fixed cost, b = variable cost per unit, X = activity level).

Product Cost Equation: Direct materials + direct labor + manufacturing overhead.
Period Cost Equation: Selling expense + administrative expense.
Conversion Cost Equation: Direct labor + manufacturing overhead.
Prime Cost Equation: Direct materials + direct labor.
Variable Manufacturing Cost Equation: Direct materials + direct labor + variable manufacturing overhead.
Total Fixed Cost Equation: Fixed manufacturing overhead + fixed selling expense + fixed administrative expense.

Differential Cost: Cost difference between two alternatives; relevant for decision-making.
Differential Revenue: Revenue difference between two alternatives.
Opportunity Cost: Cost of the next best alternative foregone.
Sunk Cost: Costs that cannot be recovered or changed.

Traditional Format: Categorizes costs as cost of goods sold and selling and administrative expenses, featuring gross margin and net operating income.
Contribution Format: Organizes costs by behavior, separating variable and fixed costs.