Cost Classification Flashcards

Variable Costs: Costs that change with production volume (e.g., shoelaces for shoe manufacturers, steak for restaurants, fuel for airlines, wood for furniture manufacturers).
Fixed Costs: Costs that remain constant regardless of production volume (e.g., depreciation on administration furniture, assembly line workers' salary, property tax expense).
Indirect Product Costs: Costs not directly traceable to a specific product (e.g., depreciation on factory equipment, security personnel salary at the factory).
Direct Product Costs: Costs that can be directly attributed to a specific product (e.g., shoelaces, steak, fuel).

Double-Declining Balance Method: Accelerated depreciation method for fixed assets (e.g., administration furniture and factory equipment).
Straight-Line Method: Equal depreciation expense allocated over the asset's useful life (e.g., administration furniture and factory equipment).

Mixed Costs: Costs that have both fixed and variable components (e.g., utilities for factories, sales force compensation with base salary and commission).

Period Costs: Costs not tied to production; expensed in the period incurred (e.g., security personnel salary in sales, income tax expense, property tax expense).

Direct Product Cost Salaries: Assembly line workers' salaries are considered part of direct product costs.
Indirect Product Cost Salaries: Salaries of security personnel are categorized as indirect product costs when located at the factory.
Period Cost Salaries: Salaries of security personnel working in the sales building fall under period costs.

Income tax expense is classified as a period cost, not as fixed, variable, or mixed.
Mixed costs can complicate budgeting and forecasting due to their dual nature.