This document defines key cost terminology and cost behaviors. It discusses different types of costs such as direct and indirect costs. It also explains cost objects, relevant ranges, and different cost behaviors like variable, fixed, and mixed costs. Finally, it outlines different types of product costs, inventory costs, cost allocation methods, and conversion processes.
This document defines key cost terminology and cost behaviors. It discusses different types of costs such as direct and indirect costs. It also explains cost objects, relevant ranges, and different cost behaviors like variable, fixed, and mixed costs. Finally, it outlines different types of product costs, inventory costs, cost allocation methods, and conversion processes.
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Outline of discussion for cost terminology and cost concepts including applicable exercises.
This document defines key cost terminology and cost behaviors. It discusses different types of costs such as direct and indirect costs. It also explains cost objects, relevant ranges, and different cost behaviors like variable, fixed, and mixed costs. Finally, it outlines different types of product costs, inventory costs, cost allocation methods, and conversion processes.
This document defines key cost terminology and cost behaviors. It discusses different types of costs such as direct and indirect costs. It also explains cost objects, relevant ranges, and different cost behaviors like variable, fixed, and mixed costs. Finally, it outlines different types of product costs, inventory costs, cost allocation methods, and conversion processes.
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Cost terminology and cost behaviors
Cost reflects the monetary measure of resources used to attain an
objective (making a good or performing a service). Unexpired cost (balance sheet) value of the goods not yet consumed (asset). Expired cost (income statement) portion of the assets value consumed or sacrificed during the period (expense). Exercise No. 21 Cost management system set of formal methods developed for planning and controlling an organizations cost-generating activities relative to its strategies, goals, and objectives. Cost object anything for which management wants to collect or accumulate costs. Direct cost conveniently and economically traceable to the cost object. Indirect cost cannot be economically traced to the cost object but instead are allocated to the cost object. Relevant range assumed ranged of activity that reflects the companys normal operating range. Variable cost cost that varies in total proportionately with activity. Fixed cost cost that remains constant in total within the relevant range of activity. Mixed cost cost that has both variable and fixed component. Step cost shifts upward or downward when activity changes by a certain interval or step. Exercise No. 14, 15, 16 Cost predictor an activity that when changed is accompanied by a consistent, observable change in a cost item. Cost driver a predictor that has an absolute cause-and-effect relationship to a cost. Exercise No. 18 Product cost related to making or acquiring the products or providing the services that directly generates revenue.
Direct materials any material that can be directly traced to a
product. Direct labor time spend by individuals who work specifically on manufacturing a product or performing a service. Overhead factory costs that cannot be classified as either direct materials or direct labor. o Indirect materials o Indirect labor o Other factory overhead Exercise No. 25, 26, 27, 28, 29
Quality cost cost of controlling quality or cost of failing to
control quality. o Prevention cost incurred to improve quality by precluding product defects and improper processing from occurring. o Appraisal cost incurred to find mistakes not eliminated though prevention. o Failure cost inability to control quality. Direct or prime cost sum of direct materials and direct labor. Conversion cost sum of direct labor and overhead.
Period cost related to business functions other than production.
Selling cost Administrative cost Distribution cost cost incurred to warehouse, transport, or deliver a product or service. Exercise No. 19, 20, 22 Conversion process refers to the process of transforming raw materials into saleable products. Merchandising, trading or retailers engage in the buying and selling of goods with low or moderate conversion process. Manufacturing engage in a high degree of conversion of raw materials into a tangible output. Service company uses a significant amount of labor to engage in a high or moderate degree of conversion. Exercise No. 24, 23, 36 Raw materials inventory cost of raw materials purchased not issued to production.
Work in process inventory cost of partially completed materials
started during the period but remained unfinished at the end of the period. Finished goods inventory cost of goods finished and ready for sale. Exercise No. 35 Cost allocation assignment of an indirect cost to one or more cost object using some reasonable allocation cost or driver. To determine to full cost of the cost object. To motivate the manager in charge of the cost object to manage it efficiently. To compare alternative courses of action for management planning, controlling, and decision-making. Actual cost direct materials, direct labor and overhead are recorded at actual cost. Normal cost direct materials and direct labor are regarded at actual cost while overhead is assigned using a predetermined rate. Predetermined overhead rate charge per unit of activity used to allocate or apply overhead cost from the overhead control account to work in process. Exercise No. 30 Cost of goods manufactured total production cost of the goods that were completed and transferred to finished goods inventory. Exercise No. 31, 32, 33, 34 Assignments Problems 38, 41, 48, 49, 51
