Chapter 2 - Cost Terms and Purposes

Vocabulary flashcards covering core cost concepts, classifications, cost drivers, sector types, inventory types, and manufacturing cost elements from the accounting lecture.

Cost

A resource sacrificed or foregone to achieve a specific objective.

Actual cost

A cost that has been incurred.

Budgeted cost

A predicted, or forecasted, cost.

Cost object

Anything for which a cost measurement is desired.

Cost accumulation

Collection of cost data in some organized way by means of an accounting system.

Cost assignment

The gathering of accumulated costs to a cost object.

Direct costs

Costs that can be conveniently and economically traced (tracked) to a cost object.

Indirect costs

Costs that cannot be conveniently or economically traced (tracked) to a cost object and are allocated in a rational and systematic manner.

Variable costs

Costs that change, in total, in proportion to changes in the related level of activity or volume of output produced, remaining constant on a per-unit basis.

Fixed costs

Costs that remain unchanged, in total, for a given time period, despite changes in the related level of activity or volume of output produced.

Mixed costs

Costs that have both fixed and variable elements.

Cost driver

A variable, such as the level of activity or volume, that causally affects costs over a given time span.

Relevant range

The band or range 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.

Unit cost

Also called average cost, calculated as $\text{Unit Cost} = \frac{\text{Total Cost}}{\text{Number of Units Produced}}$.

Manufacturing-sector companies

Companies that purchase materials and components and convert them into various finished goods.

Merchandising-sector companies

Companies that purchase and then sell tangible products without changing their basic form.

Service-sector companies

Companies that provide services (intangible products).

Direct materials inventory

Direct materials in stock that will be used in the manufacturing process.

Work-in-process inventory

Goods partially worked on but not yet completed.

Finished goods inventory

Goods completed but not yet sold.

Direct materials costs

The acquisition costs of all materials that eventually become part of the cost object.

Direct manufacturing labor costs

The compensation of all manufacturing labor that can be traced to the cost object.

Indirect manufacturing costs

Manufacturing costs that are related to the cost object, but cannot be traced to that cost object in an economically feasible way.

Prime Costs

All direct manufacturing costs, calculated as $\text{Direct Materials} + \text{Direct Manufacturing Labor Costs}$.

Conversion Costs

All manufacturing costs other than direct material costs, calculated as $\text{Direct Manufacturing Labor Costs} + \text{Manufacturing Overhead Costs}$.

Overtime premium

Wage rate paid to workers (for both direct and indirect labor) in excess of their straight-time wage rates, considered part of indirect costs or overhead.

Idle time

Wages paid for unproductive time caused by lack of orders, etc., considered part of indirect costs or overhead.