Managerial Accounting and Cost Concepts Flashcards

Vocabulary flashcards covering core concepts, cost classifications, behavior patterns, decision-making terms, and income statement formats from Chapter 1 Managerial Accounting.

Cost

A sacrifice made, usually measured by the resources given up, to achieve a particular purpose.

Cost Object

Any item for which cost data are desired, such as a unit of product, activity, department, customer, or geographical area.

Direct Cost

A cost that can be easily traced to a unit of product or other cost object.

Indirect Cost

A cost that cannot be traced to a unit of product or other cost object.

Common Costs

Costs shared across subunits (such as departments) that cannot easily be divided among them.

Manufacturing Costs

The total costs of all resources consumed in the process of making a product, consisting of direct materials, direct labor, and manufacturing overhead.

Direct Materials (DM)

Raw materials that become an integral part of the product and that can be conveniently traced directly to it.

Direct Labor (DL)

Labor costs that can be easily traced to individual units of product.

Manufacturing Overhead (MOH)

All manufacturing costs associated with operating the factory except direct materials and direct labor.

Indirect Materials

Manufacturing materials used in operating the factory that cannot be conveniently traced directly to specific units produced.

Indirect Labor

Wages and salaries of factory personnel who do not work directly on producing products, such as janitors, engineers, supervisors, and security guards.

Prime Costs

The total of direct materials cost plus direct labor cost ($\text{Prime Costs} = \text{DM} + \text{DL}$).

Conversion Costs

The total of direct labor cost plus manufacturing overhead cost ($\text{Conversion Costs} = \text{DL} + \text{MOH}$).

Non-manufacturing Costs

Costs not directly related to production, categorized as either selling costs or administrative costs.

Selling Costs

Costs necessary to secure customer orders and deliver the final product, such as sales commissions and advertising expenses.

Administrative Costs

All executive, organizational, and clerical costs non-directly related to manufacturing, such as secretary salaries and CEO compensation.

Product Costs

All costs involved in acquiring or making a product, consisting of direct materials, direct labor, and manufacturing overhead.

Raw Materials

Any materials that go into the final product before being used in production.

Work in Process

Units of product that are only partially complete and require further work before being ready for sale.

Finished Goods

Completed units of product that have not yet been sold to customers.

Period Costs

Non-manufacturing costs (selling and administrative costs) that are expensed on the income statement in the period in which they are incurred.

Variable Costs

Costs that change in total in direct proportion to changes in the level of activity, while remaining constant on a per-unit basis.

Cost Driver

The underlying activity measure that causes a variable cost to be incurred, such as units produced, hours worked, or miles driven.

Fixed Costs

Costs that remain constant in total regardless of changes in the activity level within the relevant range, while fixed cost per unit decreases as activity increases.

Mixed Cost

A cost containing both fixed and variable elements, modeled by the equation $Y = a + bX$ where $a$ is total fixed cost and $b$ is variable cost per unit of activity.

Differential Costs

The difference in accounting costs incurred by choosing one action or alternative over another; also known as incremental costs.

Opportunity Cost

The potential benefit that is sacrificed when choosing one alternative over another.

Sunk Cost

A cost that has already been incurred in the past, cannot be recovered, and will not affect future costs or decisions.

Traditional Format Income Statement

An income statement format that organizes costs by function (cost of goods sold and selling/administrative expenses), used primarily for external reporting.

Contribution Format Income Statement

An income statement format that organizes costs by behavior (separating variable expenses from fixed expenses) to highlight contribution margin, used primarily by management.