Cost Accounting #1

Cost

The value of a resource a firm uses for some purpose, such as materials, labor, or overhead

Cost pool

A meaningful group into which various cost items are assigned, grouped by type, source, or responsibility

Cost driver

Any factor that has the effect of changing the level of total cost

Cost object

Any product, service, customer, activity, or organizational unit to which costs are assigned for management purposes

Direct cost

A cost that can be easily and conveniently traced to a specific cost object

Indirect cost

A cost that cannot be easily and conveniently traced to a specific cost object and must be allocated using an allocation base

Cost tracing

Assigning a direct cost to a cost object based on an actual, measurable relationship

Cost allocation

Assigning an indirect cost to a cost object using an allocation base because it cannot be directly traced

Allocation base

The cost driver used to distribute an indirect cost among cost objects, such as labor hours or machine hours

Allocation rate

Total indirect cost pool divided by the total amount of the allocation base

Variable cost

A cost whose total amount changes in proportion to the activity level, while the per unit amount stays constant within the relevant range

Fixed cost

A cost whose total amount stays constant regardless of activity level within the relevant range, while the per unit amount decreases as activity increases

Relevant range

The range of activity level within which the assumed cost behavior, fixed or variable, holds true

Product cost

A cost directly related to making or acquiring a product, reported first as inventory and then as cost of goods sold

Period cost

A cost related to managing the firm and selling products rather than production, reported as selling and administrative expenses in the period incurred

Cost of goods sold (COGS)

The cost of the inventory that has actually been sold during the period

Cost of goods manufactured (COGM)

The total cost of goods that finished the production process during the period, moving from work in process into finished goods

Gross margin

Revenue minus cost of goods sold

Operating margin

Gross margin minus selling, general, and administrative costs

SG&A

Selling, general, and administrative expenses, the period costs of managing the firm and selling products

Merchandise inventory

The single inventory account a merchandising firm uses to record finished goods purchased from suppliers for resale

Materials inventory

The account that records the purchase and use of raw materials in a manufacturing or service firm

Work in process (WIP) inventory

The account that records the use of direct material, direct labor, and overhead on products still being made

Finished goods inventory

The account that records completed products, moving cost of goods manufactured in and cost of goods sold out

Direct material cost

The purchase price of materials used in a product, plus freight-in and insurance-in

Direct labor cost

The cost of labor directly used to manufacture a product

Manufacturing overhead

Indirect materials, indirect labor, and other costs that support the manufacturing process but cannot be directly traced to a product

Indirect labor cost

Labor cost that cannot be readily traced to a specific output, such as janitors or supervisors

Indirect material cost

Material cost that cannot be readily traced to a specific output, such as lubricants or small parts

Manufacturing firm

A firm that makes its own goods and sells them to customers or distributors, such as GM or Coca-Cola

Merchandising firm

A firm that buys finished goods from suppliers and resells them to customers, such as Walmart or Amazon

Servicing firm

A firm whose product is a service provided to customers, such as a law firm or an accounting firm