Ch. 1 - Overview and Direct and Indirect Costs

To FORMULATE STRATEGY, what costs would I look at?

Direct and Indirect costs

For EXTERNAL REPORTING, what costs would I look at?

Product and Period Costs

For DEVELOPING PLANS, what costs would I look at?

Variable and Fixed costs

For CHOOSING BETWEEN ALTERNATIVES, what costs would I look at?

Relevant and Irrelevant costs

DIRECT and INDIRECT costs are used to:

Assign costs to cost objects

PRODUCT and PERIOD costs are used to:

Prepare financial statements

VARIABLE and FIXED costs are used to:

Predict cost behavior

RELEVANT and IRRELEVANT costs are used to:

Make decisions

Cost Object:

Any part of a business that may cost you

Direct costs:

costs that can easily be traced to a unit of product (direct material and labor)

Indirect Costs

CANNOT be easily traced back to a product (manufacturing overhead)

Common Costs

A type of indirect costs that is used to cover a multitude of cost objects (printers, pens)

Can a cost be both indirect and direct?

Yes, depends on the cost object and the lens in which you view it

Prime Costs =

DM and DL

Conversion Costs =

DL and MOH

What makes up nonmanufacturing costs?

Selling and Administrative Costs

Selling Costs:

costs necessary to secure the order and deliver the product

Administrative Costs:

Cost dedicated for executive, organizational, and clerical costs