Cost Accounting Vocabulary

Cost accounting

an area of accounting that involves measuring, recording, and reporting product costs.

Direct labor

the work of factory employees that can be physically and directly associated with converting raw materials into finished goods

Direct material

raw material that physically becomes part of the product and is clearly identified with specific products or batches of product.

Factory overhead

are manufacturing costs that are not raw material or direct cost labor. Example, cost of light, supervisor's salary.

Finished Goods

units of product that have been completed but not yet sold to customers

Indirect labor

work of factory employees that has no physical association with the finished product or for which it is impractical to trace the costs to the goods produced

Indirect materials

small items of material such as glue and nails that may be an integral part of a finished product, but whose costs cannot be easily or conveniently traced to it

Manufacturing business

buys raw materials and transforms them into finished products to sell

Manufacturing costs

consists of direct material, direct labor, factory overhead

Merchandising business

a business that purchases and resells goods

Raw materials

the basic material from which a product is made

Work in process

the portion of manufactured inventory that has begun the production process but is not yet complete