COST 311 Exam 1

Value-Added Activities

those activates that customers perceive as adding utility to the goods or services they purchase

Cost

a sacrifice of resources

Outlay Costs

past, present, or future cash outflow

Opportunity Cost

forgone benefit from the best alternative course of action

Expense

cost charged against revenue in an accounting periodthat represents the outflow of resources for goods or services.

THREE COSTS ARE:

Labor, Materials, and Overhead.

Product Costs

costs relating to inventory; costs that are recorded as an asset in inventory when incurred and expensed as COGS when sold

Period Costs

nonmanufacturing costs related to the firm; costs recognized for financial reporting when incurred

Direct Costs

costs that are directly traced to the product

Direct Materials

materials traceable to the product

Direct Labor

work traceable to transforming materials into the finished product

Indirect Costs

costs that cannot be reasonably traced to the productand are often allocated across multiple products.

Manufacturing Overhead

all production costs except direct materials and direct labor

• Indirect Materials

• Indirect Labor

• Other Indirect Costs

Prime Costs

the “primary” costs of the product

• Direct Materials

• Direct Labor

Conversion Costs

costs necessary to “convert” materials

• Direct Materials

• Direct Labor

Marketing

costs necessary to sell the product

• Advertising, Sales Commissions, Shipping

Administrative

costs necessary to operate the business

• Executive Salaries, Data Processing, Legal Costs

Cost Allocation

assigning indirect costs to products, services, people, business units, etc.

• Necessary when several departments share facilities or services

Cost-Volume-Profit (CVP)

explore the relations among revenue, costs, and volume and their effect on profits

Contribution Margin

the difference between price and variable cost

Break-Even Point

volume level at which profits equal zero

Cost Structure

the proportion of fixed and variable costs to total costs

Operating Leverage

the extent to which the cost structure is comprised of fixed costs

Margin of Saety

the excess of projected or actual sales volume (or revenue) over break-even volume

Raw Materials Inventory

materials purchased to make a product

Work-In-Process Inventory

products currently in the production process, but not yet completed

Finished Goods Inventory

completed products that have not yet been sold

Fixed Costs

cost that does not vary with the volume of activity

Variable Costs

cost that varies with the volume of activity; the sum of all variable costs of manufacturing and selling a unit of the product

Full Cost

the sum of all costs of manufacturing and selling a unit of product

Full Absorption Cost

the sum of all veriable and fixed costs of manufacturing a unit of the product

Full Absorption Costing

Required by GAAP used for: Financial Purposes and External Reporting

Sales Revenue
- COGS
= Gross Margin

Variable Costing

Used for: Managerial Purposes and Internal Decision Making

Sales Revenue
- Variable Costs
= Contribution Margin