ACCT 41 Cost

Cost

resource sacrificed for a given purpose

Expense

cost charged against revenues in a certain time period

Relevant cost

relevant for a certain decision

Sunk/irrelevant cost

incurred in the past/ unaffected by decision

Opportunity cost

profit forgone by selecting one alternative over another

Cost object

object for which we measure costs – Product – Product line – Factory, office building

Direct cost

directly traced to cost object

Indirect cost (a.k.a. overhead, OH)

cannot be traced directly in an economically feasible way

Service

Perform work for others

Merchandising

Buy and sell goods

Manufacturing

Process raw materials into finished products for sale to others

Product Costs

All production costs necessary to get products ready to sell

Period Costs

All costs other than product costs

Costs are classified based…

on whether or not they are related to the production process

Direct Materials

Costs of materials that are converted into finished goods

Conversion Costs

Costs of converting materials into finished goods  Consist of direct labor cost and manufacturing overhead (can include indirect labor costs)

Direct Labor

Wages earned by production employees for the time they spend working on a product

Manufacturing Overhead

Manufacturing costs excluding direct materials and direct labor Shared costs in the factory

Job Order Production

 Identical units are produced on a continuous basis  Can be one product or a set of closely related products

Process Manufacturing

Products are manufactured in single units or in batches of identical units

Job Cost Sheet

A document used to accumulate the cost for a specific job in a job-cost system  Serves as a basic record for recording actual progress on the job

Raw Materials Inventory Control Account

The subsidiary ledger is a detail of all materials contained in the control account

Materials Requisition Form

Indicates the type and quantity of each raw material issued to the factory  Used to record the transfer of responsibility for materials and to record materials changes on raw materials and job cost sheet records

Work Ticket

Used to record the time a job spends in a specific manufacturing operation  Time information is used by production scheduling and to assign labor costs to jobs

First-In, First-Out

Accounts separately for beginning units  The first costs incurred each period are assumed to have been used to complete the unfinished units carried over from the previous period.

Weighted Average

No attempt to separately account for beginning units  Spreads the combined beginning inventory and current period costs over the units completed plus those in ending inventory on an average basis.

Variable Costing

Product costs consist of…  Direct materials  Direct labor  Variable manufacturing overhead

Absorption Costing

Product costs consist of…  Direct materials  Direct labor  Variable manufacturing overhead  Fixed manufacturing overhead