MANAGERIAL WEEK 1

product cost

costs that are directly related to manufacturing a product. these are capitalized as inventory and later expensed as COGS when the products sell.

includes direct materials, direct labor, manufacturing overhead

period costs

costs that don’t tie to manufacturing. these are expensed immediately in the period incurred. this includes seling costs, administrative costs

product cost

rent on equipment used in the factoryt

product cost

lubricants used on machinery

product costs

soap and paper towels used by factory workers at the end of a shift

product cost

factory supervisors’ salaries

product cost

heat, power, and water consumed in a factory

product cost

workers compensation insurance eofr factory employtees

product cost

depreciation on chairs and tables in the factory lunchroom

product cost

the cost of packaging the companys product

period cost

depreciation on salespersons cars

period costs

salaries of personnel who work in the finished goods warehouse

period costs

materials used for boxing products for shipment overseas

period costs

advertising costs

period costs

the wages of a receptionist

period costs

cost of leasing the corporate jet used by company’s executives

period costs

the cost of renting rooms at a florida resort for annual sales conference

direct material

the cost of a hard drive installed in a computer

selling cost

the cost of advertising in the purget sound computer user newspaper

direct labor

the wages of employees who assemble computers from components

selling cost

sales commissions paid to the company’s salespeople

manufacturing overhead cost

the salary of the assembly shops supervisor

administrative cost

the salary of the company’s accountant

manufacturing overhead cost

depreciation on equipment used to test assembled computers before release to customers

contribution margin

the amount of money left from sales revenue after covering the variable costs. this remaining amount is what contributes tto paying fixed costs and then to profit.

• groups by behavior

traditional format

groups costs by function (COGS vs selling and administrative) and shows gross margin, withouth separating costs by fixed or variable behavior.

• groups by function

fixed costs

stays the same in total within the relevant range, regardless of activity level (rent, salary admin)

variable costs

change in total in direct proportion ot the level of activity (COGS per unit, sales commission)