ACC 330- Ch 2 An Intro to Cost Terms and Purposes

Cost

Monetary value of resources (such as labor) sacrificed or forgone to achieve a specific objective.

Actual Cost

Cost that has been incurred ( a historical or past cost).

Budgeted Cost

A forecasted, or predicted, cost (future cost)

Cost Object

Anything for which a measurement is desired.

EX- A specific project, product line, branch of a company, geographic territories, etc

Cost Accumulation

Collection of cost data in some organized way by means of an accounting system.

• Helps to determine the cost of various cost objects.

Direct Cost of a Cost Object

Costs related to the particular cost object that can be unambiguously traced to that object in an economically feasible (cost-effective) way.

Ex- Purchase of a printer for use in a program office

Cost Tracing

The assignment of direct costs to a particular cost object.

Indirect Cost of a Cost Object

Costs related to the particular cost object that cannot be traced unambiguously to that object in an economically feasible (cost-effective) way.

Ex- Incurred facility operation and maintenance, depreciation, admin salaries, etc.

Cost Allocation

Assignment of indirect costs to a particular cost object.

Cost Assignment

A general term that encompasses both (1) tracing accumulated cost that have a direct relationship to a cost object and (2) allocating accumulated costs that have an indirect relationship to a cost objective. (Cost Tracing & Cost Allocation)

Variable Cost

Cost that changes in total in proportion to changes in the related level of total activity or volume.

Ex- Raw Materials- producing more goods means using more raw materials.

Fixed Cost

Costs that remains unchanged in total for a given time period, despite wide changes in the related level of total activity or volume.

Ex- Rent & Leases, Salaries, Insurances, etc

Cost Drivers

A variable, such as the level of activity or volume, that casually affects costs over a given time span. Often used as an allocation base to allocate overhead among products.

Ex- Machine hours - cause costs such as machine maintenance and electricity costs.

Relevant Range

Band of normal activity level or volume in which there is a specific relationship between the level of activity or volume and the cost in question.

Unit Cost

Cost computed by dividing total cost by the number of units.

• Also called average cost

Ex- Co produces 1000 pairs of skates for total production cost of $20,000. Dividing 20000 by 1000 gets you a per cost of $20

Manufacturing Sector Companies

Companies that purchase materials and components and convert them into various finished goods.

Ex- Boeing (planes), Samsung (phones)

Merchandising-Sector Companies

Companies that purchase and then sell tangible products without changing their basic form.

Ex- Target, Macy’s, Lowe’s, Wal-Mart, etc

Service-Sector Companies

Companies that provide services or intangible products to their customers.

Ex- Hospital, Insurance, Education, Bank Teller. Accountant, Personal Fitness Trainer

Direct Materials Inventory

Direct Materials in stock and awaiting use in the manufacturing process

Work-In-Progress Inventory

Goods that are partially worked on but not yet completed.

Finished Goods Inventory

Goods completed (fully made) but not yet sold.

• Items in stock ready for purchase

Direct Materials Cost

Acquisition costs of all materials that eventually become part of the cost object (WIP & then Finished Goods), and can be easily traced to the cost object in an economically feasible way.

Ex- Handbags, Car seats

Direct Manufacturing Labor Costs

Includes the compensation of all manufacturing labor that can be easily traced to the cost object (WIP & then Finished Goods) in an economically feasible way.

Ex-Factory workers and their wages

Indirect Manufacturing Costs

All manufacturing costs that are related to the cost object (WIP & then Finished Goods) but that cannot be traced to that cost object in an economically feasible way.

• Also called manufacturing overhead costs & factory overhead costs

Ex- Factory Rent

Inventoriable Costs

All costs of a product that are considered as A$ in the BS when they are incurred and that become COGS only when the product is sold.

• Incurred in manufacturing, they are manufacturing overhead costs and such are _____ costs

EX- cost of item is $20, and is purchased FOB w/ freight cost of $1. This cost is now $21.

Period Costs

All costs in the Income Statement other than COGS

• Incurred in marketing or in corporate held-quarters

EX- design costs, marketing, distribution, customer service, etc

Cost of Goods Manufactured (COGM)

Cost of goods brought to completion during the period, regardless of whether they were started before or during the current accounting period.

Prime Cost

All Direct Manufacturing costs

Conversion Costs

All manufacturing costs other than direct material costs.

Product Cost

Sum of the costs assigned to a product for a specific purpose, situation, or question.