Manufacturing costs- direct materials, direct labor, manufacturing overhead
Manufacturing overhead- indirect materials, indirect labor, maintenance, repair on equipment, property taxes, and things dealing with operating the factory
Nonmanufacturing costs- selling costs: costs incurred to secure customer orders and get finished product to them, like advertising, shipping, sales travel, sales commission, sales salaries. Administrative costs: cost associated with general management like executive compensation, general accounting
Product costs-all costs involved making product, treated as expenses in period
Period costs-all costs that are not product costs, expenses in income statement
Prime costs-sum of direct materials cost and direct labor cost
Conversion costs-sum of direct labor cost and manufacturing overhead cost
Variable cost per unit is constant, fixed cost per unit varies by activity, activity rises=per unit cost decrease, activity lowers=per unit cost increase
Mixed costs- y=a+bX; y=total mixed cost, a=total fixed cost, b= variable cost per unit, x=level of activity
High-low Method-variable cost=change in cost/change in activity
Traditional income statement:uses COGS= beg. Invent+purchases-end invent. Used externally, doesn’t distinguish fixed and variable costs. Gross margin=sales-COGs
Contribution income statement- distinguishes fixed and variable costs, sales-variable expenses=contribution margin. Contribution margin-fixed expenses= net income
Direct costs- can be traced to cost object; indirect costs- cant be traced to cost object
Differential cost-a difference in costs between any two alternatives. Opportunity costs- potential benefit that is given up when alt is selected over other. Sunk costs- costs that already have incurred and cant be changed.
Job-order costing system-used where many different products are produced each period.