Chapter 2

Anything for which a cost measurement is desired.

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

These are related to the particular cost object and can be traced to it in an economically feasible (cost-effective) way.

Describes the assignment of direct costs to a particular cost object.

These are related to the particular cost object, but cannot be traced to it in an economically feasible (cost-effective) way.

Describes the assignment of indirect costs to a particular cost object.

A general term that encompassed both (1) tracing direct costs to a cost object and (2) allocating indirect costs to a cost object.

A variable, such as the level of activity or volume, that casually affects costs over a given time span. The level of activity or volume is a ____ ______ if there is a cause-and-effect relationship between a change in the level of activity or volume and a change in the level of total costs.

The band or range 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.

Calculated by dividing the total cost by the related number of units produced.

Total Costs / Related Number of Units Produced

Aquisition costs of all materials that eventually become part of the cost object (work in process and then finished goods) and can be traced to the cost object in an economically feasible way. Includes not only the cost of the materials themselves, but the freight-in (inward delivery) charges, sales taxes, and customs duties that must be paid to acquire them.

Includes the compensation of all manufacturing labor that can be traced to the cost object (work in process and then finished goods) in an economically feasible way.

All manufacturing costs that are related to the cost object (work in process and then finished goods), but cannot be traced to that cost object in an economically feasible way.

All costs of a product that are considered assets in a company's balance sheet when the costs are incurred and that are expensed as cost of goods sold only when the product is sold.

For manufacturing-sector companies, all manufacturing costs count. For merchandising-sector companies, costs of purchasing goods that are resold count. Service-sector companies do not have any costs that count.

All costs in the income statement other than cost of goods sold. Examples include design costs, marketing, distribution, and customer service costs. These are treated as expenses of the accounting period in which they are incurred.

For manufacturing-sector companies, all nonmanufacturing costs in the income statement count. For merchandising-sector companies, all costs in the income statement not related to the cost of goods purchased for resale count. Service-sector companies all costs count.

Direct Materials Used Calculation

Total Manufacturing Costs Incurred Calculation

Cost of Goods Manufactured Calculation

Cost of Goods Sold Calculation

Operating Income Calculation

All direct manufacturing costs.

Direct material costs + Direct manufacturing labor costs

All manufacturing costs other than direct material costs.

Direct manufacturing labor costs + Manufacturing overhead costs

The wage rate paid to workers (for both direct labor and indirect labor) in excess of their straight-time wage rates.

Usually considered to be part of indirect costs or overhead.

Refers to the wages paid for unproductive time caused by lack of orders, machine or computer breakdowns, work delays, poor scheduling, etc.

Usually considered to be part of indirect costs or overhead.

The sum of the costs assigned to a product for a specific purpose. Different purposes can result in different measures of product cost:
-Pricing and product-mix decisions
-Reimbursement under government contracts
-Preparing financial statements for external reporting under GAAP

Cost of Goods Purchased