COST CLASSIFICATION

• Accumulating costs


  The way that costs are measured and recorded
• Administrative costs


  All costs associated with research, development, and general administration of the organization that cannot reasonably be assigned to either selling or production
• Allocation


  When an indirect cost is assigned to a cost object using a reasonable and convenient method
• Appraisal costs


  Costs that are incurred to identify defective products before the products are shipped to customers
• Assigning costs


  The way that a cost is linked to some cost object
• Conversion cost


  The sum of direct labor cost and overhead cost
• Cost


  The amount of cash or cash equivalent sacrificed for goods and/or services that are expected to bring a current or future benefit to the organization
• Cost behavior


  The way in which a cost changes when the level of output changes
• Cost driver


  A causal factor that measures the output of the activity that leads (or causes) costs to change
• Cost object


  Any item such as products, customers, departments, projects, and so on, for which costs are measured and assigned
• Cost of goods manufactured

  The total product cost of goods completed during the current period
• Cost of goods sold

  The total product cost of goods sold during the period
• Direct costs


  Costs that can be easily and accurately traced to a cost object
• Direct labor


  The labor that can be directly traced to the goods or services being produced
• Direct materials


  Materials that are a part of the final product and can be directly traced to the goods or services being produced
• Discretionary fixed costs


  Fixed costs that can be changed relatively easily in the short run at management discretion
• Discretionary variable costs


  Variable costs that can be changed or avoided relatively easily in the short run at management discretion
• Expenses


  Costs that are used up (expired) in the production of revenue
• External failure costs


  Costs that are incurred when a product or service that is defective is delivered to a customer
• Fixed cost


  Costs that, in total, are constant within the relevant range as the level of output increases or decreases
• Gross margin


  The difference between sales revenue and cost of goods sold
• Indirect costs


  Costs that cannot be easily and accurately traced to a cost object
• Internal failure costs


  Costs that are incurred as a result of identifying defective products before they are shipped to customers
• Manufacturing organizations


  An organization that produces tangible products
• Manufacturing overhead


  All product costs other than direct materials and direct labor. In a manufacturing firm, manufacturing overhead also is known as factory burden or indirect manufacturing costs. Costs are included as manufacturing overhead if they cannot be traced to the cost object of interest (e.g., unit of product)
• Mixed costs


  Costs that have both a fixed and a variable component
• Opportunity cost


  The benefit given up or sacrificed when one alternative is chosen over another
• Period costs


  Costs that are not product costs (i.e., all areas of the value chain except for production)
• Prevention costs


  Costs that are incurred to keep defects from occurring
• Prime cost


  The sum of direct materials cost and direct labor cost
• Product (manufacturing) costs


  Costs of producing a product in a manufacturing firm or of acquiring a product in a merchandising firm and preparing it for sale. Product costs include direct materials, direct labor, and manufacturing overhead
• Products


  Goods produced by converting raw materials through the use of labor and indirect manufacturing resources, such as the manufacturing plant, land, and machinery
• Quality circles


  Small groups of employees that meet on a regular basis to discuss ways of improving quality
• Quality cost


  Costs that are incurred to prevent defective products from falling into the hands of customers or that are incurred as a result of defective units
• Quality cost report


  Report that details prevention costs, appraisal costs, and the costs of internal and external failures
• Quality of conformance


  The degree to which a product or service meets or exceeds its design specifications and is free of defects or other problems that mar its appearance or degrade its performance
• Relevant range


  The range of output over which an assumed cost relationship is valid for the normal operations of a firm
• Selling costs


  Those costs necessary to market, distribute, and service a product or service
• Service organizations


  An organization that produces intangible products
• Services


  Tasks or activities performed for a customer or an activity performed by a customer using an organization's products or facilities