Whereas costs that cannot be easily and conveniently traced to that specific cost object are
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25 words 0 ignoredIgnore wordsCheck the boxes below to ignore/unignore words, then click save at the bottom. Ignored words will never appear in any learning session. All None Ignore? Those materials that become an integral part of a finished product and can be conveniently traced to it. Small items of material such as glue and nails that may become an integral part of a finished product but the costs of tracing them exceed the benefits. Those factory labour costs that can be traced easily to individual units of product. Also called touch labour. The labour costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced directly to particular products. All costs associated with manufacturing except direct materials and direct labour. Direct labour cost plus manufacturing overhead cost. Direct materials cost plus direct labour cost. All costs that are involved in the purchase or manufacture of goods. In the case of manufactured goods, these costs consist of direct materials, direct labour, and manufacturing overhead. Also called Those costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued; such costs consist of selling (marketing) and administrative expenses. Costs of Goods Manufactured Costs that include the direct materials, direct labour, and manufacturing overhead used for the products finished during the period. Total Manufacturing Costs Costs that represent the direct materials, direct labour, and manufacturing overhead used to perform the production work for finished or unfinished products for the period. The way in which a cost reacts or responds to changes in the level of business activity. A cost that varies, in total, in direct proportion to changes in the level of activity. A variable cost is constant per unit. A cost that remains constant, in total, regardless of changes in the level of activity within the relevant range. If a fixed cost is expressed on a per unit basis, it varies inversely with the level o The range of activity within which assumptions about variable and fixed cost behaviour are valid. A cost that contains both variable and fixed cost elements. Anything for which cost data are desired. A cost that can be easily and conveniently traced to the particular cost object under consideration. A common cost is a cost that is incurred to support a number of cost objects but cannot be traced to them individually. A cost that cannot be easily and conveniently traced to the particular cost object under consideration. A difference in cost between any two alternatives. The difference in revenue between any two alternatives. An increase in cost between two alternatives. The potential benefit that is given up when one alternative is selected over another. Any cost that has already been incurred and that cannot be changed by any decision made now or in the future. What Is a Direct Cost?A direct cost is a price that can be directly tied to the production of specific goods or services. A direct cost can be traced to the cost object, which can be a service, product, or department. Direct and indirect costs are the two major types of expenses or costs that companies can incur. Direct costs are often variable costs, meaning they fluctuate with production levels such as inventory. However, some costs, such as indirect costs are more difficult to assign to a specific product. Examples of indirect costs include depreciation and administrative expenses. Direct CostUnderstanding Direct CostsAlthough direct costs are typically variable costs, they can also include fixed costs. Rent for a factory, for example, could be tied directly to the production facility. Typically, rent would be considered overhead. However, companies can sometimes tie fixed costs to the units produced in a particular facility. Direct Costs ExamplesAny cost that's involved in producing a good, even if it's only a portion of the cost that's allocated to the production facility, are included as direct costs. Some examples of direct costs are listed below:
Because direct costs can be specifically traced to a product, direct costs do not need to be allocated to a product, department, or other cost objects. Direct costs usually benefit only one cost object. Items that are not direct costs are pooled and allocated based on cost drivers. Direct and indirect costs are the major costs involved in the production of a good or service. While direct costs are easily traced to a product, indirect costs are not. Key Takeaways
Direct vs. Indirect CostsDirect costs are fairly straightforward in determining their cost object. For example, Ford Motor Company (F) manufactures automobiles and trucks. The steel and bolts needed for the production of a car or truck would be classified as direct costs. However, an indirect cost would be the electricity for the manufacturing plant. Although the electricity expense can be tied to the facility, it can't be directly tied to a specific unit and is, therefore, classified as indirect. Fixed vs. VariableDirect costs do not need to be fixed in nature, as their unit cost may change over time or depending on the quantity being utilized. An example is the salary of a supervisor that worked on a single project. This cost may be directly attributed to the project and relates to a fixed dollar amount. Materials that were used to build the product, such as wood or gasoline, might be directly traced but do not contain a fixed dollar amount. This is because the quantity of the supervisor's salary is known, while the unit production levels are variable based upon sales. Inventory Valuation MeasurementUsing direct costs requires strict management of inventory valuation when inventory is purchased at different dollar amounts. For example, the cost of an essential component of an item being manufactured may change over time. As the item is being manufactured, the component piece's price must be directly traced to the item. For example, in the construction of a building, a company may have purchased a window for $500 and another window for $600. If only one window is to be installed on the building and the other is to remain in inventory, consistent application of accounting valuation must occur. Companies typically trace these costs using two methods: first-in, first-out (FIFO) or last-in, first-out (LIFO). FIFO involves the assigning of costs, such as the purchase of inventory, based on what items arrived first. As inventory is used up in the production of goods, the first ones or the oldest inventory items are used first when measuring the cost of the item. Conversely, LIFO assigns the value of a cost item based on the last item purchased or added to inventory. What is a cost that can be traced to a cost object?A direct cost can be traced to the cost object, which can be a service, product, or department. Direct costs examples include direct labor and direct materials. Although direct costs are typically variable costs, they can also be fixed costs.
Can indirect cost be easily traced to a cost object?If the cost can be identified specifically with a particular cost objective such as a grant, contract, project, function or activity, then it is a direct cost; indirect costs are those costs that cannot be readily assignable to a cost objective.
Which of the following are examples of cost objects?Common examples of cost objects are: product lines, geographic territories, customers, departments or anything else for which management would like to quantify cost. Cost object is anything for which a separate measurement of cost is required.
What are the three categories of manufacturing costs multiple choice question?The three general categories of costs included in manufacturing processes are direct materials, direct labor, and overhead.
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