The cost associated with setting up a piece of production equipment. This would include the cost of the setup mechanic, the cost of scheduling, record keeping, moving the starting material, and testing the first few...
The cost associated with setting up a piece of production equipment. This would include the cost of the setup mechanic, the cost of scheduling, record keeping, moving the starting material, and testing the first few...
See job order cost sheet.
A cost or expense that is not directly traceable to a department, product, activity, customer, etc. As a result indirect costs and expenses are often allocated to the department, product, etc. For example, a...
The actual cost of direct materials, the actual cost of direct labor, and manufacturing overhead applied by using a predetermined annual overhead rate.
A cost or expense where the total changes in proportion to changes in volume or activity. For example, if a company pays a sales commission on all of its sales, commission expense is a variable expense because...
What is prime cost? Definition of Prime Cost In cost accounting, the prime cost of a manufactured product is the combination of the following: Direct materials cost Direct labor cost The indirect manufacturing costs...
To learn more, see our Nonmanufacturing Overhead Outline.
What is marginal cost? Definition of Marginal Cost Marginal cost is a manufacturer’s cost to produce one more unit of product. In other words, marginal cost is the change in total costs when one additional unit is...
of Indirect Costs For example, the depreciation of a company’s manufacturing building is an indirect cost of the following: The manufacturing departments within the building The products that are manufactured in the...
The amount of an asset’s cost that will be depreciated. It is the cost minus the expected salvage value. For example, if equipment has a cost of $30,000 but is expected to have a salvage value of $3,000 then the...
The original cost incurred to acquire an asset (as opposed to replacement cost, current cost, or cost adjusted by a general price index). If a company purchased land in 1980 for $10,000 and continues to hold that land,...
The additional cost of an additional quantity. It is similar to marginal cost, except that marginal cost refers to the cost of the next unit. Incremental cost might be the additional cost from the next 200 units.
See cost of goods sold.
A past, historical cost. They are called sunk because a past cost cannot be changed and decisions involve only the present and the future.
A cost object is often a product or department for which costs are accumulated or measured. For example, a product is the cost object for direct materials, direct labor and manufacturing overhead. The factory maintenance...
as __________ direct labor. 3. A manufactured product has three inventoriable costs: direct materials, direct labor, and manufacturing or factory __________ overhead. 4. The term associated with estimated, predetermined...
See Explanation of Standard Costing.
See Explanation of Standard Costing.
Costing system wherein fixed manufacturing overhead is allocated to (or absorbed by) products being manufactured. This system, which treats fixed manufacturing costs as a product cost, is required for external financial...
See weighted-average cost flow assumption and moving-average cost of inventory.
The cost accounting system where similar units are mass produced. Costs are collected by department and are then assigned to the units produced.
This phrase has two connotations. One is the cost of holding inventory. In this case the carrying cost is the cost of capital tied up in inventory, the cost of storage, insurance, and obsolescence. Often this is...
The cost transferred from one department to the next department in a process costing system.
What is the cost of capital? Definition of Cost of Capital The cost of capital is the weighted-average, after-tax cost of a corporation’s long-term debt, preferred stock (if any), and the stockholders’ equity...
, or inflation-adjusted cost. Generally, the cost principle or historical cost principle requires that an asset should be reported at its cash or cash equivalent amount at the time of the transaction and should include...
The amount by which total costs will change when an activity is increased by one unit. In the equation of the line, y = a + bx, the variable cost rate is represented by ‘b’ and the units of activity are...
What is a deferred cost? Definition of Deferred Cost A deferred cost is a cost that is already recorded in a company’s accounts, but at least some of the cost should not be expensed until a future accounting period....
increases when the volume decreases. Examples of Fixed Costs Assume the rent for a production facility is a fixed cost of $120,000 per year and there are normally 30,000 machine hours of good output during a year. At...
A common cost. Often refers to the costs prior to the point where several products emerge from a common process.
See absorption costing.
Variable costs and expenses divided by net sales. To learn more, see Explanation of Break-even Point.
What is the cost principle? Definition of Cost Principle The cost principle is one of the basic underlying guidelines in accounting. It is also known as the historical cost principle. The cost principle requires that...
The next best benefit foregone. The opportunity lost. Often measured as the contribution margin given up by not doing an activity. For example, if a sole proprietor is foregoing a salary and benefits of $50,000 at...
What is cost incurred? Definition of Cost Incurred A cost incurred is a cost that a company (or other organization) becomes liable for. Example of Cost Incurred Assume that a retailer begins operations on December 1 and...
In manufacturing, the product cost includes direct materials, direct labor, and manufacturing overhead. A retailer’s product cost is the net cost from suppliers plus costs to get the product in place and ready for...
Within a reasonable range of activity, the slope of the cost line is the variable rate, which is often denoted as ‘b’ in the straight line y = a + bx.
What is absorption costing? Definition of Absorption Costing Absorption costing (also known as full absorption costing) indicates that all of the manufacturing costs have been assigned to (absorbed by) the units of goods...
A corporation’s cost of capital is its weighted average after-tax cost of its debt, preferred stock, common stock, retained earnings, and other components of stockholders’ equity. The cost of capital is...
In estimating the ending inventory under the retail method the cost ratio is the cost of goods available divided by the retail value of the goods available.
, work-in-process, finished goods) and the cost of goods sold will contain the standard costs. (Think of the standard costs as the “should be” costs which are tied to the amounts in the company’s profit plan.) Any...
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