Accounting Ii Final Exam Review

Topics: Variable cost, Costs, Fixed cost Pages: 4 (936 words) Published: April 25, 2011
Accounting II Final Exam Review
Chapter 18
Direct and Indirect Costs
-Cost – a payment of cash or a commitment to pay cash in the future for the purpose of generating revenues.
A. Cost object – costs that are often classified by their relationship to a segment of operations. Ex. Product, sales territory, a department, or an activity, such as research and development 1. Direct Cost = identified with and can be traced to a cost object Ex. The wood for a guitar is a direct cost of the guitar

2. Indirect Costs = cannot be identified with or traced to a cost object Ex. The salaries for the employees who worked on the guitar are an indirect cost of the guitar Manufacturing Costs
Direct Materials Cost
To be classified as a direct materials cost, the cost must be both of the following: 1. An integral part of the finished product
2. A significant portion of the total cost of the product Direct Labor Cost
The cost of employee wages that is an integral part of the finished product is classified as direct labor cost. A direct labor cost must be both of the following 1. An integral part of the finished product

2. A significant portion of the total cost of the product Factory Overhead Cost
Costs, other than direct materials cost and direct labor cost, that are incurred in the manufacturing process are combined and classified as factory overhead cost (sometimes also called manufacturing overhead or factory burden). Examples of Factory Overhead Cost

* Heating and lighting the factory
* Repairing and maintaining factory equipment
* Property taxes
* Insurance
* Depreciation of factory plant and equipment
Prime Costs and Conversion Costs
* Prime costs consist of direct materials and direct labor costs. Conversion costs consist of direct labor and factory overhead. Conversion costs are the costs of converting the materials into a finish product. Product Costs

* Product costs consist of the three elements of...
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