CHAPTER 2

Administrative Costs All executive, organizational, and clerical costs associated with
the general management of an organization rather than with
manufacturing, marketing, or selling. (p. 38)

Common Costs A common cost is incurred to support a number of costing

objects but cannot be traced to them individually. (p. 51)

Conversion Cost Direct labor cost plus manufacturing overhead cost. (p. 37)

Cost Behavior The way in which a cost reacts or responds to changes in the
level of business activity. (p. 48)

Cost Object Anything for which cost data are desired. Examples of possible
cost objects are products, product lines, customers, jobs, and
organizational subunits such as departments or divisions of a
company. (p. 50)

Cost of Goods The manufacturing costs associated with the goods that were
Manufactured finished during the period. (p. 43)

Differential Cost A difference in cost between any two alternatives. Also see
Incremental cost. (p. 51)

Differential Revenue The difference in revenue between any two alternatives. (p. 51)

Direct Cost A cost that can be easily and conveniently traced to a specified
cost object. (p. 50)

Direct Labor Those factory labor costs that can be easily traced to individual
units of product. Also called touch labor. (p. 37)

Direct Materials Those materials that become an integral part of a finished

product and can be conveniently traced into it. (p. 37)

Fixed Cost 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 of
activity. (p. 49)

Incremental Cost An increase in cost between two alternatives. Also see

Differential cost. (p. 51)

Indirect Cost A cost that cannot be easily and conveniently traced to a

specified cost object. (p. 50)

Indirect Labor The labor costs of janitors, supervisors, materials handlers, and
other factory workers that cannot be conveniently traced directly
to particular products. (p. 37)

Indirect Materials Small items of material such as glue and nails. These items may
become an integral part of a finished product but are traceable
to the product only at great cost or inconvenience. (p. 37)

Inventoriable Costs Synonym for product costs. (p. 39)

Manufacturing All costs associated with manufacturing except direct materials

Overhead and direct labor. (p. 37)

Marketing or Selling All costs necessary to secure customer orders and get the
Costs finished product or service into the hands of the customer. (p.
38)

Opportunity Cost The potential benefit that is given up when one alternative is
selected over another. (p. 52)

Period Cost 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. (p. 39)

Prime Cost Direct materials cost plus direct labor cost. (p. 38)

Product Costs 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 labor, and manufacturing overhead.
Also see Inventoriable costs. (p. 38)

Raw Materials Any materials that go into the final product. (p. 36)

Relevant Range The range of activity within which assumptions about variable
and fixed cost behavior are valid. (p. 49)

Schedule of Cost of A schedule showing the direct materials, direct labor, and
Goods manufacturing overhead costs incurred for a period and
Manufactured assigned to Work in Process and completed goods. (p. 43)

Sunk Cost Any cost that has already been incurred and that cannot be
changed by any decision made now or in the future. (p. 53)

Variable Cost A cost that varies, in total, in direct proportion to changes in the
level of activity. A variable cost is constant per unit. (p. 48)

Finished Boods Units of product that have been completed but not yet sold to
customers.(p. 41)