This document defines key cost accounting terms and concepts. It discusses different types of costs such as direct costs, indirect costs, product costs, period costs, selling costs, and administrative costs. It also defines inventory items like raw materials, work in process, and finished goods inventories. Direct costs such as direct materials and direct labor that are easily traced to a specific cost object are distinguished from indirect costs such as manufacturing overhead. Examples are provided to illustrate whether costs would be direct or indirect depending on the cost object.

1. Chapter 2
Cost
Cost; the resources forfeited to receive
some goods or services.

2. Cost object
Cost object; Any activity or item for which
a separate cost measurement is desired.

3. Direct cost
Direct cost; a cost that can be easily
traced to an individual cost object.

4. Indirect cost
Indirect cost; a cost that supports more
than one cost object.

5. Product cost
Product cost: the cost of the various
products a company sells.

6. Inventoriable cost
Inventoriable cost; another name for
product cost

7. Period cost
Period cost; all costs incurred by a
company that are not considered product
cost. Includes selling and administrative
cost.

8. Selling cost
Selling cost; the cost of locating
customers, attracting customers,
convincing customers to buy, and the cost
of necessary paperwork to document and
record sales.

9. Administrative cost
Administrative cost; all costs incurred by a
company that are not product costs or
selling costs. The cost or areas that
provide support to the product and selling
areas such as the cost of accounting,
finance, employees relations, and
executive functions.

10. Cost of goods schedule
Beginning inventory
(+) Purchases
(-) Goods available for sale
(-) Ending Inventory
(=) Cost of Goods Sold

11. Direct material cost
Direct material cost; the cost of all raw
materials that can be traced directly to a
unit of manufactured product.

12. Direct labor cost
Direct labor cost; the cost of all production
labor that can be traced directly to a unit of
manufactured product.

13. Manufacturing overhead cost
Manufacturing overhead cost; all costs
associated with the operation of the
manufacturing facility besides direct
material cost and direct labor cost. It is
composed entirely of indirect
manufacturing cost incurred to support
multiple cost objects.

14. Raw materials inventory
Raw materials inventory; materials that
have been purchased but have but have
not yet entered the production process.

15. Material stores
Material stores; another name for raw
materials inventory.

16. Work in process inventory
Work in process inventory; products that
have entered the production process but
have not yet been completed.

17. Finished good inventory
Finished goods inventory; products that
have been completed and are ready to
sell.

18. Direct material
Direct material; the raw material that
becomes a part of the final product and
can be easily traced to the units produced.

19. Direct labor hours
Direct labor hours; the time spent by
production workers as they transform raw
materials into units of finished products..

20. Manufacturing overhead
Manufacturing overhead; all activities
involved in the manufacture of products
besides direct materials or direct labor.

21. Factory overhead
Factory overhead; another name for
manufacturing overhead cost.

22. Overhead
Overhead; in a manufacturing company,
another name for manufacturing overhead
cost, in a service type business, the
indirect service cost.

23. Indirect manufacturing cost
Indirect manufacturing cost; another name
for manufacturing overhead cost.

24. Indirect materials
Indirect materials; materials consumed in
support of multiple cost objects.

25. Indirect labor
Indirect labor; the labor incurred in support
of multiple cost objects.

26. Hybrid firms
Hybrid firms; companies that generate
revenue from both providing services and
selling products.

27. Direct or indirect cost
Blue Water Travel operates a chain of travel
offices in eastern United States. Blue Water
Travel’s home office is in New York. There are
six sales offices and a district office located in
Florida.
If the cost object is one of the sales offices in
Florida, indicate which would describe an
indirect cost (I) and a direct cost as (D).

28. Rent for the Florida district
office building;
This is an indirect cost.

29. Rent for the home office
building in New York.
This is an indirect cost.

30. Rent for the sales office.
This is a direct cost.

31. The company president’s
salary.
This is an indirect cost.

32. The salary of the vice president
in charge of the Florida division.
This is an indirect cost.

33. The salary of the sales office
manager.
This is a direct cost.

34. The salary of the sales
associate.
This is a direct cost.

35. Material incorporated into
products.
Direct Material costs

36. Sales supplies
Selling costs

37. Supplies used in the factory
Manufacturing overhead costs

38. Wages of plant security guard
Manufacturing overhead cost

39. Wages of a security guard for
the sales office
Selling costs

40. Depreciation on a file cabinet
used in the factory
Manufacturing overhead cost

41. Depreciation on a file cabinet
used general accounting office
Administrative cost

42. Presidents salary
Administrative cost

43. Salary of the Presidents
secretary
Administrative cost

44. Manufacturing vice presidents
salary
Manufacturing overhead cost

45. Salary of the manufacturing
vice presidents secretary
Manufacturing overhead cost

46. Wages paid to production line
workers.
Direct labor cost

47. Factory rent
Manufacturing overhead cost

48. Accounting office rent
Administrative cost

49. Depreciation on a copy machine
used in the sales department
Selling cost

50. Depreciation on a copy machine
used to copy work orders in the
factory
Manufacturing overhead cost

51. Salary of plant supervisor
Manufacturing overhead cost