SCM - PRELIMS C02 - Additional Cost Concept and Classifications
SCM - PRELIMS C02 - Additional Cost Concept and Classifications
SCM - PRELIMS C02 - Additional Cost Concept and Classifications
S PRELIMS
C
1. Direct materials – include those ➢ Product costs – are costs that are assigned
materials that become an integral to the products. They are charged to
part of a finished product, and can expense when sold. Until that time, product
be conveniently traced into it. costs are considered to be assets and are
recognized on the balance sheet as
2. Direct labor – consists of those inventory.
labor costs that can be easily traced
to the creation of products.
• IN RELATION TO COST OBJECTS
3. Manufacturing overhead – consists
➢ Direct costs – are costs that can be
of all manufacturing costs except
conveniently traced to the cost object
direct materials and direct labor.
under consideration.
Other terms used interchangeably ➢ Period costs – are costs that cannot be
with manufacturing overhead are conveniently traced to the cost object.
factory overhead, factory burden,
and indirect manufacturing costs. • IN RELATION TO VOLUME OR LEVEL
Oftentimes, the terms prime cost OF ACTIVITY
and conversion cost are used to
describe a combination of some of ➢ Fixed costs – are costs that remain
the elements of manufacturing cost. constant in total within the relevant
range but varies inversely, on a per unit
4. Prime cost – refers to the sum of basis, with the volume of activity.
direct materials and direct labor
costs. ➢ Variable costs – are costs that varies in
total in relation to the volume of activity
5. Conversion cost – is the sum of but remain constant on a per unit basis
direct labor and manufacturing within a relevant range.
overhead.
➢ Mixed costs – are costs which have a
➢ NON - MANUFACTURING COSTS – are fixed component and a variable
those costs involved with selling and component. These components are
administrative activities. separated by using appropriate
methods.
1. Selling or marketing costs – include
all costs associated with marketing ➢ Stepped costs – are costs which are
finished products, including fixed over relatively short ranges of
commissions, depreciation of production level. This cost has both
delivery equipment, depreciation of variable and fixed components and is
finished goods warehouses, and also known as semi – fixed cost.
advertising.
• IN RELATION TO DECISIONS MADE BY
2. Administrative costs – include all MANAGERS
costs associated with the general
administration of an organization, ➢ Differential costs – are the increases or
including secretarial salaries, decreases in total cost, or the changes
depreciation of general in specific elements of cost that result
administrative facilities and from selecting one alternative instead
equipment, and executive of another.
compensation.
➢ Sunk costs – have been defined in two
• FOR EXTERNAL REPORTING ways:
PURPOSES (a) Sunk costs are any cost that will not
change if one alternative is chosen
➢ Period costs – are costs matched with instead of another.
revenues once incurred. These are (b) Sunk costs are historical costs
normally referred to as expenses. which are irrecoverable in a given
situation. They are costs for which the