cost: the sacrifice made, usually measured by the resources given up, to achieve a
• expense: the cost incurred when an asset is used up or sold for the purpose of
◦ Product cost: cost assigned to goods that were either purchased or
manufactured for resale.
▪ used to value the inventory of manufactured goods or merchandise until
the goods are sold
▪ Recognized as cost of goods sold
▪ ex: purchase cost of inventory, manufacturing costs, shipping, etc.
▪ Also known as inventorial cost
◦ Period costs: all costs that are not product cost
▪ identified with the period of time in which they are incurred rather than
the units of purchased or produced goods
▪ expenses during the time period in which they have incurred
▪ research, selling, administrative, salaries, commission, etc.
• Income Statement
◦ product costs (costs of manufactured inventory, for example) are stored in
inventory until the time period the products are sold,they become
◦ Operating expenses are treated as period costs and are expensed during the
period in which they have incurred.
• Balance Statement
◦ current assets: inventories.
▪ Raw-Material: inventory includes all materials before they are placed
▪ Work in process: refers to manufactured products that are only partially
completed at the date when the balance sheet is prepared
▪ Finished Good: refers to manufactured goods that are complete and
ready for sale.
• Mass customization Operations
◦ many standardized components are combined in different ways to produce
custom made products to customer order (dell).
◦ high production volume and often use a direct sales approach.
• Manufacturing Costs
◦ Direct Material: raw material consumed in the manufacturing process is
physically incorporated in the finished product, and can be traced to
products conveniently. (after it enters production)
◦ Directo Labour: the costs of salaries, wages, and fringe benefits.
◦ Manufacturing Overhead: all other costs
▪ indirect material: costs for materials required for the production process
but do not become an integral part of the finished product
▪ indirect labour: the costs of personnel who do not work directly on the
product, but whose services are necessary for the manufacturing
process (managers, custodians, security).
▪ Other: all other manufacturing costs that are neither material nor labour costs.
▪ depreciation, taxes, insurance, utilities, costs of operating service
▪ overtime premium
▪ idle time: the time that is not spent productively by an employee