SMG AC 222 Lecture Notes - Lecture 2: Fixed Cost, Indirect Costs, Variable Cost
Document Summary
Learn the terminology used to describe, categorize, and analyze the costs of doing business. Understand how costs behave in relation to the volume of business. Use notes, index cards, and learn smart to be sure you understand the terminology, so that as we move forward you are prepared to explore the concepts in more depth. Direct costs can be easily, conveniently, economically traced to a cost object. They must be caused by the cost object. A common cost may be shared by a number of cost objects. Manufacturing costs: usually direct materials, direct labor (both direct costs), and manufacturing overhead (indirect costs). Direct material + direct labor = prime costs. Direct labor + overhead = conversion cost. Nonmanufacturing costs: selling costs (to secure customers and deliver orders direct if they are tied to one specific product or service) and administrative costs (general management of the company). Product costs are incurred to secure or make the product also called inventoriable costs.
