Lecture 2 - Cost Behavior

Lecture 2 - Cost Behavior - Product Costs and Their...

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1 Product Costs and Their Behavior Objective: Understand . . . That for decision making, what is important is how spending will change with Increases or decreases in output Adding or dropping a product line Adding or dropping a department The way we account for indirect costs contributes to decision-making confusion. The “cost” of a product, department, piece of equipment, etc., depends on the intended use of the cost estimate. There is no “true” cost. Cost Concepts Important vocabulary cost object direct costs indirect costs fixed costs variable costs product costs period costs normal (standard) cost overhead
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2 Different Definitions of Product costs Research costs Mfg. costs Design costs Mktg. costs Distrib. costs Customer service costs Components of “product costs” Direct material Direct labor a.k.a. touch labor Indirect manufacturing costs (O/H) Factory costs May vary, but not necessarily directly with units of production
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