AC 351.docx - AC 351 CHAPTER 2 Product cost= direct...

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AC 351 CHAPTER 2 Product cost= direct materials + direct labor + manufacturing overhead Period cost= selling expenses + administrative expenses Conversion cost= direct labor + manufacturing overhead Prime cost= direct materials + direct labor Cost behavior refers to how a cost reacts to changes in the level of activity - As the activity level rises and falls, a particular cost may rise and fall as well – or it may remain constant - Costs are often categorized as variable, fixed or mixed - Cost structure is the relative proportion of each type of cost in an organization Variable cost varies, in total, in direct proportion to changes in the level of activity Ex(s): o Cost of goods sold for a merchandising company o Direct materials o Direct labor o Variable elements of manufacturing overhead: Indirect materials Supplies Power Variable elements of selling and administrative expenses o Commissions o Shipping costs Activity base/’Cost driver”
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