Glossary

GLOSSARY

Administrative costs Costs of managing the organization, including the costs of top administrative functions and various staff departments such as accounting, data processing, and personnel.

Cost A financial measure of the resources used or given up to achieve a stated purpose.

Cost driver Activity or transaction that causes costs to be incurred. Machine-hours can be a cost driver for costs of energy to run machines, for example.

Cost of goods manufactured Consists of the total costs of all goods completed during the period; includes cost to manufacture plus beginning work in process inventory minus ending work in process inventory

Cost of goods sold Cost of goods manufactured plus the beginning finished goods inventory minus the ending finished goods inventory.

Cost to manufacture (or manufacturing costs) Includes the direct materials, direct labor, and manufacturing overhead incurred during the period.

Direct labor Labor costs of all employees actually working on materials to convert them to finished goods. Direct labor costs are directly traced to particular products in contrast to indirect labor costs.

Direct materials Materials that are used only in making the product and are clearly and easily traceable to a particular product.

Finished goods Completed manufactured products ready to be sold. Finished Goods Inventory is the title of an inventory account maintained for such products.

Indirect labor The cost of labor that cannot, or will not for practical reasons, be traced to the goods being produced or the services being provided.

Indirect materials Materials used in making a product that cannot, or will not for practical reasons, be traced directly to particular products.

Managerial accounting Managerial accounting information is intended for internal use. The purpose is to generate information managers can use to make good decisions.

Manufacturing overhead All manufacturing costs except for those costs accounted for as direct materials and direct labor.

Materials Unprocessed items used in the manufacturing process typically stored in Raw Materials Inventory.

Overhead All costs of making goods or providing services except for those costs classified as direct materials and direct labor. See manufacturing overhead for overhead in manufacturing companies.

Period costs Costs related more closely to periods of time than to products produced. Period costs cannot be traced directly to the manufacture of a specific product; they are expensed in the period in which they are incurred.

Predetermined overhead rate Calculated by dividing estimated total overhead costs for a period by the expected level of activity, such as total expected machine-hours or total expected direct labor-hours for the period.

Product costs Costs a company assigns to units produced. In manufacturing companies, these costs are direct materials, direct labor, and manufacturing overhead. In service companies that have no materials, these costs are direct labor and overhead.

Selling costs Costs incurred to obtain customer orders and distribute the finished product to the customer.

Statement of cost of goods manufactured An accounting report showing the cost to manufacture and the cost of goods manufactured.

Work in process Partially manufactured products; a Work in Process Inventory account is maintained for such products.

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