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ACC 202

Chapter 1
Relevant cost has the potential to influence a decision
Irrelevant cost will not influence a decision
Costs that have already been incurred are called sunk costs.
The benefit that you forgo when you select one alternative over
another is opportunity cost
Product cost – costs that are attached to the product as it is produced
and included in inventory until the product is sold
Period costs – costs that are expensed in the period they are
Manufacturing costs – Costs that are incurred while making a
physical product, such as direct materials, direct labor, and
manufacturing overhead.
Nonmanufacturing costs – Costs that are not related to producing a
product, such as selling and administrative cost.
Variable cost – costs that change in total in direct proportion to a
change in activity level.
Direct Cost – cost that can be directly and conveniently traced to a
specific cost object
Indirect costs – Costs that cannot be directly or conveniently traced
to a specific cost object.
Out-of-pocket costs – Costs that involve an outlay of cash for items
such as rent, utilities, and salaries.
prime costs because, at one point in time, direct materials and direct
labor were considered the “primary” costs of manufacturing a physical
Direct labor and manufacturing overhead are referred to collectively as
conversion costs, or the costs incurred to convert direct materials
into a finished product.

are performed for each individual unit or customer. the company can make numerous units and batches of the product without repeating these activities. Manufacturing overhead includes all manufacturing costs other than direct materials and direct labor incurred to produce a physical product. or batches. are the most general category and are performed to benefit the organization as a whole. Direct labor refers to the “hands on” labor that can be directly and conveniently traced to the product. These activities vary with the number of batches produced but are independent of the number of units in each batch Unit­level activities. Product­level activities are performed for a specific product line or type of service offering. are performed for a group or batch of units all at once. These activities vary in direct proportion to the number of units produced or the number of customers served. as opposed to specific products. also called company-wide activities. customers. Batch­level activities. such as the wages of employees on the pizza production line and in the packaging department. After the product-level activities are performed. . also called customer-level activities. also called group-level activities. units.ACC 202 Direct materials includes the major material inputs that can be directly and conveniently traced to each unit of product (the cost object). Formulas: Prime Cost = Direct Materials + Direct Labor Conversion Cost = Direct labor + Manufacturing Overhead Total Manufacturing Cost = Direct Materials + Conversion Cost Chapter 4 Facility­level activities.

ACC 202 .