Define direct materials
Integral part of product that can be traced directly to it.
Anything that is not an indirect material
Define direct labour
Easily traced to individual units of product.
Anything that does not include indirect labour
Define manufacturing costs
Cannot be traced to individual product, includes indirect materials and indirect labour.
Includes manufacturing costs
Define non-manufactuing costs
Includes marketing and selling costs to receive the order and the delivery and also administrative costs
Not manufacturing costs
Product costs
They are expenses in the period in which the product is sold.
cost of products
Period costs
They are treated as expenses in the period they are incurred.
costs of the period
Define cost behaviour
How cost will react to changes in level of business activity
variable and fixed costs
Cost behaviour of variable costs
Varies in direct proportion to changes in level of activity
variable
Cost behaviour of fixed costs
Costs remain constant regardless of changes in level of activity
fixed
What are direct costs?
Costs that can be easily traced to unit of product
directly
What are indirect costs?
Costs that cannot be traced to product, common costs have a number of objective so cannot be traced to an individual.
not direct costs
What is differential costs/revenue?
Difference between cost/revenue between alternatives. Increase in amount is incremental, decrease in amount is decremental.
difference between cost products
What is marginal revenue or marginal cost?
Amount attained by one more unit of product
marginal amount
What are opportunity costs?
Potential benefit that is given up when one alternative is selected over another
costs made from opportunities
What are sunk costs?
Cannot be changed by any decision as they are not seen as differential costs.
costs that have decreased
Contribution Margin
Is the amount remaining from sales revenue- variable expenses
The margin that is contributed
