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
incurred.
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
product.
Direct labor and manufacturing overhead are referred to collectively as
conversion costs, or the costs incurred to convert direct materials
into a finished product.

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Direct materials includes the major material inputs that can be
directly and conveniently traced to each unit of product (the cost
object).
Direct labor refers to the hands on labor that can be directly and
conveniently traced to the product, such as the wages of employees on
the pizza production line and in the packaging department.
Manufacturing overhead includes all manufacturing costs other
than direct materials and direct labor incurred to produce a physical
product.
Formulas:
Prime Cost = Direct Materials + Direct Labor
Conversion Cost = Direct labor + Manufacturing Overhead
Total Manufacturing Cost = Direct Materials + Conversion Cost

Chapter 4
Facilitylevelactivities, also called company-wide activities, are the most general category and are
performed to benefit the organization as a whole, as opposed to specific products, customers,
units, or batches.
Productlevelactivities are performed for a specific product line or type of service offering. After
the product-level activities are performed, the company can make numerous units and batches of
the product without repeating these activities.
Batchlevelactivities, also called group-level activities, are performed for a group or batch of units
all at once. These activities vary with the number of batches produced but are independent of the
number of units in each batch
Unitlevelactivities, also called customer-level activities, are performed for each individual unit or
customer. These activities vary in direct proportion to the number of units produced or the number
of customers served.

ACC 202