Lesson 2: An Introduction to Cost Terms and Concepts
1. Period and product cost
expired cost (Period cost – expenses)
Un-expired cost (Product cost –Asset)
2. Product cost – are those costs that are identified with goods purchased or produced for resale. They are attached to the product and that are included in the cost of stock/inventory for finished goods or for partly completed goods. NOTE: manufacturing company normally has three types of stock; raw material stock, work-in-progress (partially finished) and finished goods.
3. Period cost – are those costs that are not included in the cost of stock /inventory and as a result are treated as expenses in the period in which they are incurred. 4. Product costs
(i) Direct material cost – all those materials that can be identified or traced to a specific product. (ii) Direct labor cost – all those labor costs that can be identified or traced to a specific product. (iii) Direct expenses – any expense has to be incurred in order to allow the production of a product and it can be identified or traced to a specific product. Example, loyalty paid to produce the product, cost of hiring a machine for producing a specific product. (iv) Overhead costs – also called indirect manufacturing costs, which are all manufacturing costs that can not be identified or traced to a specific product. (i) Examples are wages of cleaners, rent of a factory, factory electricity, factory lighting 5. Direct and Indirect Costs – Main Concept
(i) Direct costs are those costs that can be specifically and exclusively identified with a particular cost object. (ii) Indirect costs are those costs that can not be specifically and exclusively identified with a particular cost object. 6.
A cost object is any activities for which a separate measurement of costs is desired. In simple word, if you want to know the cost of something, the something is called a cost object. For example, cost of bachelor degree program, cost of CAT...
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