Direct Costs: Costs that can be directly traced to a specific cost object, such as raw materials or direct labor used in production.
Indirect Costs: Costs that cannot be directly linked to a single cost object; these are shared across multiple products or departments, like utilities or administrative expenses.
Fixed Costs: Costs that remain constant in total regardless of changes in production volume within the relevant range, e.g., rent, salaries.
Variable Costs: Costs that vary directly with the level of production or activity, such as raw materials or direct labor wages.
Mixed Costs: Costs that contain both fixed and variable elements, e.g., utility bills that have a fixed service fee plus usage-based charges.
Cost Behavior: The way costs change in response to changes in activity levels, categorized as fixed, variable, or mixed.
1. What does cost classification refer to in managerial accounting?
2. What is the main purpose of cost classification in managerial accounting?
3. According to cost behavior concepts, what is a defining characteristic of fixed costs?
Cost Classification — purpose?
Aids in budgeting, control, and decision-making.
Cost Classification — purpose?
Aids in budgeting, control, and decision-making.
Cost Behavior — definition?
How costs change with activity levels.
Direct Costs — example?
Raw materials or direct labor.
Job Order Costing — suitable industry?
Customized or unique product industries.
Indirect Costs — example?
Utilities, administrative expenses.
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