VOCABULARY
What is a direct cost?
Cost that can be easily attributed to a specific product.
What are indirect costs?
Costs that remain constant and are not tied to a specific product.
What are direct costs or variable costs?
Costs that change with production.
Direct costs are also called variable costs.
True
What are raw materials?
Materials used to manufacture a product.
What are fixed costs?
Another name for indirect costs.
- ................
What is activity-based costing?
It is a method where cost drivers are created for each product.
Indirect costs can be easily attributed to a single product.
False
What is direct labor?
Wages paid to production-line employees.
What are indirect manufacturing costs?
Examples include depreciation, insurance, and rent.
What does ABC stand for?
Activity-based costing.
Variable overhead can include utilities like water.
TRUE
What is variable overhead?
Costs that increase or decrease with production.
What is activity-based costing (ABC)?
A method used to asign indirect costs to products.
What is rent, insurance, or depreciation?
Fixed overhead
ABC does not use cost drivers to allocate costs.
FALSE
What are plastic, ink, and employee wages?
Example of a direct cost in a pen company
What is a cost driver?
A factor used to allocated costs like rent to machinery.
Say indirect costs.
Public services, water, energy.
Manufacturing firms only have direct costs.
FALSE