Accounting - Cost Object Measures Cost

Acct:

Cost object: measures cost (anything to which you can assign a cost)

• Certain customers drive more profit than others

• Acquiring costs

• Direct costs: easily traced to a cost object

• Aluminum used to produce product

• Indirect costs: not easily traced to cost object

• Factory manager’s salary

• Product costs: manufacturing costs capitalized to company’s inventory account

• Expensed through COGS when inventory is sold
• 3 types of product costs:

1. Direct Materials:

• The raw materials used to create the product

1. Direct Labor

• Labor that built the product (touch labor)
• Some companies don’t include overtime- moved to manufacturing/overhead

1. Manufacturing overhead

• All other manufacturing costs (indirect materials, indirect labor, insurance utility etc)
• Technology= direct labor cost decreases and manufacturing overhead increases 

• Period cost: do not pertain to manufacturing and are not capitalized to the company’s inventory account

• Expensed as they are incurred
• Selling costs/administrative costs

• Prime cost = direct materials + direct labor
• Conversion cost = direct labor + manufacturing overhead

Raw materials-> WIP -> finished goods inventory (once sold=COGS)