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average fixed cost (AFC)
total fixed costs divided by the total number of units produced, which results in a per-unit cost
average variable cost (AVC)
total variable costs divided by the total number of units produced, which results in a per-unit cost
conversion costs
total of labor and overhead for a product; the costs that “convert” the direct material into the finished product
cost driver
activity that is the reason for the increase or decrease of another cost; examples include labor hours incurred, labor costs paid, amounts of materials used in production, units produced, or any other activity that has a cause-and-effect relationship with incurred costs
direct labor
labor directly related to the manufacturing of the product or the production of a service
direct materials
materials used in the manufacturing process that can be traced directly to the product
fixed cost
unavoidable operating expense that does not change in total, regardless of the level of activity
high-low method
technique for separating the fixed and variable cost components of mixed costs
indirect labor
labor not directly involved in the active conversion of materials into finished products or the provision of services
indirect materials
materials used in production but not efficiently traceable to a specific unit of production
intangible good
good with financial value but no physical presence; examples include copyrights, patents, goodwill, and trademarks
manufacturing organization
business that uses parts, components, or raw materials to produce finished goods
manufacturing overhead
costs incurred in the production process that are not economically feasible to measure as direct material or direct labor costs; examples include indirect material, indirect labor, utilities, and depreciation
merchandising firm
business that purchases finished products and resells them to consumers
mixed costs
expenses that have a fixed component and a variable component
period costs
typically related to a particular time period instead of attached to the production of an asset; treated as an expense in the period incurred (examples include many sales and administrative expenses)
prime costs
direct material expenses and direct labor costs
product costs
all expenses required to manufacture the product: direct materials, direct labor, and manufacturing overhead
relevant range
quantitative range of units that can be produced based on the company’s current productive assets; for example, if a company has sufficient fixed assets to produce up to 10,000 units of product, the relevant range would be between 0 and 10,000 units
scatter graph
plot of pairs of numerical data that represents actual costs incurred for various levels of activity, with one variable on each axis, used to determine whether there is a relationship between them
service organization
business that earns revenue primarily by providing an intangible product
stepped cost
one that changes with the level of activity but will remain constant within a relevant range
tangible good
physical good that customers can handle and see
total cost
sum of all fixed and all variable costs
total fixed costs
sum of all fixed costs
total variable costs
sum of all variable costs
variable cost
one that varies in direct proportion to the level of activity within the business
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