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absorption costing
(also, full costing) system of accounting where all costs are treated as product costs regardless of whether they are variable or fixed
activity base
activity that has been considered to be a primary driver of overhead costs and for which, traditionally, direct labor hours or machine hours were used
activity-based costing
process of assigning overhead to products based on the cost driver for each activity cost pool
batch-level cost
one that is incurred when a group (or batch) of items is produced
common fixed costs
expenses that are shared among all divisions or production units and include such costs as the CEO salary and corporate headquarter costs
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
cost pool
accumulation of costs that are incurred during the production of the activities included in the activity cost pool
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
expense recognition principle
(also, matching principle) matches expenses with associated revenues in the period in which the revenues were generated
factory-level cost
one that is incurred when production occurs, such as production supervisor salary
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
manufacturing overhead costs
all manufacturing costs excluding direct material and direct labor
product-level cost
one that occurs as support of the product, such as engineering
traditional allocation
allocation of factory overhead to products based on the volume of production resources consumed
unit-level cost
one that is incurred for each unit produced
variable costing
(also, direct costing or marginal costing) system of accounting where only variable costs are treated as product costs
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