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Product & Service Costing Flashcards

Product & Service Costing Flashcards
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Flow of Costs
In the production of a product, it is the movement of cost through different accounts.
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Outsourcing
Businesses utilize this process when they hire someone from the outside of their company to carry out business tasks. Companies may decide to do this due to profit, demand or weakness.
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Economies of Scale
This occurs in situations where buying a large enough amount of a product actually ends up reducing the unit price for each individual product.
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Differential Cost
The costs associated with every factor that influences a company's choice between two potential options.
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Intangible Cost of Quality
Unquantifiable costs incurred when a company changes processes to save money. These costs can be associated with a company's reputation.
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Tangible Cost of Quality
Measurable costs that occur when a company changes either production or sales processes in order to save money. Increased amounts of waste due to poor materials are an example.
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Rework
Products that are defective, but that can be fixed and then shipped and sold normally.
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Spoilage
These products are defective. They may be a normal part of production or caused by material or operator errors. An example would be a cake that a baker accidentally dropped.
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Scrap
Material left over from the process of production. If you make a bunch of cakes and have a bit of icing left over, it would be an example of scrap.
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19 cards in set

Flashcard Content Overview

Access this set of flashcards to review the following types of cost:

  • Short-run
  • Long-run
  • Sunk
  • Relevant
  • Differential

You can also focus on the differences between scrap, spoilage and rework costs. Both the product and cost curves are covered by this set of flashcards. You'll find cards that address the costs of outsourcing and the cost of quality. Furthermore, these cards go over the flow of costs and economies of scale.

Front
Back
Scrap
Material left over from the process of production. If you make a bunch of cakes and have a bit of icing left over, it would be an example of scrap.
Spoilage
These products are defective. They may be a normal part of production or caused by material or operator errors. An example would be a cake that a baker accidentally dropped.
Rework
Products that are defective, but that can be fixed and then shipped and sold normally.
Tangible Cost of Quality
Measurable costs that occur when a company changes either production or sales processes in order to save money. Increased amounts of waste due to poor materials are an example.
Intangible Cost of Quality
Unquantifiable costs incurred when a company changes processes to save money. These costs can be associated with a company's reputation.
Differential Cost
The costs associated with every factor that influences a company's choice between two potential options.
Economies of Scale
This occurs in situations where buying a large enough amount of a product actually ends up reducing the unit price for each individual product.
Outsourcing
Businesses utilize this process when they hire someone from the outside of their company to carry out business tasks. Companies may decide to do this due to profit, demand or weakness.
Flow of Costs
In the production of a product, it is the movement of cost through different accounts.
Flow of Costs: Order of the Flow

Raw materials

Work-in-process

Finished goods

Cost of goods sold

Relevant Costs
This type of cost is tied directly to the completion of a specific action. It includes two categories: fixed and variable costs.
Relevant Costs: Fixed
Costs not tied to the number of products produced. Business shouldn't accept contracts that don't cover these operating expenses. These costs should be smaller with small batch orders.
Outsourcing: Considerations
Before going through with this process, businesses must consider the costs, effects on morale and possible issues with sending parts of your business to a different location.
Product Curve
This curve represents the connection between the number of goods produced and additional inputs like capital and labor. It faces in the opposite direction of a cost curve.
Cost Curve
Businesses look at this curve to see the connection between production and the cost associated with additional inputs. It curves up while a product curve looks like an upside-down bowl.
Eliminating a Product: Fixed Costs
These costs aren't tied to the number of products created, but can still be affected if a business stops producing a certain good. A salaried worker losing a job would change these costs.
Sunk Cost
Costs that have already been incurred and cannot be recovered. Purchasing a car is an example of this type of cost.
Short-Run Costs
The costs that a business has to pay to produce the goods needed to fulfill its current obligations (known as short-run production). These include both fixed and variable costs.
Long-Run Costs
The costs associated with running a business over a long period of time and finding new work contracts. This only looks at a business's variable costs.

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