Ch 3: Cost Classifications

About This Chapter

The short and engaging lessons in this chapter will teach you about cost classifications. You can use the multiple-choice quizzes, located in each lesson, to assess your progress.

Cost Classifications - Chapter Summary and Learning Objectives

Classifying costs is essential to proper accounting. Accounting managers must know the proper ways to categorize costs and the systems associated with these classifications. The purpose of this chapter is to introduce you to these concepts. Through informative text lessons, instructors will teach you about things like cost conversion and how it important to accounting. Check out our quizzes after you've finished each lesson to test your understanding of the material. In this chapter, you will cover information like:

  • What direct and indirect costs are
  • The use of period, product and prime costs in accounting
  • How to convert raw materials into products
  • Ways to identify relevant and irrelevant costs
  • The difference between accounting and financial accounting
  • What cost accounting systems are

Lesson Objective
Direct Cost: Definition, Formula & Examples Examine examples of direct cost and find out how it is calculated.
What Are Indirect Costs? - Definition & Examples Discover how indirect costs can vary in different businesses.
Period Costs in Accounting: Definition & Examples Understand the process of matching expenses to the revenue that they create.
Product Costs in Accounting: Definition & Examples Define product costs in order to differentiate it from period costs.
Prime Cost in Accounting: Definition & Formula Explore what components make up prime cost and how to calculate it.
Conversion Cost in Accounting: Definition & Examples Analyze conversion costs and learn how to convert raw material into product.
Relevant & Irrelevant Costs: Definitions & Examples Identify examples of relevant and irrelevant costs.
Purpose & Components of Cost Accounting Compare and contrast accounting and financial accounting.
Cost Accounting System: Definition & Function Explain the purpose of cost accounting systems and know the difference between the two traditional systems.

8 Lessons in Chapter 3: Cost Classifications
Test your knowledge with a 30-question chapter practice test
Direct Cost: Definition, Formula & Examples

1. Direct Cost: Definition, Formula & Examples

This lesson explains direct costs. Included in the lesson is how they are calculated. You'll also have the chance to examine examples of direct costs.

What Are Indirect Costs? - Definition & Examples

2. What Are Indirect Costs? - Definition & Examples

This lesson explains what indirect costs are and how they affect a business. Examples of indirect costs and how they can vary in different businesses are given.

Period Costs in Accounting: Definition & Examples

3. Period Costs in Accounting: Definition & Examples

In this lesson, we'll discuss the importance of accurately determining period costs. We'll also review accounting principles associated with classifying costs and examine types of period costs.

Prime Cost in Accounting: Definition & Formula

4. Prime Cost in Accounting: Definition & Formula

Prime costs represents the total costs directly involved in manufacturing a product. This lesson breaks down the components of prime costs, its formula, and how it is used.

Conversion Cost in Accounting: Definition & Examples

5. Conversion Cost in Accounting: Definition & Examples

In accounting, conversion costs are important for balance sheets and income statements. And if you cook, you are actually already familiar with these things. In this lesson, we will learn about conversion costs and practice calculating them.

Relevant & Irrelevant Costs: Definitions & Examples

6. Relevant & Irrelevant Costs: Definitions & Examples

In this lesson, we'll look at relevant and irrelevant costs. We'lll define both types of costs and walk through some examples to help better explain the concepts. The lesson will conclude with a summary of important points and a brief quiz.

Purpose & Components of Cost Accounting

7. Purpose & Components of Cost Accounting

This lesson will introduce what cost accounting is and provide a definition. It will introduce cost elements and how costs are classified in cost accounting, then compare and contrast cost accounting to financial accounting.

Cost Accounting System: Definition & Function

8. Cost Accounting System: Definition & Function

This lesson will discuss the two types of cost accounting systems and illustrate how the product costs of manufacturing integrate into the general ledger through sub-accounts.

Chapter Practice Exam
Test your knowledge of this chapter with a 30 question practice chapter exam.
Not Taken
Practice Final Exam
Test your knowledge of the entire course with a 50 question practice final exam.
Not Taken

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Support