Brushing Up on Cost Accounting Basics
In This Chapter
Distinguishing between direct and indirect costs
Understanding fixed and variable costs
Comparing the costs incurred in different industries
Defining a cost driver
Recognizing inventoriable costs
This chapter provides the rules of the road for cost accounting. Use these basic terms and ideas to understand more complex topics later in the book. If you read another chapter and start to get lost, head back here and take a look at these concepts again.
Understanding the Big Four Terms
Direct costs, indirect costs, fixed costs, and variable costs are the four most important cost accounting terms . . . and these four terms can be confusing. The following sections outline a process for understanding the differences among these words. If you follow this process, you should be able to keep these important terms straight in your mind.
Comparing direct and indirect costs
Direct costs are costs you can trace (or tie) to your product ...