Chapter 2

Brushing Up on Cost Accounting Basics

In This Chapter

arrow Distinguishing between direct and indirect costs

arrow Understanding fixed and variable costs

arrow Comparing the costs incurred in different industries

arrow Defining a cost driver

arrow 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 ...

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