Managerial Accounting For Dummies

Chapter 3

Classifying Costs

In This Chapter

Knowing the difference between direct and indirect costs

Separating product costs and period costs

Identifying conversion costs, incremental costs, opportunity costs, and sunk costs

How much is that doggie in the window? Well, the list price of $99 includes the dog itself and a “free” collar, but it doesn’t include sales tax ($8), dog tag fee ($45), and the pet store’s mandatory veterinarian examination fee ($149).

Lest you think you can get a dog for so little money, consider how much that doggie in the window really costs. You’ll need to pay for food for the rest of its life, plus treats and bones. Visits to the vet, including shots. Local license. Grooming. A dog bed (after all, the doggie needs a place to sleep). A travel container (nice name for cage). Carpet cleaning.

Wait! There’s more. Because of your dog, you need to move to a more expensive apartment building — one that allows pets. Don’t forget the cost of dog sitting.

Just as Fido presents you with a variety of expenses, many different types of manufacturing costs hit companies: direct materials, direct labor, overhead, and even nonmanufacturing costs. And those costs can ...