1. Cost Objects, Classification And Behaviour Flashcards
Why do accountants need to know the cost for certain products?
- Value inventory for reporting purposes
- Plan and control activities in the organization
- Make decisions that will increase organizations profitability
What is the first step in determining cost?
Identify the cost object
What is a cost object?
Any activity, unit or phenomenon where costs can be accumulated to and measured
What could a unit or activity consist of?
Any product unit, batch unit, job order, contract or project. Could also be geographical region or customer
What is the cost object usually in a manufacturing process?
The product
What is a cost classified as when it is assigned?
Either:
- Direct cost
- Indirect cost
Can a direct cost be easily trace to cost object?
Yes
What is it called when you assign a cost to cost object?
Cost tracing
Can indirect costs be traced easily to cost object?
No
What is an example of an indirect cost?
Depreciation of the machine that produces products
What do indirect costs include?
Low-level costs such as screws and nails where it would be more expensive to trace
What is it called when a sign indirect to a cost object?
Cost allocation
What are some examples of indirect costs?
Rent for factory building
Wages for cleaning staff
What are the classifications of costs according to their origins?
- Manufacturing costs
2. Non-manufacturing costs
What are other names for manufacturing costs?
Production and factory costs
