A Kaleidoscope View of Costs, XanEdu Flashcards
The amount expended for an item is…
Its cost.
How are costs like the pebbles in a kaleidoscope?
Each time we arrange costs in a different pattern (classification scheme) they give us a different insight. Each pattern obscures others and can create the impression that it is the total picture.
Why is the kaleidoscope view of costs important?
Because it is essential for focusing cost management efforts in the right place and on the right variables.
What is the importance of the accountant’s classification system?
It is the lens that arrays costs into different patterns. Unclassified, the cost pebbles simple tell what object was acquired.
Since accountants can array the same costs in many ways…
How a cost is to be used determines what cost classification is relevant.
Different cost classifications reveal what?
They reveal different information about a company’s cost structure.
What is a cost object?
A cost object is ant item whose cost is to be determined. Accountants accumulate and classify costs with respect to different cost objects.
What is the first period in terms of cost classifications?
The first period coincided roughly with the beginning of the industrial revolution through the first half of the 20th century. Cost classifications were dominated by the needs of external financial reporting.
What is the second period in terms of cost classifications?
The second era lasted from the late 1950s to the late 1970s. This period saw the emergence of traditional management accounting cost classifications that were heavily influenced by mass manufacturing systems.
What is the modern era like with cost classifications?
Started in the late 1970s. Saw the advent of modern cost classification systems influenced by the introduction of flexible manufacturing methods and a changed global business environment.
How did cost classifications emerge?
They emerged as an offshoot of external financial reporting in the manufacturing sector.
What was the primary purpose of cost data?
The primary purpose was to record and report the value of inventories and the cost of sales on external financial statements.
During early years, cost data used for preparing external financial statements was also used for what?
Internal reporting to managers.
What is an asset?
An asset is a resource such as land, buildings or machinery that has not been used up in producing goods or services for sale. Also referred to as an inexpired cost.
What is an expense?
An expense is a measure of resources used up in producing goods or services for resale. Sometimes called an expired cost.
What does cost of goods sold relate to?
This cost category relates to the company’s production function and contains the cost of producing the products or services sold during the current period.
What are the three different sub-cost categories within cost of goods sold?
Direct materials
Direct labor
Manufacturing overhead
What are direct materials?
For example, for the Spectacular Woods people the direct materials cost would include the cost of woods that will be made into fancy furnitures.
What is direct labor?
Direct labor is the cost of laborers who directly work to cut, form and finish the Spectacular woods product. In general, if workers TOUCH a product to manufacture it, their wages and benefits are directly traceable to the product of service.
What is manufacturing overhead?
Manufacturing overhead includes all other costs incurred in the production operation. Other names include factory overhead, indirect manufacturing costs and factory burden.
