Ch 3 (Week 1)

Question 1

Cost

Answer 1

the value of something you give up (typically quantifiable in $) to get something you want. Aka incurred when a resource is used for some purpose.

Question 2

Cost Pool

Answer 2

: “Meaningful group” – accounting departments create their own cost pools based on specifics in the company
* Something that accounts determine
* Most commonly, it comes into the conversation when we talk about allocating indirect costs
* When we allocate costs it makes sense for the cost pools to contain costs that share a common cost driver

Question 3

Cost driver

Answer 3

a measure that is not a cost, but has the characteristics of being highly correlated with costs (e.g. in winter, setting the temperature higher on the thermostat and colder temperatures outside cause the furnace to run more and increase cost). There are four types of cost drivers:
1. Activity-based: Developed at a detailed level of operations and are associated with a given manufacturing activity such as machine setup, product inspection, materials handling, or packaging
Are those factors that cause or contribute to the changes in an activity.
2. Volume-based: Developed at an aggregate level and relate to the amount produced or quantity of service provided.
3. Structural: involve strategic and operational decisions that affect the relationship between these costs and the total cost
4. Executional: Same as structural

Question 4

Cost object

Answer 4

Something for which you want to know the cost (e.g. product, service, and customer are common examples; determined by the users needs vs. what a textbook or manual would tell you).

Question 5

Direct Costs

Answer 5

conveniently and economically traced directly to a cost pool or a cost object – a common characteristic is that the cost clearly belongs to one, and only one cost pool or cost object