Chapter 2 Flashcards
cost
resource sacrificed or forgone to achieve a specific objective
actual cost
the incurred costs (historical costs)
budgeted costs
predicted or forecasted
cost object
anything for which a separate measurement tof costs is desired.
cost accumulation
collection of cost data in some organized way through an accounting system
cost assignment
general term that encompasses both tracing accumulated costs to a cost object and allocating accumulated costs to a cost object
costs that are traced to a cost object are..
direct costs
costs that are allocated to a cost object are
indirect costs
direct costs of a cost object are
costs that are related to the particular cost object and that can be traced to it in an economically feasible (cost-effective) way.
indirect costs of a cost object are
costs that are related to the particular cost object but cannot be traced to it in an economically feasible way
cost tracing
the assigning of direct costs to the chosen cost object
cost allocation
assigning of indirect cost to the chosen cost object
cost assignment
encompasses bot cost tracing and cost allocation
draw the table of cost assignment
cost tracing
—– direct cost —————> cost object
cost assignment
—– indirect cost ————> cost object
cost allocation
Several factors influence whether a cost is classified as direct or indirect:
- size of the cost: high cost are worth tracking
- Available technology: barcodes
- Designs of the operations
can a product be indirect and direct at the same time
yes, depends on what a company is measuring
Cost reduction efforts frequently identify two key areas
- focus on value-added activities
- efficiently managing the use of the cost drivers in those value-added activities
cost driver (= cost generator.cost determinant)
any factor that affects total costs
cost management
Set of actions that managers take to satisfy customers while continuously reducing and controlling costs.
Variable costs and fixed costs have some important assumptions:
1 Costs are labeled as V/F depending on what they are being assigned to (the cost object).
2. The time period must be clear.
3. The total costs change lineair.
4. There’s only one main factor (cost driver) causing the costs to change.
5. Other factors are either ignored or thought to have a small effect.
6. The changes in the cost driver happen within a specific range (relevant range).
Relevant range
range of the cost driver in which a specific rela between cost and the level of activity or volume is valid
Service-sector companies
provide services/tangible products to their customers (law firms, accounting firms, advertising agencies and television stations).
Merchandising-sector companies
provide tangible products they have previously purchased in the same basic form from suppliers (retailing, distributing, wholesaling)
manufacturing-sector companies
provide tangible products that have been converted to a different form that of the products purchased from suppliers. (computer, food processing and textile companies).
direct material costs (part of the manufacturing costs)
the acquisition costs of all materials that eventually become part of the cost object and that can be traced to the cost object in an economically feasible way.
direct manufacturing labour costs(part of the manufacturing costs)
the compensation of all manufacturing labour that is specifically identified with the cost object, and that can be traced to the cost object in an economically feasible way
indirect manufacturing costs (part of the manufacturing costs) = manufacturing overhead costs/factory overhead costs
all manufacturing costs considered to be part of the cost object, but that cannot be individually traced to that cost object in an economically feasible way
Capitalized cost
Recorded as an asset when they incurred because they are presumed to the provide future benefits to the company in all three sectors of the economy.
Revenue costs
recorded as expenses of the accounting period when they are incurred.
operating costs
all costs associated with generating revenues other than costs of goods sold
stock-related costs (inventoriable costs)
costs associated with the purchase of goods for resale or costs associated with the acquisition and conversion of materials and all other manufacturing inputs into goods for sale
period cost
all costs in the income statement other than cost of goods sold
absorbing costing
the method in which all manufacturing costs are inventoriable
prime costs
all direct manufacturing costs
conversion costs
all manufacturing costs other than direct material costs
product cost
is the sum of the costs assigned to. product for a specific purpose
three purposes of product costs:
- product pricing and product emphasise
- contracting with a government agencies
- financial statements
classification of costs
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