Chapter 2 Reading Flashcards
cost = ?
resource sacrificed or foregone to achieve a specific objective
cost object = ?
anything for which a separate measurement of costs is desired
(e.g., a bicycle (product), flight (service), showcase (programme))
2 stages of the costing system?
- accumulates costs & categorises them
- assigns the costs to cost objects
cost accumulation = ?
the collection of cost data in some organised way through an accounting system
cost assignment = ?
general term that encompasses both tracing and allocation of 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
many accounting systems accumulate what type of costs?
actual costs
actual costs = ?
amount paid to acquire an asset
distinguished = ?
recognised
direct costs of a cost object = ?
costs that are related to a cost object and can be traced to it
indirect costs of a cost object = ?
costs that are related to a cost object but cannot be traced to it
how are indirect costs connected to to cost objects?
through the cost-allocation method
direct/indirect costs of manufacturing a tennis racket?
direct cost - racket materials
indirect cost - electricity for factory
on which basis do managers prefer to make decisions regarding costs?
on the basis of direct costs as they’re more accurate
how does cost assignment work?
direct costs are assigned to a cost object via cost tracing
indirect costs are assigned to a cost object via cost allocation
cost tracing = ?
the assignment of direct costs to the chosen cost object
cost allocation = ?
the assignment of indirect costs to the chosen cost object
what does cost assignment encompass?
encompasses cost tracing & cost allocation
three factors affecting the classification of a cost as direct or indirect?
materiality
information-gathering technology available
design of operations
the higher the cost in question…
the easier it is to trace it to a cost object
what impact has barcodes had on traceability?
barcodes made costs to become increasingly traceable
subsequently converting them into direct costs
cost driver = ?
any factor that affects total costs
cost management = ?
the set of actions taken by managers to satisfy customers whilst controlling costs
variable costs = ?
cost that changes in proportion to changes in a cost driver
fixed costs = ?
costs that remain constant despite changes in a cost driver
two types of cost behaviour patterns?
- variable costs
- fixed costs
relevant range = ?
the range of the cost driver in which a specific relationship between cost and driver is valid
unit cost = ?
average cost
computed by dividing total cost by the number of units
is it better to think in terms of total costs or unit costs?
total costs because unit costs are averages
service-sector companies = ?
provide services/intangible products to their customers
they have no physical stock
e.g., law firms, accounting firms
most significant cost category is labour costs often 70% of total costs
merchandising-sector companies = ?
provide tangible products they have previously purchased from suppliers
includes companies involved in retailing (e.g., book/clothing stores)
manufacturing-sector companies = ?
provide tangible products that have been converted from raw materials to a finished product
stock can include raw materials, work in progress, finished products
three terms used when describing manufacturing costs?
direct materials costs
direct manufacturing labour costs
indirect manufacturing costs
direct materials costs = ?
the acquisition costs of all materials that eventually become part of the cost object & can be traced
direct manufacturing labour costs = ?
costs of compensation to all manufacturing labour that can be traced to the cost object
indirect manufacturing costs = ?
manufacturing costs related to the cost object but can’t be traced to the cost object
capitalised costs = ?
costs that are recorded as an asset (capitalised) on the B/S rather than an expense on the P/L when incurred
revenue costs = ?
costs recorded as expenses in the P/L in the period in which they’re incurred
operating costs = ?
costs involved in generating revenues other than COGS
stock-related costs = ?
costs related to stock (raw materials, work in progress, finished goods)
AKA inventoriable costs
period costs = ?
costs not classed as inventoriable & therefore expensed during the accounting period
all costs in the P/L other than COGS
prime costs = ?
all direct manufacturing costs
conversion costs = ?
all manufacturing costs other than direct material costs
costs incurred to convert raw/direct materials into finished goods
COGS for manufacturing companies = ?
opening stock + cost of stock manufactured - closing stock
cost of goods manufactured = ?
cost of goods brought to completion
product cost = ?
the sum of the costs assigned to a product for a specific purpose
three purposes for product costing = ?
- product pricing & product emphasis
- contracting with government agencies
- financial statements
elements that make up a product cost?
- r&d
- design
- production
- marketing
- distribution
- customer service
assignment to a cost object classifications = ?
direct costs
indirect costs
behaviour pattern in relation to changes in the level of a cost driver classifications = ?
variable costs
fixed costs
aggregate or average cost classifications = ?
total costs
average costs
assets or expenses costs classes = ?
inventoriable/product costs
period costs
