Chapter 4 Flashcards
Why do managers need reliable cost estimates?
To:
Price products
Evaluate performance
Control operations
Prepare financial statements
What are cost objects?
The things for which we are trying to determine the cost
ie. products, processes, departments, etc.
What is cost accumulation?
Use it to determine the cost of an object
Starts by identifying:
1. Cost objects
2. Cost drivers
What is a cost driver?
Has a cause-and-effect relationship with a cost object
What are estimated costs used for?
Managers use estimated costs to make decisions about the future
Timely and relevant costs
What are direct costs?
Can be traced to cost objects in a cost-effective manner
What are indirect costs?
Cannot be traced to cost objects in a cost-effective manner
AKA overhead costs
What are common costs?
Support multiple cost objects but cannot be directly traced to an object
What are controllable costs?
Costs that can be influenced by a manager’s decisions and actions
What is cost allocation?
Common costs and controllable costs
Involves dividing a total cost into parts and assigning parts to designated cost objects
How do you calculate the rental/utility costs to objects?
Compute the allocation rate
Multiply the allocation rate by the weight of the cost driver to determine the allocation per cost object
How do you determine the cost to be allocated using cost pools?
Companies frequently accumulate many individual costs into a single cost pool
Pooling should be limited to costs with common cost drivers
What are the cost drivers for variable overhead costs?
Units produced, labour hours, direct materials
What are joint costs?
Common costs incurred in the process of making 2 or more joint products
