Cost Classification and Cost Analysis Flashcards
(17 cards)
Types of Cost
Actual cost - has occurred (historical)
Budgeted cost - predicted/forecasted
Both are important
Cost Accumulation
- Collection of cost data in some organized way
- Cost assignment to an object to make and implement decisions
- Tracks how resources are used to produce & sell products + services
Direct cost
Related to particular cost object
Traceable in cost effective way to object
Cause-and-effect-relationship between resource usage by cost object and cost can
be established
Direct costs provide better and more detailed information for management
Example: Direct material request, labor time record
Indirect cost
Also related to particular cost object
Cannot be traced in cost effective way
NO cause-and-effect-relationship between resource usage by cost object and cost
can be established
Example: salaries of plant administrators, electricity, rent, property taxes
Cost allocation
Assignment of indirect cost to a cost object
Cost assignment
Tracing direct cost to a cost object
Allocating indirect cost to a cost object
Fixed cost degression effect
Fixed cost per unit decreases with higher production volume
Cost driver
Metric/variable (level of activity/volume) that causally affects costs over a given time span.
Relevant range
Band of normal activity-level or volume with specific relationship between level of activity/volume and
costs in question.
Fixed costs may change from one year to another
Jump to another level once a new long-term asset needs to be
bought, for example:
Max. annual usage of 1 truck: 120,000 miles
• Yearly rental costs of each truck: $40,000
• Current usage: 170,000 miles
Jump up to $80,000
Variable costs maybe in relevant ranges too: price discounts for production material.
Unit Cost
Decision makers should think it term of total costs
Job-costing system
Every product is different
Prozess-costing system
Masses of identical similar units
indirect cost allocation in job-costing systems
Budgeted manufacturing overhead costs / budgeted total quantity of cost allocation base = $ per direct manufacturing labor hour
Actual quantity * $ per direct manufacturing labor hour
Indirect costs: Electricity
• Rent/plant lease
• Property taxes
• Supervisor
• security
• Rework labor
• Overtime premium
• Idle time
• Pensions
• Design
• Maintenance
• Delivery
• Administration
Inventoriable cost
In product included, assets, recognised after the product sold
Period Cost
Not included in product, recorded in the income statement, recognised immediately
Example: marketing, distribution, customer service, some R&D
Prime cost
All direct manufacturing costs = Direct material + direct labor.
The greater share of prime costs / total costs the more accuracy in cost allocation to product ->
directly allocated / traced to product
Conversion cost
Manufacturing costs other than direct material costs: indirect labor + manufacturing overhead.
