ACCT1511 Lecture Notes - Lecture 11: Management Accounting, Indirect Costs, Cost Driver
6.1 – Management Accounting (Costing)
Cost – outflow of resources
Cost of object – any activity or item for which a separate measurement of cost is desired
Cost driver – fator hih hanges and auses hange in total ost
Direct costs – directly traceable to given cost object (e.g. product, department) in
economically feasible way
Indirect costs – cannot be traced to given cost object; known as overhead
Cost assignment:
• Direct costs traced to cost object
• Indirect costs allocated to cost object
Cost measurement:
• Determining dollar amounts of direct materials, direct labor and overhead used
• Can be actual or estimate amounts
Product costs – osts attached’ to units produced
• Manufacturing costs – capitalized onto product
Period costs – costs that must be charged against income in period incurred
Unit costs – total cost of units ÷ units produced
Prime costs – direct materials & direct labor (able to be traced)
Conversion costs – direct labor & overhead (shape product – transform into final
product)
Normal costing:
• Actual costs for direct materials & direct labor
• Pre-determined costs (adjusted at YE) for overhead
• Timely – able to obtain selling price earlier (not always as reliable)
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