ACC 928 Lecture Notes - Lecture 2: Cost Estimate, Fixed Cost, Variable Cost

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10 Aug 2016
2AB3 – Accounting
Lecture 2
Cost V.S expense
you go buy a phone and it will last you for 3 years this will be
Expense is what you incurred, and is needed to generate revenue
When inventory is being sold it will be cost and it will convert to cost of good sold.
Building is a cost the conversion for this is amortization expense
A cost is a sacrifice you make to generate revenue in the future
A cost is an asset and it goes in the balance sheet
A cost is the value of economic resources (e.g., money) sacrificed or used up to achieve a
particular objective (e.g., produce a product or perform a service). Following are some
examples of costs that may be incurred by a business organization:
o On Jan. 1, 2007 ABC Co. purchased a machine for $100,000 to be used in
producing a certain product “X”. The cost of acquiring the machine is the amount
paid or to be paid in future so as to acquire the machine for the purpose of using it
in production activities.
o During 2007, ABC consumed 20% of the value of the machine in production. Part of
the cost of producing product “X” is the amount of resources consumed from the
machine during 2007, which is called depreciation $20,000 (100,000 * 20%).
Cost object:
Is anything you want to calculate a cost of object
If you want to find out the cost of pumping a car the cost object will be the car.
The whole university can be a cost object because we would need to know how much is
needed to run the school
Cost Object  A cost object is anything for which a separate measurement of cost is
desired or needed (e.g., cost of a product, a machine, a service, or a process).  Cost
objects can vary in size from an entire company, to a division or program within the
company, or down to a single product or service.
Cost driver(s)
The cost of pumping gas in the car what can be a cost driver for this is how much you are
willing to pay and how much is a litre of gas. The price is irrelevant they charge you how
ever many litre you pump for how much you pump.
Another example is what is the cost driver for rent. And you pay 250dollars for this room
the cost driver for rent is the number of hours you use and the square footage of the
room. Location can be a driver and the quality of the room can also be the driver too
because without drywall or ceiling the rent will be cheaper
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