AFM481 Chapter Notes -Cost Driver, Variable Cost, Fixed Cost
6 Nov 2013
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Five broad categories of cost: relevance, behaviour, traceability, function, controllability. Irrelevant are those that don"t change depending on the decision. Indirect costs are costs incurred for more than one cost object. Fixed cost are costs that won"t change depending on the level of activity. Relevant info for revenues and costs to make decisions. Amounts that differentiate between alternatives that will occur in the future. A sunk cost is irrelevant because it"s always been incurred and can"t be avoided. Variable costs changes in proportion to production level. Example: cost of leasing an airplane is fixed (doesn"t matter on the # of miles traveled) Cost object is some thing or activity used to measure costs (individual products, product lines, projects, etc) Direct cost are costs that can be directly traced to a cost object and incurred for a particular cost object. Manufacturing companies need to know the costs by function (manufacturing or nonmanufacturing costs)
