ACT202 Chapter Notes - Chapter 2: Cost Driver, Fixed Cost, Management Accounting
ACT 202 Management Accounting
introduction to costs terms
Costs and cost terminology
• Cost – a sacrificed resource to achieve a specific objective.
• Actual cost – a cost that has occurred.
• Budgeted cost – a predicted cost.
• Cost object – anything of interest for which a cost is desired.
• Cost accumulation – a collection of cost data presented in some organised manner.
Direct costs and indirect costs
• Direct costs can be conveniently and economically traced (tracked) to a cost object.
• Indirect costs cannot be conveniently or economically traced (tracked) to a cost object.
Instead of being traced, these costs are allocated to a cost object in a rational and systematic
manner.
Direct costs and indirect costs
• Cost allocation is the assignment of indirect costs to a particular cost object.
• Cost assignment is a general term used when gathering accumulated costs to a cost object.
This includes:
– tracing accumulated costs with a direct relationship to the cost object, and
– allocating accumulated costs with an indirect relationship to a cost object.
Direct costs:
• parts
• assembly line wages.
Indirect costs:
• electricity
• rent
• property taxes.
Factors affecting direct/indirect cost classifications:
• cost materiality
• availability of information-gathering technology
• operational design.
Cost behaviour patterns: variable costs and fixed costs
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Document Summary
Act 202 management accounting introduction to costs terms. Direct costs and indirect costs: direct costs can be conveniently and economically traced (tracked) to a cost object, indirect costs cannot be conveniently or economically traced (tracked) to a cost object. Instead of being traced, these costs are allocated to a cost object in a rational and systematic manner. Direct costs and indirect costs: cost allocation is the assignment of indirect costs to a particular cost object, cost assignment is a general term used when gathering accumulated costs to a cost object. Tracing accumulated costs with a direct relationship to the cost object, and. Allocating accumulated costs with an indirect relationship to a cost object. Factors affecting direct/indirect cost classifications: cost materiality, availability of information-gathering technology, operational design. If a product takes 5 kg of materials each, it stays the same per unit regardless of whether 1, 10, or 1000 units are produced: fixed costs change inversely with the level of production.
