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Chapter 2

Chapter 2

Course Code
ACC 410
Maurizio Di Maio

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OpRelevance, 2 Behaviour, 3 Traceability, 4 Function, 5 Controllability
 the revenues and costs that differentiate between two alternatives that
will occur in the future
 No difference to either alterative, no bearing on decision
c Expenditures made in the past, irrelevant cost because the cost has already been incurred
and cannot now be avoided
c Behaves such that the total cost will not change within a certain range of activity
c Varies in proportion to the production level
c Thing or activity for which we measure costs Includes such things as individual products,
product lines, projects, customers, department, and even entire company
 Cost that can be directly traced to a cost object (easily traced to individual cost)
cIncurred for the benefit of more than one cost object (not easily traced to individual cost)
 Direct materials and direct labour
cc Direct labour and manufacturing overhead
 Span of activity for a given cost object, where total fixed costs remain constant and
variable per unit of activity remain constant
c The incremental cost of an activity, such as producing a unit of goods or services Often
relevant for decision-making
!"c Benefits we forgo when we choose one alternative over the next best alternative
c Variation in the costs relative to the variation in an organization͛s activities
c# Algebraic representation of the total cost object over a relevant range of activity
$# Slope of a variable cost function changes at some point but remains
linear after the change
$# Fixed cost function changes at some point but remains constant after the
c: input or activity that causes changes in total cost for a cost object
"c Reflect periodic (usually annual) decision about the maximum amount that will be
spent on costs for activities such as advertising, research and etc
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