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Chapter 2

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Department
Accounting
Course
ACC 406
Professor
All Accounting410
Semester
Winter

Description
C HAPTER 2 – BASICM ANAGERIAL A CCOUNTING C ONCEPTS The Meaning and Uses of Costs Pg. 30 Costs is the amount of cash sacrificed for goods / services that are expected to bring current or future benefit  Expired costs are called expenses  Price > Cost  The PRICE the consumer pays must be greater than the COST it takes the company to produce the good / service Accumulating Cost is the way that costs are measured and recorded  Lets the company know how much they spend on what Assigning Costs is the way that costs are liked to cost object  Cost objects are any item such as a product, customer, department, project, geographic region, plant etc.  Includes both direct + indirect costs that are caused from this cost object, even opportunity costs Tracing Direct Costs Direct Costs are those costs that can be easily and accurately traced to a cost object  The more easily a cost can be traced to the object, the more accurate are the cost assignments Indirect Costs are costs that cannot be easily and accurately traced  Allocation means that an indirect cost is assigned to a cost object using reasonable / convenient method – assumed causal linkage Variable Cost is one that increases in total as output increases / decreases Fixed Cost costs that do not increase/decrease as a result of output  Though land taxes might change, it is not a result of change in output therefore land tax would be a fixed even though it can change Opportunity Cost is the benefit given up or sacrificed when one alternative is chosen over another  If you choose to go out Friday night the opportunity cost would be not being able to study for your exam on Monday  Never shown in accounting, because it is the cost of something that did not occur and accounting is purely based on historically information Product and Service Costs Pg. 35 Product Costs Product Cost = Direct Materials + Direct Labor + Overhead Per-Unit Product Cost = Total Product Cost / Number of Units Produced  Only costs in the production section of the value chain are included in the production cost Direct Material is material that is a part of the final product and can be directly traced to the goods b
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