ACTG 2020 Chapter Notes - Chapter 2: Customer Service, Integral, Fixed Cost

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23 Feb 2017
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You can assign costs in many different ways, but the goal is to assign costs as accurately as possible, given management priorities. Costs that can be easily and accurately traced to a cost object. The relationship between the cost and the object can be physically observed. Costs that cannot be easily and accurately traced to a cost object. The relationship between the cost and the object cannot be easily observed. Assigned through allocation (indirect cost is assigned to a cost object using a reasonable method) For example, suppose that utility cost (electricity bill for lighting) is to be assigned to 5 products. It may be difficult to see any direct relationship between utility costs and each unit of product manufactured. Therefore, a more convenient way to allocate this cost may be to assign it in proportion to the direct labour hours used by each product. Allocating indirect cost is important for a variety of reasons.

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