ACTG 2020 Chapter Notes - Chapter 2: Fixed Cost, Management Accounting, Opportunity Cost
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Chapter 2 Notes: ACTG2020
One of the most important tasks of managerial accounng is to determine the cost of products,
services, customers, and other items of interest to managers.
A cost is the (monetary) sacrice made to achieve a parcular purpose (develop a product / a
An expense is the cost incurred when an asset is used up or sold to generate revenue. (An
investment) Past event
Revenue per unit is called price
Cost and price are NOT the same; revenue and price ARE the same
oPrice must be > Cost for the rm to earn income
Income statement: Revenues – Expenses = Prot
Accumulang Costs: way that costs are measure and recorded
Assigning Costs: wat that a cost is linked to some cost object
Cost Object: any item such as a product, service, customer, department, project, geographic
region, plant, and so on, for which costs are measured and assigned
Opportunity Cost: a benet given up or sacriced when one alternave is chosen over another)
Types of costs:
A direct cost is one that can be easily traced to a cost object (Eg.the salary of a worker making
An indirect cost is a cost that cannot be easily traced to a cost object (CEO’s salary).
Allocaon means that an indirect cost is assigned to a cost object by using a reasonable and
convenient method. Since no clearly observable causal relaonship exists, allocang indirect
costs is based on observaons and/or assumed causal linkages.
None-value-added-system (These are the costs of acvies that can be eliminated with no
deterioraon of product quality, performance, or perceived value)
A cost management system traces costs to objects that caused them, so that managers can
isolate responsibility for spending and objecvely evaluate operaons.
Total Variable Costs move in direct proporon to a change in acvity.
oFor example, the total cost of raw material for soaps goes up in proporon to the
number of soaps produced.
Total Fixed Costs remain constant in total as the level of acvity changes.
oFor instance, property taxes for the manufacturing facilies remains the same whether
100 soaps or 1,000 soaps are produced.
oAssociated with the manufacturing of goods or the provision of services
Non producon costs
oAll other costs
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