cost terms and classifications

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managerial accounting chapter 2 chapter two cost terms and classifications 1-1 1 what is a cost? asset : is a resource that is expected to provide future economic benefits (not used up) thus cost is asset if its incurred for future benefit. expense: a resource that is not expected to provide future economic benefits (used up) thus cost incurred for the past benefit is expense. 2 is a sacrificed resource can be an asset or an expense depending upon whether the cost has future economic benefits or not 2 cost terminology cost object any product, project, customer, department, activity or service for which a company wants to determine its cost cost driver an activity that causes a cost to change actual cost – a cost that has occurred budgeted cost – a predicted /planned cost 3 3 cost terminology cost accumulation/cost pool – a collection of cost data in an …

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based on the following: relationship of the cost to the product. the department where the cost is incurred. relationship of the cost to the production process. the period to which the cost is charged to income. relationship of the cost to volume of production. the ability to be traced relationship of cost to planning, controlling, and decision making. 6 1. based on relationship of the cost to the product based on the relation ship of costs to the product, costs can be classified as: direct material costs , direct labor costs , and overhead costs. 7 direct materials cost: direct materials : are material that become an integral part of finished products. they are physically traced to the product example: the direct materials for a baker include flour, eggs, yeast, sugar, oil, and water direct material for furniture is timber , steel direct material costs are all the costs of …

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ry overhead costs factory equipment depreciation factory insurance oil, lubricants, blades timekeepers factory rent and utilities factory property taxes janitor labor production supervisor packaging materials factory clerical workers small tools overtime premiums of direct workers factory repairs and maintenance 2. based on department where cost is incurred in manufacturing businesses departments can be classified into manufacturing (or producing) and non-manufacturing (or service) departments producing department/manufacturing cost costs: production department is where conversion and production process takes place costs incurred in this department are called manufacturing cost they also are dmc, dlc and fohc service department/non manufacturing costs: service departments are those that provide support service to manufacturing department they are administrative and marketing departments costs incurred in these departments are non-manufacturing or service department costs. treated as operating expense when incurred. 12 3.based on relationship of the cost to the production process based on the relationship of the costs to …

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to which the cost is charged to income costs may also be classified on the basis of the time or accounting period they are deducted from revenue. some costs are first recorded as assets and then expensed as they are used or expired. other costs are immediately expensed in the year of incurrence. product costs and periodic costs are the two categories according to this classification. inventorable cost /product costs: are dmc , dlc and fohc. these costs provide no benefit until the product is sold product costs are added to units of product (i.e., "inventoried") as they are incurred and are not treated as expenses until the units are sold. periodic costs: are non manufacturing cost. they are expensed (charged against revenue) immediately and are therefore non- inventoriable. all selling and administrative costs are typically considered to be periodic costs. 15 5. behavioral classification taking the response of a …

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as direct and indirect based on management ability to trace it to specific jobs, departments and units direct costs: these are costs that could be traced to specific units in a cost-effective manner. example: direct material and direct labor costs indirect costs: are costs that are common to many cost objects are not directly traceable to any specific item (cost object). these costs are usually charged to product (cost objects) through allocation techniques. example: foh costs are indirect costs. 18 indirect cost for example, it is impossible to trace the factory managers’ salary in a multi-product plant to any particular product made in the plant. even if a product were dropped entirely, we would ordinarily expect the factory manager’s salary to remain the same. this is an example of a "common cost". on the other hand, other costs are treated as indirect costs because it would not be practical to …

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managerial accounting chapter 2 chapter two cost terms and classifications 1-1 1 what is a cost? asset : is a resource that is expected to provide future economic benefits (not used up) thus cost is asset if its incurred for future benefit. expense: a resource that is not expected to provide future economic benefits (used up) thus cost incurred for the past benefit is expense. 2 is a sacrificed resource can be an asset or an expense depending upon whether the cost has future economic benefits or not 2 cost terminology cost object any product, project, customer, department, activity or service for which a company wants to determine its cost cost driver an activity that causes a cost to change …

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