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MyChapter_02 - CHAPTER 2 BASIC COST MANAGEMENT CONCEPTS...

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CHAPTER 2 BASIC COST MANAGEMENT CONCEPTS QUESTIONS FOR WRITING AND DISCUSSION 1. An accounting information system is a sys- tem consisting of interrelated manual and computer parts, using processes such as collecting, recording, summarizing, analyz- ing, and managing data to provide output in- formation to users. 2. The financial accounting information system is primarily concerned with producing out- puts for external users using well-specified economic events as inputs and processes that meet certain rules. The cost manage- ment system, on the other hand, produces outputs for internal users, and the criteria that govern inputs and processes are dir- ectly related to management objectives. The cost management system, therefore, has more flexibility than the financial system. 3. The three broad objectives of a cost man- agement information system are (1) to cost out products, services, and other cost ob- jects; (2) to provide information for planning and control; and (3) to provide information for decision making. 4. The cost accounting information system is a cost management subsystem designed to assign costs to products, services, and other objects as management needs specify. The operational control information system is a cost management information subsystem designed to provide accurate and timely feedback concerning the performance of managers and others relative to their plan- ning and control of activities. 5. A cost object is any item for which costs are measured and assigned, including such things as products, plants, projects, depart- ments, and activities. 6. An activity is a basic unit of work performed within an organization. Examples include materials handling, inspection, purchasing, billing, and maintenance. 7. Direct costs are costs that can be easily and accurately traced to a cost object. An indir- ect cost is a cost that cannot be easily traced to cost objects. 8. Traceability is the ability to assign a cost dir- ectly to a cost object in an economically feasible way using a causal relationship. 9. Allocation is the assignment of indirect costs to cost objects based on convenience or as- sumed linkages. 10. Driver tracing is the use of drivers to trace costs to cost objects. Often, this means that costs are first traced to activities using re- source drivers and then to cost objects us- ing activity drivers. 11. Tangible products are goods that are made by converting raw materials through the use of labor and capital inputs. 12. A service is a task or activity performed for a customer or an activity performed by a cus- tomer using an organization’s products or fa- cilities. Services differ from tangible products on three important dimensions: in- tangibility, perishability, and inseparability. Intangibility means that buyers of services cannot see, feel, taste, or hear a service be- fore it is bought. Perishability means that services cannot be stored. Inseparability means that producers of services and buy- ers of services must be in direct contact (not true for tangible products).
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