W2 - Cost Classification PPTs .pdf - Chapter TWO Costs...

Chapter TWO

Costs terminology
prof. RNDr. Darina Saxunova PhD.

Chapter 2
Basic Cost Terminology

Cost — sacrificed resource to achieve a
specific objective
Material, labour, energy, miscelanious

Actual cost — a cost that has occurred

Budgeted cost — a predicted cost

Cost object — anything of interest for
which a cost is desired

Cost Object Examples at BMW

General cost classifications
◦ Manufacturing costs
 Direct Materials
 Direct Labor
 Manufacturing overhead-Indirect material, Indirect labor, Factory overhead
◦ Non-Manufacturing costs
 Selling costs
 General and Administrative costs
◦ Product vs. Period Costs
 Product Costs – Manufacturing Costs – Inventoriable
 Period Costs – Non – manufacturing Costs
◦ Prime vs. Conversion Costs
 Prime Cost – DM + DL
 Conversion Cost Dl + Mnf FOH

Types of Product Costs
▪ Also known as inventoriable costs
– Direct materials — acquisition costs of all materials
that will become part of the cost object.
– Direct labor — compensation of all manufacturing
labor that can be traced to the cost object.
– Indirect manufacturing — factory costs that are not
traceable to the product in an economically feasible
way. Examples include lubricants, indirect
manufacturing labor, utilities, and supplies.

Cost classifications for assigning
costs to cost objects
Cost object
 Direct costs
 Indirect costs

BMW: Assigning Costs to a Cost
Object

Basic Cost Terminology

Cost accumulation — a collection of cost
data i an organized manner

Cost assignment — a general term that
includes gathering accumulated costs to a
cost object. This includes:
➢
Tracing accumulated costs with a direct
relationship to the cost object and
➢
Allocating accumulated costs with an