Session 02

Session 02 - Session 2 Cost Concepts Some Basic Cost...

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Cost Concepts Session 2
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Some Basic Cost Terminology Cost – resource(s) sacrificed to achieve a specific objective Cost Object – anything of interest for which a measure of cost is desired Actual vs Opportunity Costs An actual cost is the amount of resources actually used to achieve a goal e.g. wages paid to employees to produce a unit of product An opportunity cost (benefit) is a benefit foregone (a cost avoided) by taking one action rather than another. That is, the opportunity cost of doing one thing is not being able to do another. e.g. the opportunity cost of going to university is the income that could have been earned during those years
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: A cost that can be traced directly and completely to a specific cost object, in a cost-effective way. A direct cost is traced to a cost object e.g. raw materials costs are direct costs that can be traced to a unit of product Indirect Cost : A cost that cannot be traced directly and completely to a specific cost object. (Indirect costs are also referred to as Overhead costs.) An indirect cost is allocated to a cost object e.g. wages paid to a production supervisor are indirect costs. They cannot be traced to a specific unit of output and, therefore, they must be allocated to that output. Classification of Costs by Their Traceability to a Cost Object
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This note was uploaded on 04/19/2008 for the course ACCT 102 taught by Professor Defoe during the Spring '08 term at UPenn.

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Session 02 - Session 2 Cost Concepts Some Basic Cost...

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