Chapter_5 - Cost Accumulation and Allocation Introduction...

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Cost Accumulation and Allocation
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Introduction Did costs increase or decrease from last year? Who is responsible? Were actual costs consistent with expected costs? Is our selling price sufficient to cover costs and provide for adequate profitability? Who should be rewarded? How can improvement be accomplished? What is our cost of goods sold? What is our inventory cost?
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Cost Allocation Cost Allocation Cost Object Indirect costs Cost allocation is the process of assigning indirect costs to cost objects. Direct costs Cost Object
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Direct and Indirect Costs Some costs are easily allocated, since they are directly associated with their cost object. We call these costs direct costs . Other costs are not as closely tied to their cost object, so cost allocation becomes more difficult. We call these costs indirect costs .
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Examples of Different Types of Costs Direct Indirect Fixed Variable
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Estimated Versus Actual Cost Estimated Costs Managers use estimated costs to make decisions about the future. Actual Costs Knowledge of actual costs, after the fact, may not be useful for planning and decision making.
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Estimated Versus Actual Cost Potential Inaccuracies Timely Estimated Costs Managers use estimated costs to make decisions about the future. Relevant
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Why are Costs Allocated? To predict the economic effects of planning and control To obtain desired motivation To compute income and asset valuation To calculate product costs
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Using Cost Drivers to Accumulate Costs Accumulated Minutes Rate per Cost Talked Minute Minutes Talked Total Long Distance Telephone Bill = × Minutes talked is the cost driver.
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Machine Hours Labor Hours Units Produced Miles Driven The factor that causes or “drives,” an activity’s cost Cost Drivers: Output measures of resources/activities
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This note was uploaded on 04/22/2008 for the course ACC 301 taught by Professor Bruns during the Fall '08 term at Northeastern.

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Chapter_5 - Cost Accumulation and Allocation Introduction...

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