Lecture 2 - 28 July 2008 - 6 slides per page

Lecture 2 - 28 July 2008 - 6 slides per page - Topic 2 1....

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
1 1 Topic 2 Introduction to Cost Terms and Purposes 2 Overview of Topic 2 discussion 1. Costing, cost object, cost drivers 2. Manufacturing cost classifications i. Direct and indirect costs ii. Fixed, variable and mixed costs iii. Product and period costs iv. Summary of cost classifications 3. Types of costing systems 4. Imbedding of cost and management accounting concepts in a financial accounting framework developed in previous accounting courses (e.g. ACCT1101) 3 Manufacturing cost terms and concepts { There are certain assumptions, definitions, concepts that are essential to your understanding of cost and management accounting. { They are relatively straightforward, but are extremely important, and you need to understand them before proceeding with the remainder of the course. 4 1. Costing, the cost object, cost drivers { There are different cost concepts and terms often used in accounting reports. { It would be useful to begin Topic 2, by considering the terms you will frequently encounter throughout the semester. { Managers who appreciate these concepts and terms are able to: (i) (i) best use the information provided; and (ii) (ii) avoid misinterpret and misuse of that information. 5 Costing, the cost object, cost drivers { “Cost” is a resource sacrificed or forgone to achieve a specific objective usually a monetary amount. { Costing ”means assigning a dollar value , representing what it costs the firm to produce something. { An actual cost is the amount that was paid (historical cost) as distinguished from a budgeted cost . { An opportunity cost is the value of what is given up when one alternative is chosen instead of another. 6 Cost terms { The item that the firm is costing is called the “ cost object ” or “cost objective”. It may be a whole process, a department, a product or a job. { For most of ACCT2102, the cost object considered will be a product (or a job). { There are 3 elements of product cost: z Materials (Direct Materials = DM) z Labour (Direct Labour = DL) z Manufacturing / Factory Overhead (O/H) (Indirect Materials, Indirect Labour, Other O/H)
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 7 More cost terms { The process of “cost accumulation” and “cost assignment” requires a distinction be made between Direct Costs and Indirect Costs . { Cost Assignment refers to tracing accumulated costs to a cost object, OR allocating accumulated costs to a cost object. z Cost Tracing : When costs are directly assigned to a cost object (Direct Cost). z Cost Allocation : When costs are shared across a number of cost objects (Indirect Cost). { Cost Driver: The factor which causes total cost to change over a range of activity and time period ( Cost Behavior–Topic 3) 8 Cost Terms A Roadmap of Terms – Cost Accounting (a specific case) Total Costs Manufacturing Product Costs/ Inventoriable Costs Non-Manufacturing Period Costs / Expensed Materials Materials Labour Labour Overhead Overhead Commercial,Distribution and Administration Prime Costs Conversion Costs (Direct vs Indirect) (Fixed vs Variable) (Fixed vs Variable) 9 i. Manufacturing costs defined What are manufacturing costs?
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 9

Lecture 2 - 28 July 2008 - 6 slides per page - Topic 2 1....

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online