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Unformatted text preview: 1 ACCT 2102 ACCT 2102 Topic 2: Topic 2: Introduction to Cost Terms and Purposes 1 Reading: Reading: Lecture notes & Horngren et al Chapter 2 Lecture objectives Lecture objectives 1. Costing, cost object, cost drivers 2. 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) 2 IMPORTANT!! IMPORTANT!! You need to know and to understand certain assumptions, definitions and 3 concepts which are essential for cost and management accounting, before proceeding with the remainder of the course. 1. Costing, 1. Costing, cost object and cost object and cost drivers cost drivers y Cost is the sacrifice made, usually measured by the price paid or to be paid, to achieve a specific objective (e.g. to acquire goods or services). y Costing means assigning a dollar value, representing what it costs the firm to produce something. y Actual cost is the amount that was paid (historical cost) as distinguished from a budgeted cost (future cost). y Opportunity cost is the value of what is given up when one alternative is chosen instead of another. 4 Cost terms Cost terms y Cost object (or cost objective) is the item that the firm is costing. It may be a whole process, a department, a product/service or a job. For most of ACCT2102, the cost object considered will be a product (or a job). y Product cost is the sum of the costs assigned to a product for a specific purpose. There are 3 elements of product cost: ¾ Materials (Direct Materials = DM) ¾ Labour (Direct Labour = DL) ¾ Manufacturing / Factory Overhead (O/H) (Indirect Materials, Indirect Labour, Other O/H) 5 More cost terms More cost terms y Cost accumulation is the collection of cost data in some organized way by means of an accounting system. y Cost assignment involves both cost tracing and cost allocation. y Cost tracing is the assignment of accumulated costs that have a direct relationship to a particular cost object (direct cost). y Cost allocation is the assignment of accumulated costs that have an indirect relationship to a cost object (indirect cost). The process of “cost accumulation” and “cost assignment” requires a distinction be made between Direct Costs and Indirect Costs . y Cost Driver is the factor or variable (such as the level of activity or volume) that causes a change of total cost over a range of activity/volume and time period ( Cost Behavior–Topic 3) 6 2 2. Cost classification: manufacturing costs 2. Cost classification: manufacturing costs What are manufacturing costs?...
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This note was uploaded on 04/09/2010 for the course ACC 2101 taught by Professor Morgan during the Spring '10 term at Accreditation Commission for Acupuncture and Oriental Medicine.
- Spring '10