Ch02BUS371 - Cost Accounting Foundations and Evolutions...

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Chapter 2 Cost Terminology and Cost Behaviors Cost Accounting Foundations and Evolutions Kinney, Prather, Raiborn
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Learning Objectives (1 of 2) Explain assumptions about cost behavior and why these assumptions are necessary List the cost classifications and explain why the classifications are useful Describe the conversion process in service and manufacturing companies
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Learning Objectives (2 of 2) List product cost categories and their components Calculate the Cost of Goods Manufactured and explain how it is used in the Income Statement
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Cost Monetary measure of resources given up to attain an objective (such as acquiring a good or delivering a service)
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Insert Exhibit 2-1, is it infographic?
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Cost Categories Association with cost object Cost object is anything for which management wants to collect or accumulate costs Reaction to changes in activity Classification on the financial statements
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Cost Categories Association with cost object Direct - traceable to a cost object Indirect - not conveniently or practically traceable to a cost object treated as overhead allocated
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Cost Categories Association with cost object Reaction to changes in activity Variable Fixed Mixed Step Relevant Range – normal operating range
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Variable Cost Fixed Cost Cost Reaction to Changes in Activity Total $ # of Units $ # of Units Within the relevant range
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Variable Cost Fixed Cost Cost Reaction to Changes in Activity Total Unit $ # of Units $ $ $ # of Units # of Units # of Units Within the relevant range
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Total and Unit Cost Behavior Varies in direct proportion to changes in activity Remains constant throughout the relevant range Remains constant throughout the Varies inversely with changes in activity throughout the relevant range Variable Cost Fixed Total Cost Unit Cost
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Step Cost (Fixed) Cost Reaction to Changes in Activity $ Units Within the relevant range
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Mixed Cost Cost Reaction to Changes in Activity $ Units fixed Within the relevant range variable
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Determining Cost Behavior
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Ch02BUS371 - Cost Accounting Foundations and Evolutions...

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