Chapter 2 - An Introduction to Cost Terms and Purposes

Chapter 2 - An Introduction to Cost Terms and Purposes -...

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Chapter 2: An Introduction to Cost Terms and Purposes I. Cost and Cost Terminology a. Cost: i. Resource sacrificed or forgone to achieve a specific objective 1. Actual cost: a. Cost incurred 2. Budgeted cost: a. Predicted or forecasted cost b. Cost Object: i. Anything for which a measurement of costs is desired c. Cost Accumulation: i. Collection of cost data in some organized way by means of an accounting system II. Direct Costs and Indirect Costs a. Direct Costs of a Cost Object: i. Related to the particular cost object and can be traced to it in an economically feasible (cost-effective) way 1. Cost Tracing: a. Assignment of direct costs to a particular cost object b. Indirect Costs of a Cost Object: i. Related to the cost object but cannot be traced to it in an economically feasible way 1. Cost Allocation: a. Assignment of indirect costs to a particular cost object 2. Cost Assignment: a. General term that encompasses both:
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i. Tracing and allocating costs to a particular cost object c. Factors Affecting Direct/Indirect Cost Classifications: i. The materiality of the cost in question ii. Available information-gathering technology 1. Improvements make it possible to consider more and more costs as direct costs iii. Design of operations 1. Classifying a cost as direct is easier if a company’s facility is used exclusively for a specific cost object III. Cost-Behavior Patterns: Variable Costs and Fixed Costs
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Chapter 2 - An Introduction to Cost Terms and Purposes -...

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