Ch 2 - Cost Behavior Fixed and Variable

Ch 2 - Cost Behavior Fixed and Variable - Explain the...

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1 Explain the meaning of cost and how costs are assigned to products and services.
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2 Cost Let’s look at an example Amount of cash or cash equivalent sacrificed for goods and/or services Expected to bring a current or future benefit to the organization
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3 A wood furniture manufacturer buys lumber for $10,000. Cost of the lumber is the amount given up…. $10,000 Example
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4 Expenses As costs are used up in the production of revenues, they are said to expire. Expired costs are called EXPENSES
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5 Cost vs. Price Be careful! Cost Price Amount we charge our customers for our products or services What we pay for something
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6 Accumulating Costs Telephone Expense Received Telephone bill + $150 Recorded in Telephone Expense account Bal. $800 $950 $150 Phone Bill
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7 Accumulating Costs Telephone Expense + $150 Bal. $800 $950 This is helpful but managers also need to know which departments used the $950 in Telephone Expense In other words, managers want to know how costs are assigned to cost objects.
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8 Cost Objects Let’s continue with our example Any item for which costs are measured and assigned Examples: Products Customers Departments Regions
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9 Assigning Costs Let’s say the Telephone Expense was incurred by the Sales and the Manufacturing Departments The Sales and Manufacturing departments are the cost objects Sales Dept. Manufacturing Dept.
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Assigning Costs Telephone Expense + $150 Bal. $800 $950 Sales Dept. $350 $600 Manufacturing Dept. The accountant
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Ch 2 - Cost Behavior Fixed and Variable - Explain the...

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