ch2 - Chapter2: ;Costofwhat o...

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Chapter 2: An Introduction to Cost Terms and Purposes Basic cost terminology: Cost –  a resource sacrificed or forgone to achieve a specific objective Cost object  – Anything to which costs attach or are related; “Cost of what?” o Product, service, department, operating activity, etc.  Costing systems account for costs in two basic stages:  1. Cost   accumulation  – the collection of cost data in some organized  manner using the accounting system for a specific cost object o Raw materials, labor, rent, utilities, repairs, insurance, depreciation  2. Cost   assignment  – (a) tracing direct objects, (b) allocating indirect costs  to a cost object  Direct   cost  – can be directly traced to cost object in an economically feasible way  Cost   tracing  – the assignment of  direct costs  to the particular cost object  Indirect   cost  – cannot be traced in an economically feasible way o Cost   pool  – collection of indirect costs assigned to a cost object  Cost   allocation  – the assignment of  indirect costs  to the particular cost object  * Factors that affect classification of a cost: materiality, available-information technology,  design of operations Two basic types of cost-behavior patterns are found in accounting systems: 1. Variable   cost  – changes  in total  in proportion to changes in the related  level of total volume. A variable cost does not change  on a per unit basis  when  the related level of total volume changes.  2. Fixed   cost  – does not change  in total  over a normal range of volume for a  given time span. A fixed cost increases (decreases)  on a per unit basis
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