ch2 - Chapter 2: An Introduction to Cost Terms and Purposes...

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Unformatted text preview: 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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This note was uploaded on 04/06/2012 for the course ACCT 272 taught by Professor Mensah during the Spring '08 term at Rutgers.

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ch2 - Chapter 2: An Introduction to Cost Terms and Purposes...

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