ACCT 2102 - Basic Concepts of Managerial Accounting_ Part 2.pdf

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Basic Concepts of Managerial Accounting: Part 2 Cost Classification: Direct v. Indirect Direct costs — can be traced to a particular department, work center, or area of the business Rule of thumb : these costs will “disappear” if the cost objective disappears Indirect costs — cannot be traced to a particular department or unit of the business These costs are associated with cost objectives only through allocation This classification scheme is important for decisions such as: Controlling costs/responsibility accounting at the unit level Add, drop, or continue a product or service Sell or process further Example: Cost Classification Following are some costs incurred by the AmeriBell Company, a cellular telephone manufacturer For each cost, determine if the cost would be considered a direct or indirect cost at the manufacturing plant level President’s salary Cost of telephone keypads Wages of assembly line workers Cost of utilities in the manufacturing plant

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