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Unformatted text preview: f land, labor, and
capital, will have a much more difficult time determining the cost for each unit sold. For example, the cost accounting process for Lawncare, Inc. would become somewhat more complex if senior management wished to distinguish
between its hourly cost for lawn mowing and its hourly cost for other gardening services.
This more complex process requires management to make several decisions to determine the cost of each activity. The decisions include (1) defining a cost object, (2) determining cost centers, (3) distinguishing between direct
and indirect costs (sometimes called traceable and non-traceable costs), (4) choosing bases to allocate overhead
costs, (5) selecting an allocation method, and (6) attaching costs to cost objects. Taken together these six decisions
constitute the cost accounting methodology.
Decision #1. Defining the Cost Object
The cost object is the unit of good or service for which we wish to know the cost. Generally, as the cost object
becomes more specific, the methodology necessary to account for...
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- Spring '14