A cost is a sacrifice or giving up of resources for a

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A cost is a sacrifice or giving up of resources for a particular purpose. Organisation pays (gives up) cash or its equivalent to employees in exchange in exchange for their work. Costs are frequently measured by the monetary units that must be paid for goods and services.
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What is cost object? A cost object (objective) is anything for which a separate measurement of costs is desired. Eg: Change of cost management by Pet Food manufacturer supplied to Wal-mart and PETCO Customers Service Departments Processing orders Product
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Cost Accounting Systems Cost accounting is that part of the cost management system that measures costs for the purposes of management decision making and financial reporting. It is the technique used to determine the cost of a product, service, customer or other cost object. It needs to provide accurate and timely cost information to help managers make decision
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Cost Accounting Systems - Process Collecting costs by some “natural” classification such as materials or labor Cost accumulation Attaching costs to one or more cost objectives such as Activities, Processes, Departments, Products etc Cost allocation /assignment
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Cost Accounting Systems - Process Cost accumulation Cost assignment to cost objects Cabinets Desks Tables Material costs (eg.metals) Finishing Department Activity Activity Activity Activity Cabinets Desks Tables Machining Department Activity Activity Activity Activity 1. Departments 2. Activities 3. Products
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Cost Accounting Systems - Process Sl. No Cost Assignment to Cost Objects Purpose 1. Cost accumulation System collects the costs of all materials 2. Cost Assignments Assign the costs to the department that use the materials and further the specific activities performed in the department. 3. Departments To evaluate performance of manufacturing departments 4. Activities To measure and evaluate the efficiency of various activities 5. Products To obtain costs of various products for valuing inventory, determining income, and judging product profitability
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Cost Accounting Systems “We (Management Accountants) have to understand what the numbers mean, relate the numbers to business activity and recommend alternative courses of action. Finally we have to evaluate alternatives and make decisions to maximize business efficiency” - South Central Bell
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Cost Accounting Systems U.S grocery chain, A&P faced profit difficulties lack of adequate cost information about individual store operations Cost Accounting system did not reflect true profit Distribution costs were shared equally among all the stores in a marketing area without considering the distance from the warehouse Cost Accounting system that provide accurate and useful information is a key success factor for all types of organisations
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Cost Accounting Systems Managers rely on the accuracy of the cost accounting system It is a challenging work in a highly-competitive global markets and complex production process Designing a cost accounting systems that provide accurate and useful information is a key success
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Direct and Indirect Costs Learning Objective 3
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Costs Classification Costs Direct Costs Indirect Costs
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