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Cost Accounting: Chapter 2

Autor:   •  September 13, 2018  •  Course Note  •  428 Words (2 Pages)  •  33 Views

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COST ACCOUNTING: Chapter 2

  • 5 categories of cost:
  • relevance (opportunity costs are for the future, so relevant. sunk costs are irrelevant)
  • behavior (fixed costs = stay the same ie. Airplane lease. Variable costs change i.e gasoline price vs. distance)
  • traceability (cost object is a way we measure cost. i.e. time, production level, etc.)
  • function (direct cost= pilot, indirect cost = ground crew) (manufacturing cost- product. Non-manufacturing cost- period.)
  • controllability (direct labour and materials = prime cost, direct labour and manufacturing overhead = conversion cost)
  • relevant range: the span of activity for a given cost object. The fixed and variable both stay constant, but operate at a lager span. Ie. Adding routes to air Canada, need to add gates and employees etc. so now they are operating at a diff range. (can happen where as the range increases, the pricing goes down per unit)
  • marginal costs: are the costs of creating one additional good or service. Variable costs predict marginal costs (within the range) this is an increase in the gross revenue of a place aka they’re making back the money the spent to make that item.
  • What are the different types of cost behavior?
  • Variable costs: changes that change with the activity level
  • Fixed costs: do not change with change in activity such a production, sales, etc. IE. Rent, insurance, don’t change even if you make 5 more bikes. But it doesn’t change if you make 600 more bikes because they need more space, FIXED COSTS usually change in a step-wise manner on a graph. (can also be called constant, or committed)
  • Fixed costs are fixed because they are unavoidable, example is an electric bill.. it is a fixed cost but the cost varies based on usage.
  • Discretionary costs are decisions made for the year (for example) about how much you will spend on advertising, marketing, travel etc. they can be altered.
  • Cost estimation techniques 
  • Engineered estimates of costs: costs are assigned by analyzing time management, labour, production, materials etc.
  • Analysis at account level: reviewing patterns and past cost projections to determine if the cost is a variable or fixed, SALARY is usually fixed and wages are too unless they are not full time then they are variable.
  • Sometimes we cant decide on a cost function so we use a scatter plot to determine the relationship between a cost and its driver.  

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