Post on 21-Dec-2015
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Class Announcement
See SCC for information on accounting recruitment information sessions
Assignment #1 due September 19th
Business Society Golf Tournament (Daily Schwartz on Facebook) Date: Saturday Sept 21st (Colin MacInnis, at x2010qbn) Time: tee off times begin at 12:00pm Location: Antigonish Golf & Country Club (87 Cloverville road) Team size: 4 Fee: $50/team member
Invest-X Initial Meeting on Monday September 16th in SCHW 152
2
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Class Objectives
1. Different costs for different decisions2. Various cost classification approaches3. Match information need with cost
classification approach
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Cost Accounting and Cost Management
1. Calculating the cost of products, services, and other cost objects
2. Obtaining information for planning and control, and performance evaluation
3. Analyzing the relevant information for making decisions
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Basic Cost Terminology
Cost – is a resource sacrificed or forgone to achieve a specific objective
Cost object - a cost object is anything for which a separate measurement of costs is desired; examples include a product, a service, a project, a customer, a brand category, an activity, and a department.
Cost accumulation—a collection of cost data in an organized manner
Cost assignment—a general term that includes gathering accumulated costs to a cost object. This includes: Tracing accumulated costs with a direct relationship to the
cost object and Allocating accumulated costs with an indirect relationship to
a cost object
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Cost Classification
Costs assignment can vary in relationship to many different cost drivers.
Cost Classification is dependent on decision being made
Cost Classifications: 1) Direct and Indirect 2) Variable and Fixed 3) Manufacturing Cost Type 4) Period and Product Costs 5) Controllable and Uncontrollable 6) Other Classifications
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1) Direct and Indirect Costs
Direct costs can be conveniently and economically traced (tracked) to a cost object. See http://www.youtube.com/watch?v=vBA87iakRLI
Indirect costs cannot be conveniently or economically traced (tracked) to a cost object. Instead of being traced, these costs are allocated to a cost object in a rational and systematic manner.
Factors Affecting Direct/Indirect Cost Classification Cost materiality Availability of information-gathering technology Operational design
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2) Fixed and Variable Costs
Variable costs—changes in total in proportion to changes in the related level of activity or volume.
Fixed costs—remain unchanged in total regardless of changes in the related level of activity or volume.
Costs are fixed or variable only with respect to a specific activity or a given time period.
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2) Fixed and Variable Costs
Total Dollars Cost per Unit
Variable Costs
Change in proportion with
outputMore output = More cost
Fixed CostsUnchanged in
relation to output
Change inversely with output
More output = lower cost per unit
Total Dollars Cost Per Unit
Variable CostsChange in
proportion with output
More output = More cost
Unchanged in relation to output
Fixed Costs Unchanged in relation to output
Change inversely with
outputMore output = lower cost
per unit
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2) Fixed and Variable Costs
Unit costs should be used cautiously. Because unit costs change with a different level of output or volume, it may be more prudent to base decisions on a total dollar basis. Unit costs that include fixed costs should
always reference a given level of output or activity.
Unit costs are also called average costs. Managers should think in terms of total
costs rather than unit costs.
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2) Fixed and Variable Costs
Cost driver—a variable that causally affects costs over a given time span
Relevant range—the band of normal activity level (or volume) in which there is a specific relationship between the level of activity (or volume) and a given cost For example, fixed costs are considered
fixed only within the relevant range.
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3) Manufacturing Costs
Direct materials—acquisition costs of all materials that will become part of the cost object.
Direct labor—compensation of all manufacturing labor that can be traced to the cost object.
Indirect manufacturing—factory costs that are not traceable to the product in an economically feasible way. Examples include lubricants, indirect manufacturing labor, utilities, and supplies. Includes indirect labour Office, security, and management salaries Payroll fringe benefits Rework labour Idle time – wages related to unproductive time Overtime premium - – wages paid in excess of regular
wage rate
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4) Product and Period Costs
Product (Inventoriable) costs—product manufacturing costs. These costs are capitalized as assets (inventory) until they are sold and transferred to Cost of Goods Sold.
Period costs—have no future value and are expensed in the period incurred(i.e., all costs other than Cost of Goods Sold).
Inventories: Raw materials—resources in-stock and available for use Work-in-process (or progress)—products started but not
yet completed, often abbreviated as WIP Finished goods—products completed and ready for sale
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5) Controllable and Uncontrollable Costs (chpt 16)
Assessing controllability of costs assists in performance measurement and evaluation
Controllable costs costs over which a manger has influence
Uncontrollable costs costs over which a manger has no
influence
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6) Prevention and Appraisal Costs (chpt 19)
Prevention Costs
Support activities whose purpose is to
reduce the number of defects
Appraisal Costs
Incurred to identify defective products
before the products are shipped
Internal Failure Costs
Incurred as a result of identifying defects
before they are shipped
External Failure Costs
Incurred as a result of defective products being delivered to
customers
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7) Other Cost Classifications (chpt 11)
Opportunity cost - benefit foregone Sunk cost - cannot be changed by future
decisions Differential cost- difference between two
decisions Marginal cost - cost of one additional unit Committed costs - long-term obligations, difficult
to change in the short term. Discretionary costs – costs that can be changed
in the short term