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Summary management and cost accounting 7'th edition

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A snapshot of the summary - management and cost accounting 7'th edition

  • 2 cost terms and purposes

  • What is the relevant range? What role does the relevant range concept play in explaining how costs behave?
    --
  • 2.1 costs in general and cost object

  • When given a cost objective how to we define 'cost'?
    We classify this as a resource sacrifice/used to achieve a given objective (eg. a bike or a service)
  • Given a cost objective, what is 'actual cost' and how is it different from bugdet cost?
    An actual cost is the historical/ past cost that are in your statement. The bugdet cost is a estimate cost made.
  • A cost system typically accounts for cost in to basic stages. 1 of them being cost accumulation, explain
    This is a natural classification of cost like material, labour, fuel, advertising or shipping (collection of cost data)
  • A cost system typically accounts for cost in to basic stages. 1 of them being cost assignment, explain
    Is when you assign costs to cost object. is a general term that encompasses both (1) tracing accumulated costs to a cost object, and (2) allocating accumulated costs to a cost object. Costs that are traced to a cost object are direct costs, and costs that are allocated to a cost object are indirect costs.
  • 2.2.1 cost tracing and cost allocation

  • A major question concerning costs is whether they have a direct or an indirect relationship to a particular cost object.
    explain direct cost?
    This is cost that can be easily and conveniently be traced to to a unit of product or other cost objects.
    ex. Direct material and direct labour.
    the figure show the relationship
  • Give an example of inderect material ( this is MOH)
    Wages paid to employees who are not directly involved in production work.
    Examplesmaintenance workers, cleaners and security guards.
  • 2.2.2 factors affecting direct/indirect cost classification

  • Many factors have influence on how costs are classified. Give as many examples as you can.
    • Does it concern a physical object
    • Availability of information
    • Design of production facility
    • Contract and agreements

     AND depends on the cost object analyzed
  • 2.3 cost drivers and cost management

  • Every man hour (costdriver) used for machine maintenance cost $100 (cost rate). If we use 10 hours we know that the cost is $100 x 10 = $1.000,-
    The challenge is to calculate the costdriver ! How do we know that the true cost is $100? We take the salary, but what about other personel costs like holiday payments, training, administration, breaks, absence etc..?

    given the information, what would you say a cost driver is and what do we use it for?
    this is anything that have an effect on total cost (also called cost determinant or cost generator)
    • Used to allocate the activity cost you cannot trace directly to the cost object
    • The Allocation rate (cost driver) used as a standard rate to calculate the cost of the activity related to the product
    • This ‘rate’ is multiplied with the number of activities per product
  • What is value-added activities. Has it anything to do with management or custumers?
    This is activities costumers perceive as adding value to a product or service they purchase.
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