Cost classification

Cost Classifications Chapter 2

Classification of cost ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Classification of cost contd…. ,[object Object],[object Object],[object Object],[object Object],[object Object]

Elements of Costs The Product Materials Labour Expense

Direct Materials ,[object Object],Example: A radio installed in an automobile

Indirect Material ,[object Object],Example: indirect materials Materials used to support the production process. Examples: lubricants and cleaning supplies used in the automobile assembly plant.

Direct Labor ,[object Object],Example: Wages paid to automobile assembly workers

Indirect Labour ,[object Object],Examples: Indirect labor Wages paid to employees who are not directly involved in production work. Examples: maintenance workers, janitors and security guards.

Expense ,[object Object],[object Object],[object Object],[object Object]

By Function Marketing and Selling Cost Costs necessary to get the order and deliver the product. Administrative Cost All executive, organizational, and clerical costs.

Direct Costs and Indirect Costs ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Cost Classifications for Predicting Cost Behavior ,[object Object],[object Object],[object Object]

A Cell Phone Bill…. ,[object Object],[object Object],[object Object],[object Object]

Variable Cost Per Unit ,[object Object],DATA COST Per KB Used Per KBs used Per Minute Telephone Charge

Total Variable Cost ,[object Object],DATA used Total DATA COST on your Cell phone Bill

Total Fixed Cost ,[object Object],NTT DoCoMo's wristwatch-style cellphone Number of Local Calls Monthly Basic Telephone Bill

Fixed Cost Per Unit ,[object Object],Number of Local Calls Monthly Basic Telephone Bill per Local Call

Cost Classifications for Predicting Cost Behavior

Quick Check  Variable/Fixed Costs ,[object Object],[object Object],[object Object],[object Object],[object Object]

Quick Check  Variable/Fixed Costs ,[object Object],[object Object],[object Object],[object Object],[object Object],The royalties on ticket sales is directly related to the number of tickets sold. The cost of cleaning up MAY also be variable if the theater pays cleaning crews by the hour. The more tickets sold would increase the time it would take to clean up the theater.

Classification of cost contd…. Controllability Controllable cost Uncontrollable cost

Classification of cost contd…. Normality Normal cost Abnormal cost

Classification of cost contd…. Time Historical cost Predetermined cost

Classification of cost contd…. Planning & Control Standard cost Budgeted Cost

Product Costs Versus Period Costs ,[object Object],[object Object]

Quick Check  Period vs. Product Costs ,[object Object],[object Object],[object Object],[object Object],[object Object]

Differential Costs and Revenues ,[object Object],Example: You have a job paying $1,500 per month in your hometown. You have a job offer in a neighboring city that pays $2,000 per month. The commuting cost to the city is $300 per month. Differential revenue is: $2,000 – $1,500 = $500 Differential cost is: $300

Quick Check  - Relevant Costs ,[object Object],[object Object],[object Object]

Quick Check  Relevant Costs ,[object Object],[object Object],[object Object]

Quick Check  Relevant Costs ,[object Object],[object Object],[object Object],Depreciation that is a function of miles driven would be relevant. Depreciation that is a function of the passage of time would not be relevant.

Opportunity Costs ,[object Object],Example: If you were not attending college, you could be earning $15,000 per year. Your opportunity cost of attending college for one year is $15,000.

Sunk Costs ,[object Object],Example: You bought an automobile that cost $10,000 two years ago. The $10,000 cost is sunk because whether you drive it, park it, trade it, or sell it, you cannot change the $10,000 cost.

Quick Check  Sunk Costs ,[object Object],[object Object],[object Object]

Cost classification

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