1 / 9

Cost terms, Concepts and Classifications

Cost terms, Concepts and Classifications. Topic Two by Dr. Ong Tze San tzesan@econ.upm.edu.my. Variable and Fixed Cost. Variable cost is a cost that varies in total in direct proportion to changes in activity.

janina
Download Presentation

Cost terms, Concepts and Classifications

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Cost terms, Concepts and Classifications Topic Two by Dr. Ong Tze San tzesan@econ.upm.edu.my

  2. Variable and Fixed Cost • Variable cost is a cost that varies in total in direct proportion to changes in activity. • Fixed cost is a cost that remains constant in total within the relevant range of activity

  3. Cost Objects • A cost object is any activity for which a separate measurement of cost is required (e.g. cost of making a product or providing a service).

  4. Direct costs Costs that can beeasily and conveniently traced to a unit of product or other cost object. Examples: direct material and direct labor E.g. Wood to make furniture, hours worked on project, flour to make cake. Indirect costs Costs that cannot be easily and conveniently traced to a unit of product or other cost object. Example: manufacturing overhead E.g. rent of a factory that make cars/furniture, manager’s salary. Direct and Indirect Costs

  5. Cost Drivers • A cost driver is an activity or occurrence that has a direct cause-effect relationship with a cost. • E.g. Production volume (units) has a direct effect on the total cost of raw materials used. • A change in production volume causes a similar change in the cost of raw materials

  6. Control and Uncontrollable costs • Controllable costs are those costs that can be saved by not adopting a given alternative. • Uncontrollable costs are those costs that cannot be saved. • Example: send a salesman to Penang for business trip. Alternatives available: drive or fly. Controllable costs: petrol/air ticket Uncontrollable costs: salary, insurance

  7. PrimeCost ConversionCost Manufacturing Costs Manufacturing costs are oftenclassified as follows: DirectMaterial DirectLabor ManufacturingOverhead

  8. Marketing or Selling Cost Administrative Cost Costs necessary to get the order and deliver the product. All executive, organizational, and clerical costs. Non-manufacturing Costs

  9. Product costs include direct materials, direct labor, and manufacturing overhead. Period costs include all marketing or selling costs and administrative costs. Inventory Expense Cost of Good Sold Sale BalanceSheet IncomeStatement IncomeStatement Product Costs Versus Period Costs

More Related