Académique Documents
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McGraw-Hill/Irwin
Cost
A measurement, In monetary terms, Of the amount of resources used for some purpose.
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Cost Object
Product, project, organizational unit, or other activity or purpose for which costs are measured. Can be defined broadly or narrowly.
E.g., an entire production run of jeans vs. one pair of jeans.
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Full Cost
All the resources used for a cost object. Includes:
Direct production costs. Indirect production costs. Selling cost. General and administrative cost.
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Direct Costs
Costs specifically traced to (caused by) the cost object. E.g., denim cloth used in jean manufacturing.
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Indirect Costs
Costs associated with (or caused by) two or more cost objects jointly. Not possible or feasible to trace directly to a single cost object. Terms direct and indirect are only meaningful in context of a specific cost object (i.e., can change as cost object(s) change).
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Overhead Costs
All other production costs. Indirect production costs.
Indirect materials. Indirect labor. Utilities. Maintenance. Depreciation. Insurance. Taxes. Etc.
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Nonproduction Costs
Also known as period costs. Includes:
Selling costs.
Marketing (order-getting) costs. Logistics (order-filling) costs.
General and administrative costs. Research and development costs. Interest costs.
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Summary
Full cost:
Production costs.
Direct materials. Direct labor. Overhead.
Nonproduction costs.
Selling cost. General and administrative cost. Research and development costs. Interest costs.
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2. 3.
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Overhead Account
Clearing account (i.e., temporary holding account). Increased (debit) by incurrence of overhead costs (e.g., usage of indirect materials, incurrence of indirect labor costs, factory utilities cost, depreciation cost on factory assets, etc.). Decreased (credit) when costs are applied to the product(s) being produced (i.e., placed into Work in Process Inventory).
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Nonmanufacturing Companies
Merchandising companies.
Since cost of goods sold is invoice cost, only requires simple system (relative to manufacturing company).
Service organizations.
Cost object is job (e.g., patient in a hospital, vehicle in a auto repair shop, client for an law office. Job cost record kept for each job. Cost record serves as work in process inventory account.
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Nonprofit Organizations
E.g., healthcare, educational, performing arts, government. Cost object is programs not products. Similar cost accounting practices to profit organizations.
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Abandonment costs.
Incurred after product is discontinued and doesnt produce significant revenues. Disposal of plant and equipment, severance costs, restoring polluted land.
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Analysis of profitability.
Entire business and parts of the business (e.g., product, product line, plant, division, sales territory, etc.).
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