1、CHAPTER 2An Introduction to Cost Terms and PurposesBasic Cost Terminology Cost sacrificed resource to achieve a specific objective Actual Cost a cost that has occurred Budgeted Cost a predicted cost Cost Object anything of interest for which a cost is desiredBasic Cost Terminology Cost Accumulation
2、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 ob
3、jectDirect and Indirect Costs Direct Costs（直接计入成本）be conveniently and economically traced(tracked)to a cost object Indirect Costs（间接计入成本）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 man
4、nerCost Examples Direct Costs Parts Assembly line wages Indirect Costs Electricity Rent Property taxesDirect SpecificIndirect-CommonDirect and Indirect Costs Several factors affect the classification of a cost as direct or indirect:The materiality of the cost in question Available information-gather
5、ing technology Design of operations Contractual arrangements The direct/indirect classification depends on the choice of the cost object.Direct and Indirect Costs The direct/indirect classification depends on the choice of the cost object.Example:Lee Xin Nutritious Food Ltd.Packaged Chicken Spicy Ch
6、icken&Lemon Chicken Packaged Duck Baked Duck&Pickled Duck Etc Both chicken and duck are raw materials for the two products.Direct and Indirect Costs The direct/indirect classification depends on the choice of the cost object.If spicy chicken and pickled duck are the cost objects,chicken and duck are
7、 _ cost.However,If packaged chicken and packaged duck are the cost objects,chicken and duck are _ cost.Cost Behavior(成本性态)Variable Costs（变动成本）changes in total in proportion to changes in the related level of activity or volume Fixed Costs（固定成本）remain unchanged in total regardless of changes in the r
8、elated level of activity or volume Costs are fixed or variable only with respect to a specific activity or a given time periodCost Behavior Variable costs are constant on a per-unit basis.If a product takes 5 pounds of materials each,it stays the same per unit regardless of whether one,ten,or a thou
9、sand units are produced Fixed costs change inversely with the level of production.As more units are produced,the same fixed cost is spread over more and more units,reducing the cost per unitCost Behavior*Formulate the total and unit variable cost,and total and unit fixed cost respectively based on t
10、he Cost Theory that you have learned in Microeconomics.Cost Behavior SummarizedTotal DollarsCost per UnitVariable CostsChange in proportion with outputMore output=More costUnchanged in relation to outputFixed CostsUnchanged in relation to outputChange inversely with outputMore output=lower cost per
11、unitTotal DollarsCost per UnitVariable CostsChange in proportion with outputMore output means More costUnchanged in relation to outputFixed CostsUnchanged in relation to outputChange inversely with outputMore output means lower cost per unitTotal Costs and Unit Costs A unit cost(also called an avera
12、ge cost)is computed by dividing some amount of cost total by some number of units.The units may be expressed in various ways:Hours worked Packages delivered Bicycles assembledTotal Costs and Unit Costs What is the unit cost(leasing and handlebars)when Metairie Bicycles assembles 1,000 bicycles?Total
13、 fixed cost$94,500+Total variable cost$52,000=$146,500$146,500/1,000=$146.50Total Costs and Unit Costs Total costs($000)$146.5$94.5 0 1,000 VolumeUse Unit Costs Cautiously Assume that Metairie Bicycles management uses a unit cost of$146.50(leasing and handlebars).Management is budgeting costs for di
14、fferent levels of production.Use Unit Costs Cautiously What is their budgeted cost for an estimated production of 600 bicycles?600*$146.50=$87,900 What is their budgeted cost for an estimated production of 3,500 bicycles?3,500*$146.50=$512,750Use Unit Costs Cautiously What should the budgeted cost b
15、e for an estimated production of 600 bicycles?Total fixed cost$94,500 Total variable cost($52*600)=31,200 Total$125,700$125,700/600=$209.50 Using a cost of$146.50 per unit would underestimate actual total costs if output is below 1,000 units.Use Unit Costs Cautiously What should the budgeted cost be
16、 for an estimated production of 3,500 bicycles?Total fixed cost$94,500 Total variable cost(52*3,500)=182,000 Total$276,500$276,500/3,500=$79.00Use Unit Costs Cautiously Using a cost of$146.50 per unit instead of$79.00 would overestimate actual total costs if output is above 1,000 units.For decision
17、making,managers should think in terms of total costs rather than unit costs.A Cost Caveat Unit costs should be used cautiously.Since unit costs change with a different level of output or volume,it may be more prudent to base decisions on a total dollar basis.Relationships of Types of CostsDirectIndi
18、rectVariableFixedOther Cost Concepts a variable that causally affects costs over a given time span(Explained in CH5)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(Explained in CH 10)For example,fixed cost
19、s are fixed only within the relevant range.Different Types of Firms Manufacturing-sector companies create and sell their own products Merchandising-sector companies product resellers Service-sector companiesTypes of Inventories Direct Materials resources instock and available for use Work-in-Process
20、(or progress)products started but not yet completed.Often abbreviated as WIP Finished Goods products completed and ready for saleTypes of Product Costs Direct Materials Direct Labor Indirect Manufacturing factory costs that are not traceable to the product.Also known as Manufacturing Overhead costs
21、or Factory Overhead costsDistinctions Between Costs 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 as incurredCost Flows The Cost of Goods Man
22、ufactured and the Cost of Goods Sold section of the income statement are accounting representations of the actual flow of costs through a production system.Note the importance of inventory accounts in the following accounting reports,and in the cost flow chartCategories of Inventory Categories of In
23、ventory:Categories of Inventory:Categories of Inventory:Problem for Self-StudyProblem for Self-StudyCost FlowchartOther Cost Considerations is a term referring to all direct manufacturing costs(labor and materials)is a term referring to direct labor and factory overhead costs,collectively Prime&conv
24、ersion cost will be discussed in Chapter 17&18(process costing system).Overtime labor costs are considered part of overheadDifferent Definitions of Cost for Different Applications Pricing and product-mix decisions may use a“super”cost approach(comprehensive)Contracting with government agencies very
25、specific definitions of cost for“cost plus profit”contracts Preparing external-use financial statements GAAP-driven product costs onlyThree Common Features of Cost Accounting and Cost Management Calculating the cost of products,services,and other cost objects Obtaining information for planning and control,and performance evaluation Analyzing the relevant information for making decisions
