Cost Management Concepts and Cost Behavior.doc

Cost Management Concepts and Cost Behavior
Cost Management Concepts and Cost Behavior
Chapter 3
Learning Objective 1
Why the appropriate derivation of a cost depends on how the cost will be used3>.
What Does Cost Mean?
There is no single definition of cost.
Why?
Costs are developed and used for some specified purpose.
The way the cost is to be used will define the way it should puted.
What Does Cost Mean?
There are different systems anizing costs.
Organizing costs when the purpose is pute the cost of something
Organizing costs based on the way they are created
What Does Cost Mean?
Three terms are important when the purpose of costing is pute the cost of something.
A cost object is something for which a separate cost puted.
What are some examples?
a product
a product line
What Does Cost Mean?
anizational unit
a vacation
A direct cost is a cost of resources or activity that is acquired for, or used by, a single cost object.
What are some examples?
material
labor
What Does Cost Mean?
An indirect cost is the cost of a resource that was acquired to be used by more than one cost object.
What are some examples?
machinery used to manufacture different products
rent
Learning Objective 2
The difference between flexible costs and capacity-related costs and why the difference is important.
Flexible Resources
Costs can be described in terms of how they arise.
Flexible resources costs are proportional to the amount of the resource used.
What are some examples?
wood
fuel
Flexible Resources
The cost of flexible resources are called flexible costs.
Flexible costs are always direct costs.
When it is not feasible to treat flexible costs as direct, they are treated as indirect costs.
What is an example of flexible indirect costs?
glue
Capacity Resources
Capacity-related resources are resources that are acquired and paid for in advance of when the work is done.
Capacity-related costs are the costs associated with capacity-related