7/26/2019 Lesson Plan 02 - Cost Terminology and Cost Behaviors

1/3

Cost terminology and cost behaviors

Cost refects the monetary measure o resources used to attain anobjective (making a good or perorming a service).

Unexpired cost (balance sheet) value o the goods not yet

consumed (asset). xpired cost (income statement) portion o the asset!s value

consumed or sacri"ced during the period (expense).

xercise #o. $%

Cost management system set o ormal methods developed orplanning and controlling an organi&ation!s cost'generating activitiesrelative to its strategies goals and objectives.

Cost object anything or hich management ants to collect or

accumulate costs. *irect cost conveniently and economically traceable to the cost

object.

+ndirect cost cannot be economically traced to the cost object

but instead are allocated to the cost object.

,elevant range assumed ranged o activity that refects thecompany!s normal operating range.

-ariable cost cost that varies in total proportionately ithactivity.

ixed cost cost that remains constant in total ithin therelevant range o activity.

/ixed cost cost that has both variable and "xed component.

0tep cost shits upard or donard hen activity changes by

a certain interval or step.

xercise #o. %1 %2 %3

Cost predictor an activity that hen changed is accompanied by aconsistent observable change in a cost item.

Cost driver a predictor that has an absolute cause'and'e4ectrelationship to a cost.

xercise #o. %5

6roduct cost related to making or ac7uiring the products or providingthe services that directly generates revenue.

7/26/2019 Lesson Plan 02 - Cost Terminology and Cost Behaviors

2/3

*irect materials any material that can be directly traced to aproduct.

*irect labor time spend by individuals ho ork speci"cally on

manuacturing a product or perorming a service.

8verhead actory costs that cannot be classi"ed as either direct

materials or direct labor.o +ndirect materials

o +ndirect labor

o 8ther actory overhead

xercise #o. $2 $3 $9 $5 $:

;uality cost cost o controlling 7uality or cost o ailing tocontrol 7uality.

o 6revention cost incurred to improve 7uality by precluding

product deects and improper processing rom occurring.o >3

,a materials inventory cost o ra materials purchased not issuedto production.

7/26/2019 Lesson Plan 02 - Cost Terminology and Cost Behaviors

3/3

?ork in process inventory cost o partially completed materialsstarted during the period but remained un"nished at the end o theperiod.

inished goods inventory cost o goods "nished and ready or sale.

xercise #o. >2

Cost allocation assignment o an indirect cost to one or more costobject using some reasonable allocation cost or driver.

@o determine to ull cost o the cost object.

@o motivate the manager in charge o the cost object to manage

it eAciently.

@o compare alternative courses o action or management

planning controlling and decision'making.

=

Cost o goods manuactured total production cost o the goods thatere completed and transerred to "nished goods inventory.

xercise #o. >% >$ >> >1

5 1% 15 1: 2%