Essay About Cost Accounting And Categories Of Cost

Cost Accounting: Chapter 2
COST ACCOUNTING: Chapter 25 categories of cost:relevance (opportunity costs are for the future, so relevant. sunk costs are irrelevant)behavior (fixed costs = stay the same ie. Airplane lease. Variable costs change i.e gasoline price vs. distance) traceability (cost object is a way we measure cost. i.e. time, production level, etc.) function (direct cost= pilot, indirect cost = ground crew) (manufacturing cost- product. Non-manufacturing cost- period.)controllability (direct labour and materials = prime cost, direct labour and manufacturing overhead = conversion cost) relevant range: the span of activity for a given cost object. The fixed and variable both stay constant, but operate at a lager span. Ie. Adding routes to air Canada, need to add gates and employees etc. so now they are operating at a diff range. (can happen where as the range increases, the pricing goes down per unit) marginal costs: are the costs of creating one additional good or service. Variable costs predict marginal costs (within the range) this is an increase in the gross revenue of a place aka they’re making back the money the spent to make that item. What are the different types of cost behavior?Variable costs: changes that change with the activity levelFixed costs: do not change with change in activity such a production, sales, etc. IE. Rent, insurance, don’t change even if you make 5 more bikes. But it doesn’t change if you make 600 more bikes because they need more space, FIXED COSTS usually change in a step-wise manner on a graph. (can also be called constant, or committed) Fixed costs are fixed because they are unavoidable, example is an electric bill.. it is a fixed cost but the cost varies based on usage. Discretionary costs are decisions made for the year (for example) about how much you will spend on advertising, marketing, travel etc. they can be altered. Cost estimation techniques Engineered estimates of costs: costs are assigned by analyzing time management, labour, production, materials etc. Analysis at account level: reviewing patterns and past cost projections to determine if the cost is a variable or fixed, SALARY is usually fixed and wages are too unless they are not full time then they are variable. Sometimes we cant decide on a cost function so we use a scatter plot to determine the relationship between a cost and its driver.