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 used. 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 anizing 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
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