2.1 A fee object is anything for which a separate dimension of costs is preferred.

Examples
encompass a product, a service, a project, a client, a logo class, an hobby, and a branch.

2.2 Direct charges of a price item are associated with the precise price object and may be traced to
that fee object in an economically possible (value-effective) way. Indirect prices of a fee object are
associated with the unique cost item however can't be traced to that value item in an economically
viable (cost-powerful) manner. Cost challenge is a wellknown time period that encompasses the
project of both direct expenses and oblique prices to a price item. Direct expenses are traced to a
value item while oblique charges are allotted to a price item.

2.3 Managers agree with that direct costs which might be traced to a selected price object are
greater appropriately assigned to that cost object than are indirect allotted expenses. When costs
are allotted,managers are much less positive whether or not the cost allocation base accurately
measures the assets demanded by a value item. Managers favor to use greater correct prices in their
selections.

2.4 Factors affecting the type of a fee as direct or indirect encompass

 the materiality of the cost in question,

 available facts-gathering generation,
 design of operations

2.5 A variable cost changes in total in percentage to changes in the associated stage of general
pastime or extent. An instance is a income fee that may be a percent of every income sales dollar.

A fixed cost stays unchanged in total for a given term, notwithstanding extensive changes in the
associated level of general hobby or extent. An example is the leasing value of a machine that is
unchanged for a given term (such as a 12 months) irrespective of the variety of gadgets of product
produced at the gadget.

2.6 A price driving force is a variable, along with the extent of hobby or extent, that causally impacts
general expenses over a given time span. A alternate within the fee driver consequences in a
alternate within the level of total prices. For example, the variety of cars assembled is a driving force
of the fees of guidance wheels on a motor-automobile assembly line.

2.7 The relevant variety is the band of regular interest degree or volume wherein there's a particular
courting among the extent of interest or volume and the price in question. Costs are defined as
variable or constant with respect to a particular relevant variety.

2.8 A unit cost is computed by means of dividing a few quantity of general expenses (the numerator)
by means of the associated range of units (the denominator). In many instances, the numerator will
consist of a set value so as to not trade despite changes in the denominator. It is erroneous in those
instances to multiply the unit cost through activity or quantity trade to are expecting changes in
general expenses at special pastime or extent levels.

2.9 Manufacturing-sector companies buy substances and Ashtonnents and convert them into
various finished goods, as an example automotive and fabric companies. Merchandising-quarter
companies purchase after which sell tangible merchandise with out converting their simple shape, as
an example retailing or distribution.Service-area organizations provide services or intangible
products to their customers, as an instance, felony advice or audits.

2.10 Manufacturing companies have one or greater of the subsequent three types of inventory:
  Direct substances stock. Direct substances in inventory and waiting for use inside the

manufacturing technique.

 Work-in-procedure stock. Goods partly labored on but now not but finished. Also

referred to as paintings in development.

 Finished goods stock. Goods completed however now not but bought.

2.11 Inventoriable expenses are all charges of a product which are taken into consideration as
belongings in the balance sheet whilst they are incurred and that end up price of products sold when
the product is offered. These costs are included in work-in-manner and finished items stock (they're
“inventoried”) to accumulate the charges of creating these belongings. Period expenses are all
expenses within the earnings statement other than value of goods bought. These prices are treated
as costs of the accounting duration wherein they may be incurred due to the fact they may be
expected not to benefit future periods (due to the fact there isn't always enough proof to conclude
that such benefit exists). Expensing these charges at once great matches prices to sales.

2.12 Direct cloth prices are the purchase expenses of all materials that eventually grow to be
component of the price item (paintings in technique and then finished items), and can be traced to
the price item in an economically viable manner. Direct production exertions prices include the
reimbursement of all manufacturing exertions that can be traced to the cost item (paintings in
technique and then finished items) in an economically viable manner. Manufacturing overhead fees
are all manufacturing fees which can be associated with the fee item (paintings in manner and then
completed items), but can not be traced to that cost object in an economically viable manner. Prime
expenses are all direct manufacturing expenses (direct fabric and direct production exertions).
Conversion fees are all manufacturing costs apart from direct cloth expenses.

2.13 Overtime top class is the wage price paid to workers (for each direct exertions and oblique
labor) in extra in their directly-time salary charges. Idle time is a subclassification of oblique hard
work that represents wages paid for unproductive time caused by loss of orders, gadget
breakdowns, material shortages, poor scheduling, and the like.

2.14 A product fee is the sum of the expenses assigned to a product for a specific cause.

Purposes for computing a product fee include

 pricing and product blend choices,

 contracting with government organizations, and
 making ready financial statements for external reporting beneath commonly common
accounting concepts.

2.15 Three commonplace features of price accounting and value control are:

 calculating the costs of merchandise, offerings, and other cost objects

 obtaining records for planning and manipulate and performance evaluation
 studying the applicable records for making choices
2.16 (1)

Supreme Deluxe Regular Total

Direct material cost $ 89.00 $ 57.00 $60.00 $206.00
Direct manuf. labor 16.00 26.00 8.00 50.00
costs
Manufacturing 48.00 78.00 24.00 150.00
overhead costs
Total manuf. Costs 153.00 161.00 92.00 406.00

Fixed costs allocated 4.80 7.80 2.40 15.00

at a rate of $15M
÷$50M (direct mfg.
labor) equal to $0.30
per dir. manuf. labor
dollar (0.30 × $16;
26; 8)

Variable costs $148.20 $153.20 $89.60 $391.00

Units produced 125 150 140
(millions)
Cost per unit (Total $1.2240 $1.0733 $0.6571
manuf. costs ÷ units
produced)
Variable manuf. cost $1.1856 $1.0213 $0.6400
per unit (Variable
manuf. costs ÷ Units
produced)

(2)

Supreme Deluxe Regular Total

Based on total manuf. $183.60 $203.93 $144.56 $532.09

cost per unit ($1.2240 ×
150; $1.0733 × 190;
$0.6571 ×220)
Correct total manuf.
costs based on variable
manuf. costs plus fixed
costs equal
Variable costs ($1.1856 $177.84 $194.05 $140.80 $512.69
× 150; $1.0213 × 190;
$0.64 × 220)
Fixed costs 15.00
Total costs $527.69
The total manufacturing cost per unit in requirement 1 includes $15 million of indirect
manufacturing costs that are fixed irrespective of changes in the volume of output per month, while
the remaining variable indirect manufacturing costs change with the production volume. Given the
unit volume changes for August 2011, the use of total manufacturing cost per unit from the past
month at a different unit volume level (both in aggregate and at the individual product level) will
overestimate total costs of $532.09 million in August 2011 relative to the correct total
manufacturing costs of $527.69 million calculated using variable manufacturing cost per unit times
units produced plus the fixed costs of $15 mil.

2.17

(1)

Yeast – direct, variable

Flour- direct, variable

Packaging materials –direct (or could be indirect if small and not traced to each unit), variable
Depreciation on ovens –indirect, fixed (unless “units of output” depreciation, which then would be
variable)

Depreciation on mixing machines–indirect, fixed (unless “units of output” depreciation, which then
would be variable)

Rent on factory building – indirect, fixed Fire Insurance on factory building–indirect, fixed

Factory utilities – indirect, probably some variable and some fixed (e.g. electricity may be variable
but heating costs may be fixed)

Finishing department hourly laborers – direct, variable (or fixed if the laborers are under a union
contract)

Mixing department manager – indirect, fixed Materials handlers –depends on how they are paid. If
paid hourly and not under union contract, then indirect, variable. If salaried or under union contract
then indirect, fixed

Custodian in factory –indirect, fixed Night guard in factory –indirect, fixed

Machinist (running the mixing machine) –depends on how they are paid. If paid hourly and not
under union contract, then indirect, variable. If salaried or under union contract then indirect, fixed

Machine maintenance personnel – indirect, probably fixed, if salaried, but may be variable if paid
only for time worked and maintenance increases with increased production

Maintenance supplies – indirect, variable

Cleaning supplies – indirect, most likely fixed since the custodians probably do the same amount of
cleaning every night
 (2)

If the cost object is Mixing Department, then anything directly associated with the Mixing
Department will be a direct cost. This will include:

 Depreciation on mixing machines

 Mixing Department manager
 Materials handlers (of the Mixing Department)
 Machinist (running the mixing machines)
 Machine Maintenance personnel (of the Mixing Department)
 Maintenance supplies (if separately identified for the Mixing Department)

Of course the yeast and flour will also be a direct cost of the Mixing Department, but it is already a
direct cost of each kind of bread produced.