W02 interactive Presentation: Chapter 01-1

Costs are assigned to cost objects for a variety of purposes:

1) pricing
2) preparing profitability studies
3) controlling spending

A cost object
1) is a term used primarily in cost accounting to describe something to which costs are
assigned
2) any item for which cost data is desired is called cost object.

Direct cost
- is a cost that can be easily and conveniently traced to a specified cost object.
For example:
1) Nike assigns costs to its various regional and national sales offices, then the salary of the
sales manager in its Paris office would be a direct cost of that office.
2) Adventure Holidays sells thousands of tour packages each month through its branches. A
branch manager's salary would be a direct cost of the branch.

Indirect cost
- is a cost that cannot be easily and conveniently traced to a specified cost object. 
For example:
1) Nike factory may produce dozens of varieties of footwear and other apparel. The factory
manager's salary would be an indirect cost of a particular variety such as basketball shorts.
2) Adventure Holidays sells thousands of tour packages each month through its branches. A
branch manager's salary would be an indirect cost of generating a particular lead.

Common cost (indirect cost)

- is a cost incurred to support a number of cost objects but cannot be traced to them
individually.

Particular cost (direct or indirect cost)

- depending on the cost object.
Manufacturing cost
- Direct Materials
- Direct Labor
- Manufacturing Overhead

Product costs = Manufacturing cost

- involved in acquiring or making a product.
- Attach(附上) to units of product as the goods are purchased or manufactured, and
they remain attached as the goods go into inventory awaiting sale.
- are initially(最初) assigned to an inventory account on the balance sheet.
For example, the inventory amount for GM shown in the partial balance sheet includes
finished automobiles among other items such as raw materials. When the cars are sold, the
costs are released from inventory as expenses and matched against sales revenue.

* The matching principle*

is based on the accrual concept that costs incurred to generate a particular revenue should be
recognized as expenses in the same period that the revenue is recognized.

Direct Materials
- those materials can become an integral part of the finished product and the costs can
be conveniently traced to the finished product.
For example, a car seat or an engine can be traced to a car.

Direct Labor = Touch Labor

- It consists of labor costs that can be easily traced to individual units of a product.
For example, assembly-line workers at General Motors, carpenters at the home builder KB
Home, and electricians who install equipment on aircrafts at Boeing.

Indirect Materials
- those materials are minor items would include or use in the production.
- they are as part of manufacturing overhead.
For example, the glue will use in the production of a car.

Indirect Labor
- It cannot be physically traced(追溯) to particular products or that can be traced only at
great cost and inconvenience.
- it would be either impractical (不切實際) or impossible to accurately trace their costs
to specific units of a product.
- It is treated as a part of manufacturing overhead.
For example, janitors, supervisors, materials handlers, and night security guards.

Manufacturing Overhead
- It includes all cost except direct materials and direct labor.
- only costs associated with operating the factory are included in manufacturing
overhead. 
For example, indirect materials, indirect labor, and other factory cost. (maintenance and
repairs on production equipment, heat and light, depreciation, and insurance on
manufacturing facilities)
Raw Materials (Direct Materials and Indirect Materials)
 - The materials that go into the final product.
- Including natural resources (wood, Iron), finished product of a company (specialty
steel)

Prime Cost
- is the sum of direct materials cost and direct labor cost.

Conversion cost
-  sum of direct labor cost and manufacturing overhead cost.
Nonmanufacturing costs = selling, general, and administrative costs, or SG&A.
- Selling costs
- Administrative cost

Period Costs = Nonmanufacturing costs

- are simply all the costs that are not product costs.
- All selling and administrative expenses are treated as period costs.
For example, sales commissions, advertising, executive salaries, public relations, and the
rental costs of administrative offices are all period costs. \
- are expensed on the income statement in the period in which they are incurred using
the usual rules of accrual accounting. (the period in which a cost is incurred is not
necessarily the period in which cash changes hands.)
- the cost of advertising for a particular car is expensed in the same year and not carried
forward to a future period. 
For example, if GM pays cash for office supplies such as printer paper in year one, the entire
amount is not considered an expense of the year in which the payment is made. Instead, part
of the cost is recognized as an expense each year. The reason is that both years benefit from
the supplies. They are expensed when used. The unused portions of the supplies are carried
on the balance sheet as an asset called Supplies.

Selling Cost (銷售成本)

- are incurred to secure(ensure) customer orders and get the finished product to the
customer. 
For example, selling costs for General Motors might include advertising, shipping, sales
travel, sales commissions, sales salaries, and costs of car warehouses.

Administrative costs (行政成本)
- associated with the general management of an organization rather than with
manufacturing or selling.
For example, executive compensation, general accounting, secretarial work, public relations,
and similar costs involved in the overall general administration of the organization as a
whole.