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  • Cost Concepts

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    Marijobel L. Sanggalang
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    This document discusses basic cost management concepts. It defines cost as the sacrifice made to achieve a purpose, usually measured in resources given up. There are two types of costs: product costs, which are eventually recognized as cost of goods sold, and period costs, which are expenses charged as incurred, such as selling, marketing, administration, and R&D costs. Costs are reported on the balance sheet or income statement depending on whether they are product or period costs. The document also discusses cost drivers, variable vs fixed costs, responsibility accounting, and other cost types such as opportunity, sunk, differential, marginal, and average costs.

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    This document discusses basic cost management concepts. It defines cost as the sacrifice made to achieve a purpose, usually measured in resources given up. There are two types of costs: product costs, which are eventually recognized as cost of goods sold, and period costs, which are expenses charged as incurred, such as selling, marketing, administration, and R&D costs. Costs are reported on the balance sheet or income statement depending on whether they are product or period costs. The document also discusses cost drivers, variable vs fixed costs, responsibility accounting, and other cost types such as opportunity, sunk, differential, marginal, and average costs.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    7 views17 pages

    Cost Concepts

    Uploaded by

    Marijobel L. Sanggalang
    This document discusses basic cost management concepts. It defines cost as the sacrifice made to achieve a purpose, usually measured in resources given up. There are two types of costs: product costs, which are eventually recognized as cost of goods sold, and period costs, which are expenses charged as incurred, such as selling, marketing, administration, and R&D costs. Costs are reported on the balance sheet or income statement depending on whether they are product or period costs. The document also discusses cost drivers, variable vs fixed costs, responsibility accounting, and other cost types such as opportunity, sunk, differential, marginal, and average costs.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    Basic Cost Management

    Concepts
    What is cost?
    sacrifice made, usually measured by the resources given up, to achieve a particular
    purpose
    Two types of costs as to timing of recognition

    Product costs Period costs


    • Costs assigned to goods • All costs that are not product
    manufactured or purchased for costs
    resale • Charged to expense as incurred
    • Eventually recognized as ‘cost of Selling and marketing expenses
    goods sold’ General administrative expenses
    • Also called “inventoriable costs” Research and development
    expenses
    Two types of costs as to timing of recognition
    Two types of costs as to timing of recognition

    Product costs Balance Sheet

    Income
    Statement

    Period costs
    Two types of costs as to timing of recognition

    Product costs

    Period costs
    Costs on Financial Statements
    Service industry Manufacturing/Retail industry
    Manufacturing costs
    Manufacturing costs

    Prime costs Conversion costs


    Manufacturing cost flow
    Cost Drivers
    • Activities that cause costs to be incurred
    • Consider the extent to which a cost or pool of costs varies in
    accordance with the cost driver.
    • The higher the correlation, the more accurate will be the resulting
    understanding of cost behavior.
    Cost Drivers
    Variable vs. Fixed costs
    Responsibility Accounting
    Cost object
    an entity, such as a particular product, service, or department to which
    a cost is assigned

    Direct Indirect
    • A cost that can be traced to a • A cost that is not directly
    particular cost object traceable to a particular cost
    object
    Responsibility Accounting
    Controllable Uncontrollable

    • Costs that a manager can control • Costs that a manager cannot


    or heavily influence influence significantly
    Other Cost types
    Opportunity costs

    Sunk costs

    Differential costs

    Marginal costs

    Average costs

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