Int. Acc. MA LECT 1: Cost terms and purposes part 2 (Revenue costs…
Int. Acc. MA LECT 1: Cost terms and purposes part 2
EXAMPLE: Salaries paid to marketing personnel and monthly rent paid for administrative offices.
Include those specific selling and marketing activities to generate revenue/ associated with a sale
Revenue costs are recorded as expenses in the accounting period when they are incurred
EXAMPLE: Acquisition of computer equipment
First: Computer equipment is recorded as an asset (capital)
Second: Recording depreciation expense for those periods assumed to benefit from the use
--> Difference between costs and expenses
=are first recorded as an asset and then incurred as an expense.
Total costs and unit costs
The ‘units’ may be expressed in various ways
(also called an
cost) is computed by dividing some amount of cost total by some number of units.
Within this relevant range: all fixed costs such as rent, equipment depreciation, and administrative salaries remain fixed.
is the volume of activity, over which the cost in question is fixed.
Costs related to a cost object
: Chocolate bars
Number of chocolate bars, labour costs (labour hours), material costs (kg’s of cocoa, milk powder)
Example: Relationship between costs, cost object and cost drivers
any factor that affects costs. A change in the cost driver will cause a change in the total cost of a related cost object. Any one cost object almost always has numerous cost drivers.
Cost behavior patterns
do not change in total for a given time period despite wide changes in the related level of total activity or volume.
change in total in proportion to changes in the related level of total activity or volume.