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Int. Acc. MA LECT 1: Cost terms and purposes part 2 (Cost driver (any…
Int. Acc. MA LECT 1: Cost terms and purposes part 2
Cost behavior patterns
Variable costs
change in total in proportion to changes in the related level of total activity or volume.
Fixed costs
do not change in total for a given time period despite wide changes in the related level of total activity or volume.
Cost driver
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.
Example: Relationship between costs, cost object and cost drivers
Costs related to a cost object
: Chocolate bars
Cost drivers:
Number of chocolate bars, labour costs (labour hours), material costs (kg’s of cocoa, milk powder)
Relevant range
is the volume of activity, over which the cost in question is fixed.
Within this relevant range: all fixed costs such as rent, equipment depreciation, and administrative salaries remain fixed.
Total costs and unit costs
A
unit cost
(also called an
average
cost) is computed by dividing some amount of cost total by some number of units.
The ‘units’ may be expressed in various ways
SLIDE 25/45
Capitalized costs
=are first recorded as an asset and then incurred as an expense.
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
Revenue costs
Revenue costs are recorded as expenses in the accounting period when they are incurred
Include those specific selling and marketing activities to generate revenue/ associated with a sale
EXAMPLE: Salaries paid to marketing personnel and monthly rent paid for administrative offices.