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ACCTING 338 | Week 1 Notes: Overview of Cost Accounting

by: Sarah

ACCTING 338 | Week 1 Notes: Overview of Cost Accounting ACCT 338

Marketplace > Washington State University > Accounting > ACCT 338 > ACCTING 338 Week 1 Notes Overview of Cost Accounting
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About this Document

First week of notes with illustration.
Cost Accounting
Bernard Wong-On-Wing
Class Notes
Cost accounting, ACCT338, Accounting, WSU




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This 5 page Class Notes was uploaded by Sarah on Thursday January 14, 2016. The Class Notes belongs to ACCT 338 at Washington State University taught by Bernard Wong-On-Wing in Winter 2016. Since its upload, it has received 23 views. For similar materials see Cost Accounting in Accounting at Washington State University.

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Date Created: 01/14/16
Week 1: Overview of Cost Accounting  What is a cost? o A resource given up to achieve a given object o Non-business cost examples: time, social status, etc.  How is cost measured? (don’t just focus on the dollar amount) o Scope (cost of maintenance, operations, etc.) o Short term vs. long term o Financial and nonfinancial measures o Quantitative vs. qualitative  What is the purpose of measuring costs? o To determine a cost benefit analysis  What are some business examples of cost objectives? o Maintenance, overhead, depreciation, employees, etc.  ASSETS: Inventory  Matching Concept  EXAMPLE: *why we measure costs in business  This is a classic case of financial fraud* Purchase 1 laptop = $1,000 (box = $400 + laptop $600) Balance Sheet – Assets Income Statement – Expenses Inventory $1,000 Sales $800 COGS $1,000 $600 GM ($200)  To facilitate decision making (make or buy)  To assist in planning and controlling (budgeting, performance evaluation, etc.)  To determine value of cost objects for inventory and COGS needed to prepare financial statements Focus of this course: why do we measure costs?  Different purposes require different cost classification (more in ch2) o Future vs. sunk o Opportunity cost o Variable vs. fixed o Differential vs. non-differential  For valuing inventory and determining COGS classified o Product (manufacturing) vs. period (nonmanufacturing)  Product Cost: all costs necessary for the manufacturing of products; inventoried until products are sold (materials, labor, etc. manufacturing OH)  All costs are inventoried until sold, then expensed in period sold (see matching principle, first on BS then on IS)  Period Cost: non-product costs expensed in period incurred (selling expense and administrative costs (ex: sales commission, advertising, etc.)  All period costs are expensed in period incurred NOT when the product is sold 2  Must distinguish asset vs. expense  Main problem with assignment of costs to products & services o Direct cost: cost is easily traced to object (computer chips) o Indirect costs: cost cannot easily be traced to object (rent, salaries, etc.)  EX: friends going out for dinner. Main course = direct cost. Shared appetizers may be indirect costs.  Criteria for cost allocation o Cause & Effect  you use, therefore you pay (closer to DCs) o Benefits Received  more benefits = pay more | super bowl commercial, pay based on increase and sales and which branch or location of the company benefited more. o Fairness  similar to benefits received o Ability to Bear  company with most profit pays the most o Convenience divide equally because that’s the easiest option.  Costs vs. benefit of allocation method o Cost of implementing allocation method vs. accuracy of cost allocation  Hiring someone to measure drink consumption if you split a pitcher with friends  Ketchup packets costing extra in Europe and free in the US 3 4


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