Summary
Summary FBS222 - Chapter 2 - Basic Managerial Accounting Concepts
Comprehensive summary of basic managerial accounting concepts (chapter 2), adapted from the book, Cornerstones of Managerial account. ISBN: 3542
[Show more]
Connected book
Book Title:
Author(s):
- Edition:
- ISBN:
- Edition:
Content preview
FBS 222 Chapter 2Basic Managerial Accounting Concepts
MEANING & USES OF COST
• Determine the cost of products, services, customers and other items to
managers.
Cost
• Amount of cash/cash equivalent sacrificed for goods and/or services that bring
current or future benefit to the organisation.
• All costs are used up in producing/generating revenues, they are said to
expire.
o Expired costs are called expenses.
• Profit = revenues – expenses.
• The revenue per unit is called price.
Accumulating costs
• The way that costs are measured and recorded.
• E.g. Phone bill recorded as accounts payable and telephone expense account.
Assigning costs
• The way that a cost is linked to some cost object.
• Tells company why the money was spent.
Cost objects
• Item (product, service, customer, department etc.) for which costs are
measured and assigned.
• Something for which the company wants to know the cost.
• E.g. Nedbank wants to determine cost of a platinum credit card, the cost
object is the platinum credit card.
KAYLA HUMPHRIES
, FBS 222 Chapter 2
ASSIGNING COSTS TO COST OBJECTS
• Can be assigned in a number of ways.
• Choice of method depends on a number of factors, such as the need for
accuracy.
• Objective = to measure and assign costs as well as possible, given management
objectives.
DIRECT COSTS
• Costs that can be easily and accurately traced to a cost object.
• When a cost is easy to trace, the relationship between cost and cost object:
o Can be physically observed
o Is easy to track
o Results in more accurate cost assignments
INDIRECT COSTS
• Costs that cannot be easily and accurately traced to a cost object.
• Allocation means an indirect cost is assigned to a cost object by using a
reasonable and convenient allocation method/basis.
• Also referred to as overhead or support costs.
ASSIGNING INDIRECT COSTS:
o Done by using allocation = indirect cost assigned to cost object using a
reasonable and convenient method.
o Based on convenience/assumed causal linkage.
o Needed to determine value of inventory and cost of goods sold.
OTHER CATEGORIES OF COST
• Costs can be analysed by a way in which cost changes when the level of
output changes.
o Variable cost: Increases in total as output increases and decreases in
total as output decreases.
▪ Company making more jeans, need more denim.
o Fixed cost: Does not increase in total as output increases and does not
decrease in total as output decreases.
▪ Property taxes stay the same regardless of jeans output.
o Opportunity cost: Benefit given up/sacrificed when one alternative is
chosen over another.
KAYLA HUMPHRIES
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller kaylahumphries. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R50,00. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
72042 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy summaries for 14 years now